第一三共（4568） – Consolidated Financial Results for Year Ended March 31, 2022

Consolidated Financial Results for Year Ended March 31, 2022 (Fiscal 2021) April 27, 2022 Listed company name: Daiichi Sankyo Company, Limited Listed exchange: First Section of the Tokyo Stock Exchange Stock code number: 4568 URL: https://www.daiichisankyo.com Representative: Dr. Sunao Manabe, Representative Director, President and CEO. Contact: Mr. Kentaro Asakura, Vice President of Corporate Communications Department Telephone: +81-3-6225-1125 Scheduled date of Ordinary General Meeting of Shareholders: June 27, 2022 Scheduled date of dividend payments: From June 28, 2022 Scheduled date of Annual Securities Report filing: June 27, 2022 Preparing supplementary material (Reference Data) on financial results: Yes Holding information meeting: Yes (for institutional investors, analysts and the press) 1. Consolidated Financial Results for Year Ended March 31, 2022 (1) Consolidated Financial Results (All amounts have been rounded down to the nearest million yen.) Revenue Operating profit Profit before tax Profit for the year Millions of yen % Millions of yen % Millions of yen % Millions of yen % (Percentages indicate changes from the previous fiscal year.) 1,044,892 8.6 73,025 73,516 (0.8) 66,972 (11.7) 14.5 962,516 (2.0) 63,795 (54.0) 74,124 (47.5) 75,830 (41.2) Profit attributable to owners of the Company Total comprehensive income Basic earnings per share Diluted earnings per share Millions of yen % Millions of yen % Yen Yen 66,972 (11.8) 130,292 13.3 75,958 (41.2) 114,982 13.2 34.91 39.11 34.94 39.17 7.0 6.6 Return on equity attributable to owners of the Company Ratio of profit before tax to total assets Ratio of operating profit to revenue % % % 5.1 5.9 3.4 3.5 Reference: Share of profit or loss of investments accounted for using the equity method: Year ended March 31, 2022: Year ended March 31, 2021: 129 million yen 168 million yen Year ended March 31, 2022 Year ended March 31, 2021 Year ended March 31, 2022 Year ended March 31, 2021 Year ended March 31, 2022 Year ended March 31, 2021 Note: Effective Thursday, October 1, 2020, Daiichi Sankyo Company, Limited (hereinafter, “Daiichi Sankyo” or “the Company”) implemented a three-for-one share split of its ordinary shares. “Basic earnings per share” and “Diluted earnings per share” are calculated as if the share split had taken place at the beginning of the year ended March 31, 2021. (2) Consolidated Financial Position Total assets Total equity Equity attributable to owners of the Company Ratio of equity attributable to owners of the Company to total assets Equity per share attributable to owners of the Company Millions of yen Millions of yen Millions of yen % Yen As of March 31, 2022 As of March 31, 2021 2,221,402 1,350,872 1,350,872 2,085,178 1,272,053 1,272,053 60.8 61.0 704.76 663.85 Note: Effective Thursday, October 1, 2020, Daiichi Sankyo implemented a three-for-one share split of its ordinary shares. “Equity per share attributable to owners of the Company” is calculated as if the share split had taken place at the beginning of the year ended March 31, 2021. (3) Consolidated Cash Flows Net cash flows from operating activities Net cash flows from investing activities Net cash flows from financing activities Cash and cash equivalents at the end of year Millions of yen Millions of yen Millions of yen Millions of yen 139,226 192,207 212,339 (86,231) (39,246) (202,433) 662,477 380,547 Year ended March 31, 2022 Year ended March 31, 2021 2. Dividend Annual dividend per share First quarter Second quarter Third quarter Fiscal year-end Total Total dividend (Total) Dividend payout ratio (Consolidated) Yen Yen Yen Yen Yen Millions of yen Year ended March 31, 2021 Year ended March 31, 2022 Year ending March 31, 2023 (Forecast) – – – 40.50 13.50 13.50 – – – 13.50 – 52,132 13.50 27.00 51,752 13.50 27.00 62.4 Note: Effective Thursday, October 1, 2020, Daiichi Sankyo implemented a three-for-one share split of its ordinary shares. The dividend for the end of the second quarter of the year ended March 31, 2021, presents the amount prior to the share split. The annual dividend per share for the year ended March 31, 2021 is not stated because the amounts cannot be simply combined due to the implementation of the share split. When calculated based on the assumption of no share split, the annual dividend per share is ¥81 for the year ended March 31, 2021. For further details, please refer to “1. Results of Operations (4) Basic Policy on Profit Distribution and Dividend for the Years Ended March 31, 2022 and Ending March 31, 2023” on page 14. Ratio of dividend to equity attributable to owners of the Company (Consolidated) % 4.0 3.9 % 68.9 77.3 3. Forecast of Consolidated Financial Results for Year Ending March 31, 2023 (Percentages indicate changes from the same period in the previous fiscal year.) Revenue Operating profit Profit before tax Core operating profit Profit for the year Profit attributable to owners of the Company Basic earnings per share Millions of yen % Millions of yen % Millions of yen % Millions of yen % Millions of yen % Millions of yen % Yen 10.1 1,150,000 Full year Note: Daiichi Sankyo Group is disclosing Core operating profit as an indicator of its recurring profitability, excluding one-time income and expenses from Operating profit. For the definition of Core operating profit, please refer to “1. Results of Operations (1) Operating Results for Year ended March 31, 2022 1) Overview” on page 2. 43.8 105,000 15.9 105,000 42.8 83,000 105,000 83,000 23.9 23.9 43.30 *Notes (1) Changes in significant subsidiaries during the period (changes in specified subsidiaries resulting in a change in scope of consolidation): No (2) Changes in accounting policies and changes in accounting estimates 1) Changes in accounting policies required by IFRS: No 2) Changes in accounting policies due to other reasons: No 3) Changes in accounting estimates: No (3) Number of ordinary shares issued 1) Number of shares issued at the end of the period (including treasury shares) 2) Number of treasury shares at the end of the period As of March 31, 2022 As of March 31, 2021 As of March 31, 2022 As of March 31, 2021 3) Average number of shares during the period Year ended March 31, 2022 Year ended March 31, 2021 1,947,034,029 shares 2,127,034,029 shares 30,247,523 shares 210,868,203 shares 1,916,602,512 shares 1,939,343,390 shares Note: Effective Thursday, October 1, 2020, Daiichi Sankyo implemented a three-for-one share split of its ordinary shares. “Number of ordinary shares issued” is calculated as if the share split had taken place at the beginning of the year ended March 31, 2021. (Reference) Non-Consolidated Financial Results for Year Ended March 31, 2022 (1) Non-Consolidated Financial Results Net sales Operating income Ordinary income Net income Millions of yen % Millions of yen % Millions of yen % Millions of yen % (Percentages indicate changes from the previous fiscal year.) 754,007 7.6 10,157 (74.4) 47,688 (43.6) 39,273 701,000 5.4 39,652 146.5 84,543 70.0 81,002 (51.5) (27.3) Basic net income per share Diluted net income per share Yen Yen 20.49 41.77 20.47 41.71 Note: Effective Thursday, October 1, 2020, Daiichi Sankyo implemented a three-for-one share split of its ordinary shares. “Basic net income per share” and “Diluted net income per share” are calculated as if the share split had taken place at the beginning of the year ended March 31, 2021. (2) Non-Consolidated Financial Position Total assets Net assets Equity ratio Net assets per share Millions of yen Millions of yen % Yen 1,638,011 1,589,239 930,266 947,766 56.7 59.6 484.90 494.07 As of March 31, 2022: As of March 31, 2021: 929,444 million yen 946,727 million yen Note: Effective Thursday, October 1, 2020, Daiichi Sankyo implemented a three-for-one share split of its ordinary shares. “Net assets per share” is calculated as if the share split had taken place at the beginning of the year ended March 31, 2021. Year ended March 31, 2022 Year ended March 31, 2021 As of March 31, 2022 Year ended March 31, 2021 As of March 31, 2022 As of March 31, 2021 Reference: Equity: * This financial results report is not subject to audit procedures by Certified Public Accountants or audit firm *Disclaimer regarding forward-looking information including appropriate use of forecast financial results The forecast information included in these materials is based on information currently available and certain assumptions that the Company regards as reasonable. Actual performance and results may differ from those forecast due to various factors. Please see “1. Results of Operations (3) Future Outlook” on page 13 for matters related to the above forecasts. Attached Material Index 1. Results of Operations …………………………………………………………………………………………………………………………… 2 (1) Operating Results for Year ended March 31, 2022 ……………………………………………………………………………….2 (2) Analysis of Financial Position as of March 31, 2022 …………………………………………………………………………. 11 (3) Future Outlook ……………………………………………………………………………………………………………………………..13 (4) Basic Policy on Profit Distribution and Dividend for the Years Ended March 2022 and Ending March 2023 …………………………………………………………………………………………………………………………………………….14 (5) Prospective Challenges …………………………………………………………………………………………………………………..15 (6) Strategic Targets and Forward-Looking Statements ……………………………………………………………………………19 2. Matters Relating to Corporate Governance ……………………………………………………………………………………………. 20 (1) Systems and Policies on Corporate Governance ………………………………………………………………………………..20 (2) Basic Policy regarding Moves toward Large-Scale Acquisition of Company’s Stock ……………………………..27 3. Rationale for the Selection of Accounting Standards ………………………………………………………………………………. 28 4. Consolidated Financial Statements with Primary Notes …………………………………………………………………………… 29 (1) Consolidated Statement of Financial Position ……………………………………………………………………………………29 (2) Consolidated Statement of Profit or Loss and Consolidated Statement of Comprehensive Income …………..31 (3) Consolidated Statement of Changes in Equity …………………………………………………………………………………..33 (4) Consolidated Statement of Cash Flows …………………………………………………………………………………………….35 (5) Notes to Consolidated Financial Statements ……………………………………………………………………………………..37 Going Concern Assumption ……………………………………………………………………………………………………………37 Operating Segment Information ………………………………………………………………………………………………………37 Earnings per Share …………………………………………………………………………………………………………………………39 Subsequent Events …………………………………………………………………………………………………………………………39 1 1. Results of Operations (1) Operating Results for Year ended March 31, 2022 1) Overview [Consolidated Financial Results] (Millions of yen; all amounts have been rounded down to the nearest million yen.) Year ended March 31, 2021 Year ended March 31, 2022 YoY change Revenue Cost of sales* Selling, general and administrative expenses* Research and development expenses* Core operating profit* Temporary income* Temporary expenses* Operating profit Profit before tax Profit attributable to owners of the Company 962,516 337,751 318,468 227,442 78,853 557 15,615 63,795 74,124 75,958 1,044,892 348,036 352,125 254,124 90,605 3,912 21,492 73,025 73,516 66,972 82,375 8.6% 10,284 3.0% 33,656 10.6% 26,682 11.7% 11,751 14.9% 3,354 602.1% 5,876 37.6% 9,230 14.5% -608 -0.8% -8,985 -11.8% 15,310 13.3% Total comprehensive income 114,982 130,292 * Daiichi Sankyo Group is disclosing core operating profit, which excludes temporary income and expenses from operating profit, as an indicator of ordinary profitability. Temporary income and expenses include gains/losses on sale of non-current assets, gains/losses associated with business restructuring (excluding gains/losses on sales of developed products and products on the market), impairment losses on property, plant and equipment, intangible assets, and goodwill, compensation for damages or settlement, and non-recurring and large gains/losses. This table shows the actual results of cost of sales, selling, general and administrative expenses, and research and development expenses, exclusive of temporary income and expenses. The adjustment table from operating profit to core operating profit is stated in the reference data. USD/Yen EUR/Yen Year ended March 31, 2021 Year ended March 31, 2022 106.06 123.70 (Yen) 112.38 130.56 2 a. Revenue year, to ¥1,044.9 billion. – Revenue in the year ended March 31, 2022 (fiscal 2021) increased by ¥82.4 billion, or 8.6% year on – Revenue increased year on year due to the achieved growth with global mainstay products such as Lixiana (generic name: edoxaban) and Enhertu (generic name: trastuzumab deruxtecan, T-DXd/DS-8201) and others. – The positive effect on revenue from foreign exchange was ¥28.7 billion in total. b. Core operating profit – Core operating profit increased by ¥11.8 billion, or 14.9% year on year, to ¥90.6 billion. – Cost of sales increased only by ¥10.3 billion, or 3.0% year on year, to ¥348.0 billion due to an improvement in cost-to-sales ratio as a result of a change in the product mix, despite an increase in revenue. – Selling, general and administrative expenses increased by ¥33.7 billion, or 10.6%, to ¥352.1 billion due to the cost increase by an increase in profit sharing with AstraZeneca pertaining to Enhertu. – Research and development expenses increased by ¥26.7 billion, or 11.7%, to ¥254.1 billion, mainly due to increased R&D investment in 3ADCs (trastuzumab deruxtecan, datopotamab deruxtecan: Dato-DXd/DS-1062 and patritumab deruxtecan: HER3-DXd/U3-1402). – The positive effect on core operating profit from foreign exchange was ¥3.9 billion in total. c. Operating profit – Operating profit increased by ¥9.2 billion, or 14.5% year on year, to ¥73.0 billion. – The amount of increase in operating profit decreased compared to core operating profit due to increased temporary expenses by the record of the environmental measures costs of the former Yasugawa factory and others. d. Profit before tax – Profit before tax decreased by ¥0.6 billion, or 0.8% year on year, to ¥73.5 billion. e. Profit attributable to owners of the Company – Profit attributable to owners of the Company decreased by ¥9.0 billion, or 11.8% year on year, to ¥67.0 billion. – Because deferred tax assets increased due to increased future taxable income amount, income taxes accounted negative in the previous fiscal year. As a result of the increase of income taxes rate compared to the previous fiscal year by this effect etc., profit decrease rate was higher than profit before tax. 3 f. Total comprehensive income – Total comprehensive income increased by ¥15.3 billion, or 13.3% year on year, to ¥130.3 billion. – Total comprehensive income increased due to improvement in the currency translation difference pertaining to net assets of overseas subsidiaries, despite a worsening in the valuation difference on financial assets. [Revenue by Business Unit] Revenue by business unit in the fiscal 2021 is as follows. In addition, revenue by product is stated in the reference data. a. Japan Business Unit – Revenue from Japan Business Unit includes revenue generated by the innovative pharmaceuticals business, the vaccine business and revenue from products generated by the generic pharmaceutical business of Daiichi Sankyo Espha Co., Ltd. – Revenue from the Unit was ¥489.5 billion, approximately the same level as the previous fiscal year due to growth in sales of Lixiana, Tarlige, Enhertu, Emgality and others, despite the impact of NHI drug price revision, decline in sales of Nexium which was terminated co-promotion and decline in sales of Memary caused by generic entries following the loss of exclusivity, and others. The following describes the major progress in the fiscal 2021. In April 2021, the migraine prevention drug Emgality was launched. In May 2021, adalimumab biosimilar, a fully human anti-TNF-α monoclonal antibody, was launched. In August 2021, a supplemental application was approved for partial changes in usage and dosage for Lixiana tablets 15 mg and Lixiana OD tablets 15 mg. In August 2021, a collaborative agreement was concluded to commercialize REYVOW in Japan for the treatment of migraines. In November 2021, Delytact oncolytic virus G47Δ was launched. In December 2021, a supplemental application was approved for partial changes in usage and dosage for antiplatelet agents Efient 3.75 mg Tablets and Efient 2.5 mg Tablets. In January, 2022, approval was gained for manufacturing and marketing of REYVOW for the treatment of migraines*1. In March 2022, a supplemental application was approved for partial changes in indication for pain treatment Tarlige. *1 The approval was gained by Eli Lilly Japan, with whom Daiichi Sankyo concluded a reverse co-promotion agreement. b. Daiichi Sankyo Healthcare Unit – Revenue from Daiichi Sankyo Healthcare Unit decreased by ¥2.5 billion, or 3.7% year on year, to ¥64.7 billion caused by decline in sales of the drugs for common cold such as Lulu. – – – – – – – – 4 c. Oncology Business Unit – Revenue from Oncology Business Unit includes revenue from products generated by Daiichi Sankyo, Inc. (the U.S.) and revenue generated from cancer treatment products sold by Daiichi Sankyo Europe GmbH. – Revenue from the Unit increased by ¥22.2 billion, or 46.9% year on year, to ¥69.6 billion due to increase of Enhertu in the U.S. and Europe. Revenue in local currency terms increased by US$173 million, or 38.7%, to US$619 million. d. American Regent Unit – Revenue from American Regent Unit increased by ¥27.7 billion, or 22.8% year on year, to ¥149.5 billion due to an increase in sales of Injectafer and others affected by the spread of COVID-19 in the previous fiscal year. Revenue in local currency terms increased by US$182 million, or 15.9%, to US$1,330 million. e. EU Specialty Business Unit – Revenue from EU Specialty Business Unit includes revenue from products other than from cancer treatment products generated by Daiichi Sankyo Europe GmbH. – Revenue from the Unit increased by ¥16.6 billion, or 14.9% year on year, to ¥128.2 billion due to steady growth in sales of Lixiana. Revenue in local currency terms increased by EUR80 million, or 8.8%, to EUR982 million. f. ASCA Business Unit – Revenue from ASCA*2 Business Unit includes sales to overseas licensees. – Revenue from the Unit increased by ¥14.5 billion, or 14.5% year on year, to ¥114.1 billion due to increase of olmesartan and others in China. The following describes the major progress in the fiscal 2021. In April 2021, Esperion’s bempedoic acid, the hypercholesterolemia treatment, was licensed in for Asia and South America. In March 2022, an agreement was concluded to transfer the rights to manufacture and commercialize Cravit preparations in China and all of our equity interest in Daiichi Sankyo Pharmaceutical (Beijing) Co., Ltd. to YaoPharma Co., Ltd. *2 Asia, South & Central America 2) Status of R&D – The Daiichi Sankyo Group (hereinafter, “the Group”) is working on research and development including active collaboration with the outside in accordance with the “3 and Alpha” Strategy, which intensively allocates resources to 3ADCs*1 for maximizing their product values, and aims to deliver medicines that change SOC*2 for realization of sustainable growth (Alpha). In addition, the Group focuses on accelerating global clinical development. In the medium to long term, the Group aims to develop therapeutic drugs for various diseases in addition to oncology by utilizing its competitive science and technology, and strives to strengthen drug discovering capabilities by technology research of new modalities*3. *1 Antibody Drug Conjugate: Drug composed of an antibody drug and a payload (a small molecule drug) linked via appropriate linker. By using a monoclonal antibody that binds to a specific target 5 – – – expressed on cancer cells, a cytotoxic payload is delivered to cancer cells effectively with reducing systemic exposure. *2 Standard of Care: Universally applied best treatment practice in today’s medical science. *3 New medical treatment such as ADC, nucleic acid drugs, viruses for treatment, and cell therapy. 【3ADCs】 The following describes the Group’s clinical development of 3ADCs projects in the fiscal 2021. The status of each clinical trial is stated in the reference data. a. Trastuzumab deruxtecan (T-DXd/DS-8201: HER2-directed ADC, brand name: Enhertu) – The product is marketed under the brand name Enhertu. Daiichi Sankyo is jointly developing Enhertu with AstraZeneca, a company with a wealth of global experience in oncology. The following describes the major progress in the fiscal 2021. – – – – – – – – – – – – In June 2021, data was presented at the 2021 American Society of Clinical Oncology (ASCO) from the Phase Ib/II clinical trial for patients with triple negative breast cancer (TNBC) (trial name: BEGONIA) and the Phase II clinical trial for the third line treatment for patients with HER2 expressing colorectal cancer (trial name: DESTINY-CRC01). In June 2021, a Phase III clinical trial for the first line treatment for patients with HER2-positive breast cancer (trial name: DESTINY-Breast09) was initiated. In June 2021, the top line results (the outline of trial results) of the Phase II clinical trial for the second line treatment for patients with HER2-positive gastric cancer (trial name: DESTINY-Gastric02) were obtained. In June 2021, the top line results of the Phase II clinical trial for the second or later line treatment for patients with HER2-overexpressing or HER2 mutant, non-small cell lung cancer (NSCLC) (trial name: DESTINY-Lung01) were obtained. In July 2021, a Phase III clinical trial for the second line treatment for patients with HER2-positive gastric cancer (trial name: DESTINY-Gastric04) was initiated. In August 2021, the primary endpoint in interim analysis of the Phase III clinical trial for the second line treatment for patients with HER2-positive breast cancer (trial name: DESTINY-Breast03) was achieved, and Real-Time Oncology Review (RTOR*4) designation was obtained from the U.S. Food and Drug Administration (FDA). In September 2021, a Phase II clinical trial for the third line treatment for patients with HER2-positive gastric cancer (trial name: DESTINY-Gastric06) was initiated in China. In September 2021, data was presented at the European Society for Medical Oncology Congress 2021 (ESMO Congress 2021) from the Phase II clinical trial for the third line treatment for patients with HER2-positive breast cancer (trial name: DESTINY-Breast01), the DESTINY-Breast03 clinical trial, the DESTINY-Gastric02 clinical trial, and the DESTINY-Lung01 clinical trial. In October 2021, Breakthrough Therapy Designation*5 was obtained from the FDA for the second or later line treatment for patients with HER2-positive breast cancer. In November 2021, the Type II Variation application for the second line treatment for patients with HER2-positive gastric cancer was validated by the European Medicines Agency (EMA). In November 2021, a Phase III clinical trial for neoadjuvant therapy for patients with HER2-positive early-stage breast cancer (trial name: DESTINY-Breast11) was initiated. In December 2021, the analysis results of the DESTINY-Breast03 clinical trial for patient subgroups with brain metastases were presented at the 2021 San Antonio Breast Cancer Symposium (#SABCS2021) in the U.S. 6 – – – – – – – – – – – In December 2021, a supplemental new drug application was submitted in Japan and the Type II Variation application was validated by the EMA for the second line treatment for patients with HER2-positive breast cancer. In December 2021, a Phase III clinical trial for the first line treatment for patients with HER2 mutant NSCLC (trial name: DESTINY-Lung04) was initiated. In January 2022, a supplemental new drug application was accepted in the U.S. for the second line treatment for patients with HER2-positive breast cancer. In February 2022, the primary endpoint of the Phase III clinical trial for patients with HER2 low expressing metastatic breast cancer (trial name: DESTINY-Breast04) was achieved. In March 2022, the application for approval was accepted in China for the second line treatment for patients with HER2-positive breast cancer. *4 The Real-Time Oncology Review (RTOR) program aims to explore a more efficient review process to ensure that safe and effective treatments are available to patients as early as possible. Under the program, the FDA allows for accelerated screening of large amounts of data prior to an applicant formally submitting the complete application. *5 The Breakthrough Therapy Designation is designed to expedite the development and review of medicines that may demonstrate substantial benefit over currently available treatments in order to ensure that patients with serious diseases have access to new treatments as soon as possible. b. Datopotamab deruxtecan (Dato-DXd/DS-1062: TROP2-directed ADC) – Daiichi Sankyo is jointly developing the product with AstraZeneca, a company with a wealth of global experience in oncology. The following describes the major progress in the fiscal 2021. In May 2021, data was presented at the European Society for Medical Oncology Breast Cancer Virtual Congress 2021 (ESMO Breast Cancer 2021) for TNBC patients in the Phase I clinical trial for solid tumors (trial name: TROPION-PanTumor01). In June 2021, data was presented at the 2021 American Society of Clinical Oncology (ASCO) for NSCLC patients in the TROPION-PanTumor01 clinical trial. In September 2021, data was presented at the 2021 World Conference on Lung Cancer (WCLC) and the European Society for Medical Oncology Congress 2021 (ESMO Congress 2021) for NSCLC patients in the TROPION-PanTumor01 clinical trial. In October 2021, an agreement was entered into with Merck & Co., Inc. to conduct a Phase III clinical trial for the first line treatment for NSCLC patients to evaluate the combination with pembrolizumab, the immune checkpoint inhibitor (trial name: TROPION-Lung08). In November 2021, a Phase III clinical trial for the second line treatment for patients with hormone receptor-positive, HER2-negative metastatic breast cancer (trial name: TROPION-Breast01) was initiated. In December 2021, data was presented at the 2021 San Antonio Breast Cancer Symposium (#SABCS2021) in the U.S. for TNBC patients in the TROPION-PanTumor01 clinical trial. – In March 2022, the TROPION-Lung08 clinical trial was initiated. c. Patritumab deruxtecan (HER3-DXd/U3-1402: HER3-directed ADC) The following describes the major progress in the fiscal 2021. – In June 2021, data was presented at the 2021 American Society of Clinical Oncology (ASCO) from the Phase I clinical trial for patients with epidermal growth factor receptor (EGFR)-mutated NSCLC. 7 – – – – – – – – – – – – – – – – In June 2021, a Phase I clinical trial was initiated to evaluate the combination with osimertinib, a tyrosine kinase inhibitor, in patients with EGFR-mutated NSCLC. In December 2021, Breakthrough Therapy Designation was obtained from the FDA for patients with metastatic EGFR-mutated NSCLC. 【Alpha】 The following describes the major progress in clinical development of Alpha projects in the fiscal 2021. The status of each clinical trial is stated in the reference data. In April 2021, a Phase I/II clinical trial for DS-1594 (Menin-MLL interaction inhibitor) was initiated for patients with acute myeloid leukemia (AML) and acute lymphocytic leukemia. In April 2021, a Phase II clinical trial for pexidartinib (PLX3397: CSF-1R inhibitor, brand name in the U.S.: Turalio) was initiated in Japan for patients with tenosynovial giant cell tumor. In April 2021, a Phase I clinical trial for DS-6016 (anti-ALK2 antibody) was initiated for patients with fibrodysplasia ossificans progressiva. In May 2021, a supplemental new drug application was submitted for the pain agent mirogabalin (DS-5565: α2δ ligand, brand name: Tarlige) for an additional indication related to central neuropathic pain in Japan. In June 2021, approval for manufacturing and marketing in Japan was received for the oncolytic virus teserpaturev (DS-1647: G47Δ, brand name: Delytact). In June 2021, data was presented at the annual congress of the European Hematology Association (EHA) from the Phase I clinical trial of valemetostat (DS-3201: EZH1/2 dual inhibitor) for patients with non-Hodgkin lymphoma. In June 2021, a Phase II clinical trial of valemetostat was initiated for patients with relapsed/refractory peripheral T-cell lymphoma (PTCL) and adult T-cell leukemia-lymphoma (ATL) (trial name: VALENTINE-PTCL01). In June 2021, a Phase I clinical trial for VN-0200 (RS virus vaccine) was initiated with healthy Japanese adults including elderly individuals. In August 2021, the primary endpoint of the ENVISAGE-TAVI AF clinical trial involving the anticoagulant edoxaban (brand name: Lixiana) for patients with atrial fibrillation (AF) who have undergone transcatheter aortic valve implantation (TAVI) was achieved, and results were presented at the European Society of Cardiology Congress 2021 (ESC Congress 2021). In September 2021, data was presented at the European Society for Medical Oncology Congress 2021 (ESMO Congress 2021) from the Phase I/II clinical trial of DS-7300 (B7-H3-directed ADC) for solid tumors. In November 2021, the primary endpoint of the Phase III clinical trial of quizartinib (AC220: FLT3 inhibitor, brand name in Japan: Vanflyta) for the first line treatment for patients with AML (trial name: QuANTUM-First) was achieved. In December 2021, data was presented at the meeting of the American Society of Hematology (ASH) from the Phase II clinical trial of valemetostat in Japan for relapsed/refractory ATL patients for the treatment of ATL, Orphan Drug Designation*6 was obtained from Japan’s Ministry of Health, Labour and Welfare (MHLW), and an application for manufacturing and marketing in Japan was submitted. In December 2021, Orphan Drug Designation*7 for valemetostat was obtained from the FDA for the treatment of PTCL. In February 2022, a Phase I clinical trial for DS-7011 (anti-TLR7 antibody) was initiated for patients with systemic lupus erythematosus. 8 *6 A system under which designation is granted in order to support and expedite development under the conditions that there are fewer than 50,000 patients in Japan and there is a particularly high medical need for it. *7 A system under which designation is granted in order to support and expedite development for medicines intended for the treatment, diagnosis or prevention of rare diseases or disorders that affect fewer than 200,000 people in the U.S. 【Other】 In March 2022, in order to further strengthen R&D capabilities for sustainable growth, Daiichi Sankyo optimized resource allocation by the termination of the R&D function of Plexxikon Inc.. 3) Efforts to Address the Novel Coronavirus Infection – Daiichi Sankyo is proactively involved in the establishment of prevention and treatment methods in the fight against COVID-19, for which there is an urgent global social need. The Company is leveraging our research properties, technologies and knowledge to the maximum extent, and through partnerships with other organizations, we are proceeding with the following R&D. a. DS-5670 (COVID-19 mRNA vaccine) – For the prevention of COVID-19, the Company is currently participating in “Fundamental Research on the Control of the Novel Coronavirus (2019-nCoV*1),”*2 an initiative supported by the Japan Agency for Medical Research and Development (hereinafter, AMED). In addition, using novel nucleic acid delivery technology*3 developed in-house, the Company is taking part in a basic research project on a genetic (mRNA) vaccine with the title “Development of a Genetic Vaccine for 2019-nCoV.” – The Company has been selected by the MHLW to be a provider for the Japanese Government’s “Emergent Initiative to Build Production Capacity for COVID-19 Vaccines*4 (First Round)” as well as by AMED to be a company for the AMED’s Drug Discovery Support Program “Development of COVID-19 Vaccines*5 (Second Round).” – The Company is conducting clinical trials in Japan with healthy adults including elderly individuals. *1 2019-nCoV is synonymous with SARS-CoV-2. *2 A vaccine development initiative determined for support by AMED under urgent government-wide efforts against the worldwide spread of COVID-19. *3 Technology focusing on forming lipid nanoparticle structures, stabilizing pharmaceutical active ingredients and delivering nucleic acids into immune cells. Compared to conventional vaccine technology, it has demonstrated to induce a more optimal immune response. *4 The project aims to swiftly develop an actual (large-scale) production system for biologics, including vaccines, in order to ensure that the vaccines necessary for the prevention of the spread and severity of unexpected epidemics, including COVID-19, are produced as soon as possible, and that their supply is secured for the Japanese people. *5 The project aims to support the development of a vaccine against COVID-19, for which R&D is already underway, and aims to ensure the early commercialization of safe and effective vaccines. The following describes the major progress in the fiscal 2021. – In November 2021, a Phase II clinical trial was initiated using a batch of DS-5670 from the optimized manufacturing process to evaluate the safety and determine the recommended dose of DS-5670. 9 In January 2022, Phase I/II/III trials in Japan were initiated for healthy adults including elderly individuals who completed initial doses (1st and 2nd doses) of vaccinations for COVID-19 approved in Japan and more than 6 months have elapsed since the vaccinations. b. DS-2319 (Nafamostat inhalation formulation) – Daiichi Sankyo was carrying out a collaborative R&D on nafamostat inhalation formulation for the treatment of COVID-19 with the University of Tokyo, RIKEN, and Nichi-Iko Pharmaceutical Co., Ltd. The following describes the major progress in the fiscal 2021. In June 2021, the Company decided to discontinue the development of DS-2319 as a result of examining the data of ongoing nonclinical studies and Phase I clinical trial. – – c. Supply of AstraZeneca’s novel coronavirus vaccine, Vaxzevria – Based on the agreement which Daiichi Sankyo entered into with AstraZeneca to manufacture the vaccine, Daiichi Sankyo Biotech Co., Ltd., a subsidiary of the Company, has been manufacturing the vaccine (including vial filling and packaging, etc.) since March 2021. The following describes the major progress in the fiscal 2021. – In June 2021, through the Japanese government, Vaxzevria was supplied to Southeast Asia and other regions. 10 – – – – (2) Analysis of Financial Position as of March 31, 2022 1) Assets, Liabilities and Capital Position Total assets as of the fiscal year-end were ¥2,221.4 billion, an increase of ¥136.2 billion from the previous fiscal year-end, mainly due to increases in cash and cash equivalents and property, plant and equipment, which were partially offset by a decrease in other financial assets (current assets). Total liabilities as of the fiscal year-end were ¥870.5 billion, an increase of ¥57.4 billion from the previous fiscal year-end, mainly due to increases in trade and other payables and other non-current liabilities, which were partially offset by a decrease in bonds and borrowings (non-current liabilities). Total equity as of the fiscal year-end was ¥1,350.9 billion, an increase of ¥78.8 billion from the previous fiscal year-end, mainly because of the profit for the year, which was partially offset by dividend payments. The ratio of equity attributable to owners of the Company to total assets was 60.8%, a decrease of 0.2 points from the previous fiscal year-end. 2) Status of Cash Flows Cash and cash equivalents increased by ¥281.9 billion during the year ended March 31, 2022 to ¥662.5 billion. The cash flow status and the contributing factors are summarized as follows: Cash Flows from Operating Activities – Net cash inflows provided by operating activities totaled ¥139.2 billion (previous year: ¥192.2 billion inflow), besides profit before tax (¥73.5 billion) and non-cash items such as depreciation and amortization (¥58.2 billion), which mainly reflected cash inflows from the receipt of the upfront fee for the strategic collaboration regarding datopotamab deruxtecan. Cash Flows from Investing Activities – Net cash inflows provided by investing activities totaled ¥212.3 billion (previous year: ¥39.2 billion outflow), mainly due to proceeds from maturities of time deposits, which were partially offset by acquisitions of property, plant and equipment and intangible assets. Cash Flows from Financing Activities – Net cash outflows used in financing activities totaled ¥86.2 billion (previous year: ¥202.4 billion outflow), which reflected spending on dividend payments and repayments of borrowings. 11 (Reference) Cash flow-related indicators Principal Cash Flow Indicators Fiscal 2020 Fiscal 2021 Ratio of equity attributable to owners of the Company to total assets (%) Ratio of equity attributable to owners of the Company to total assets (at market value) (%) Interest-bearing debt to cash flow ratio (years) Interest coverage ratio (times) 61.0 296.4 1.03 118.83 60.8 231.2 1.26 91.95 Ratio of equity attributable to owners of the Company to total assets: equity attributable to owners of the Company /total assets Ratio of equity attributable to owners of the Company to total assets (at market value): total market capitalization/total assets Interest-bearing debt to cash flow ratio: interest-bearing debt/cash flows Interest coverage ratio: cash flows/interest paid (Notes) 1. All indicators are calculated on a consolidated basis. 2. Total market capitalization is calculated based on the number of outstanding ordinary shares (net of treasury shares). 3. Cash flows equal the amount of net cash provided by operating activities in the consolidated statement of cash flows less the amounts of “interest paid” and “income taxes paid.” Interest paid equals the “interest paid” included in the consolidated statement of cash flows. 4. Interest-bearing debt includes all liabilities reported on the consolidated statement of financial position which are subject to interest payments. 12 (3) Future Outlook Forecast of Consolidated Financial Results for Year Ending March 31, 2023 (Fiscal 2022) (Millions of yen; all amounts have been rounded down to the nearest million yen.) Fiscal 2021 Fiscal 2022 Amount change Percentage change Revenue Core operating profit* Operating profit Profit before tax Profit for the year Profit attributable to owners of the Company 1,044,892 1,150,000 105,107 90,605 73,025 73,516 66,972 105,000 105,000 105,000 83,000 14,394 31,974 31,483 16,027 66,972 83,000 16,027 10.1 15.9 43.8 42.8 23.9 23.9 * Daiichi Sankyo Group is disclosing core operating profit, which excludes temporary income and expenses from operating profit, as an indicator of ordinary profitability. Temporary income and expenses include gains/losses on sale of non-current assets, gains/losses associated with business restructuring (excluding gains/losses on sales of developed products and products on the market), impairment losses on property, plant and equipment, intangible assets, and goodwill, compensation for damages or settlement, and non-recurring and large gains/losses. For the adjustment table from operating profit to core operating profit, please refer to the reference data. – Regarding revenue, the Company is expecting a 10.1% increase in revenue year on year, to ¥1,150.0 billion by revenue increase from our mainstay products such as Enhertu, Lixiana and Tarlige although there are factors of decrease in revenue such as the NHI drug price revision in Japan and the termination of the sales collaboration for Nexium (September, 2021). – Core operating profit is expected to increase 15.9% to ¥105.0 billion year on year due to the expected increase in gross profit by an increased revenue and an improvement in cost-to-sales ratio as a result of a change in the product mix, despite the expected increase in expenses resulting from the intensive investment in the oncology business, including the increase of profit share payments to AstraZeneca due to increased sales of Enhertu and the expansion of 3ADC development plan, etc.. – Operating profit is expected to increase 43.8% to ¥105.0 billion year on year due to posting the environmental measures costs of the former Yasugawa factory and others as temporary expenses in the previous fiscal year and no plan to make a temporary gains/losses in the fiscal 2022. – Profit for the year and profit attributable to owners of the Company are expected to be ¥83.0 billion each, which is 23.9% increase year on year. – Forecasts are based on assumption of foreign exchange rates at ¥130 against U.S. dollar and ¥140 – The Company assumes that activity restrictions continue due to COVID-19 infections. However, the impact on operating income of the Group is expected to be negligible. against euro. 13 (4) Basic Policy on Profit Distribution and Dividend for the Years Ended March 2022 and Ending March 2023 – In order to secure sustainable growth in corporate value, one of the fundamental business policies of Daiichi Sankyo is to decide profit distributions based on a comprehensive consideration of the investments essential for implementing its growth strategy and returning profits to shareholders. – For the fiscal 2021, based on the above policy, the Company paid an interim dividend of ¥13.5 per share on December 1, 2021. The Company intends to pay a year-end dividend of ¥13.5 per share and an annual dividend of ¥27.0 per share. – For the fiscal 2022, based on the shareholder return policy of 5-Year Business Plan (fiscal 2021 to fiscal 2025)*1, the Company intends to pay an interim dividend of ¥13.5 per share, a year-end dividend of ¥13.5 per share and an annual dividend of ¥27.0 per share. *1 For the shareholder return policy of 5-Year Business Plan (fiscal 2021 to fiscal 2025), please refer to “1. Results of Operations (5) Prospective Challenges” on page 15. 14 (5) Prospective Challenges 1) Daiichi Sankyo’s Value Creation Process and ESG Management – The Group defines ESG management as “management based on a long-term perspective that enhances both financial and non-financial value by reflecting ESG elements in business strategies,” and we are implementing this management. – To meet society’s diverse requirements, we invest a variety of internal and external management resources into the value creation process and provide value to each stakeholder and society with “Science and Technology” as our greatest source of competitive advantage. By circulating the value creation process, we believe to be able to achieve both sustainable growth of the Company, and of society as a whole. – Considering the two aspects of impact on medium- to long-term corporate value and expectations from society, including various stakeholders, we identified eight key issues as our materiality, which we have categorized as materiality on business and materiality on business foundation. Daiichi Sankyoʼs Value Creation Process 2) 2030 Vision – Under ESG management, we newly established our 2030 Vision of being an “innovative global healthcare company contributing to the sustainable development of society.” – To realize our “Purpose,” which is to “contribute to the enrichment of quality of life around the world,” we aim to address the social issues that we are expected by society to solve through our business activities, such as the creation of innovative pharmaceuticals and efforts for achieving the SDGs. We challenge ourselves to continuously provide innovative solutions based on our strength: Science & Technology. 3) 5-Year Business Plan (Fiscal 2021 to Fiscal 2025) – We have established 5-Year Business Plan (fiscal 2021 to fiscal 2025) and four strategic pillars as a plan to achieve our Fiscal 2025 Goal, “Global Pharma Innovator with Competitive Advantage in Oncology” and shift to further growth toward realizing our 2030 Vision, while conducting ESG management. 15 Strategic Pillars for the 5-Year Business Plan (FY2021-FY2025)【Four Strategic Pillars】 a. Maximize 3ADCs – In the 5-Year Business Plan, maximizing 3ADCs (Enhertu, Dato-DXd and HER3-DXd) is our most important materiality. – With regard to Enhertu, we will accelerate market penetration and acquisition of new indications through our strategic collaboration with AstraZeneca. In addition, we will establish advantage over competitive products for HER2, and will firmly establish HER2 low expression concept for the treatment of breast cancer. – As for Dato-DXd, our target is to obtain approval and additional indications as quickly as possible through the strategic collaboration with AstraZeneca. Moreover, we will establish and implement an effective launch plan, and establish advantages over competitive products for TROP2. – For HER3-DXd, we will launch as fast as possible through our in-house development. After having developed and implemented an effective launch plan, we will establish HER3 as a cancer treatment target. In addition to these efforts, we will promote appropriate use of the product through interstitial lung disease (ILD) monitoring and risk analysis, and efficiently and gradually expand the work force and supply capacity depending on changes around the product potential. In the fiscal 2021, Enhertu product sales grew steadily as its share of new patients in target markets expanded in Japan, the US, and Europe. In addition, data showing unprecedented improvement in progression-free survival was obtained in the DESTINY-Breast03 clinical trial for the second line treatment for patients with HER2-positive breast cancer, and applications were filed in Japan, the US, Europe, and China for approval. Also, the primary endpoint was achieved in the DESTINY-Breast04 clinical trial for patients with HER2 low expressing metastatic breast cancer previously treated with chemotherapy, and our efforts to maximize product value have made significant progress. For Dato-DXd and HER3-DXd, we accelerated development as we believe it is important to enter the market at an early stage. We will continue to make steady efforts to maximize 3ADCs so that effective development investment in 3ADCs will lead to dramatic growth in the second half of the 5-Year Business Plan. – – 16 – – b. Profit Growth for Current Business and Products – Profit growth for current business and products in addition to the oncology business will also be an important challenge as we continue to invest for sustainable growth. – Lixiana is a highly profitable product that generates a stable profit, so we will work to further expand revenue to use it from this product as a source of investment in 3ADCs and post-3ADC growth drivers. – For new products such as Tarlige and Nilemdo, we aim to achieve quick growth through additional indications and so forth. Through realizing early growth for these new products, in addition to Lixiana, we aim to achieve sustainable growth in our businesses for newly patented products outside of oncology as well. – In each region, we aim to transform ourselves into a business structure that supports sustainable profit growth through transformation to patented product-based profit structure. – At American Regent, Inc., we aim to grow profits mainly through Injectafer and generic injectable products. At Daiichi Sankyo Health Care Co., Ltd., we aim to grow profits primarily through expanding Japanese domestic in-store sales and online business. In the fiscal 2021, sales of Lixiana, Injectafer, Tarlige, Nilemdo, and other products grew steadily. In addition, in order to transform the business structure, we concluded agreements to transfer the rights to manufacture and commercialize conventional products in the US, marketing authorization of Cravit preparations in China, and all of our equity interest in Daiichi Sankyo Pharmaceutical (Beijing) Co., Ltd. outside the Group. Going forward, we will continue to expand sales of highly profitable products in order to transform the business structure to one that supports sustainable profit growth. c. Identify and Build Pillars for Further Growth In order to achieve sustainable growth, it is important that we identify post-3ADC growth drivers and select and advance post-DXd-ADC modalities through a multi-modality research strategy. – We will identify post-3ADC growth drivers from fields such as the DXd-ADC family, second-generation and new-concept ADC, modified antibodies, and the ENA® family*1. – We will identify post-DXd-ADC modalities for sustainable growth from various modality technologies. Regarding LNP-mRNA, we will utilize it also in vaccines other than those for COVID-19 infections to drive the growth of the vaccine business. – In the fiscal 2021, we obtained positive data regarding DS-7300 and DS-6000, so we positioned it as “Rising Stars” and are promoting its development. Going forward, we will continue to identify and build pillars of further growth using our proprietary ADC technology. *1 2’-O,4’-C-Ethylene-bridged Nucleic Acids: It is a modified nucleic acid using Daiichi Sankyo’s proprietary technology. d. Create Shared Value with Stakeholders – To promote ESG management from a long-term perspective, it is also important to create shared value with stakeholders, namely, patients, shareholders, society, the environment, and employees. – As we expand 3ADCs to various types of cancer and target more rare diseases, we will strengthen our initiatives under a patient centric mindset and contribute to patients, not only in pharmaceutical development but across the entire value chain. – We will implement well-balanced investment for growth, and shareholder returns to sustainably increase the value for the Company. 17 – For social and environmental challenges such as decarbonization society, circular economy and a society in harmony with nature, we will implement various initiatives to reduce environmental impact throughout the value chain from research and development to sales, and contribute to society and the environment. – In addition to our stable supply in ordinary times of seasonal influenza and other vaccines from in-house manufacturing sites, we will contribute to society by establishing technologies that can be applied to vaccines for COVID-19 as well as emerging/re-emerging infectious diseases and establishing a vaccine supply system for future pandemics. – By determining the Group’s common core behaviors, which form its common core across the entire Group, we will cultivate a unique corporate culture, “One DS Culture,” and further enhance the strengths of our global organization and human resources. – We have been promoting COMPASS activities*2 for some time, and in the fiscal 2021, we decided to share information on these activities with all employees in Japan in order to further strengthen the “Patient Centric Mindset” so that they will be aware of patients in their daily work and have an opportunity to better appreciate the patients’ feelings. In addition, as part of our efforts to address environmental issues as a member of society, we joined “RE100*3”, a global initiative that aims to use 100% renewable energy for electricity consumed in business activities. We will continue to implement a variety of measures to strengthen the value creation process with stakeholders, including the permeation of “Patient Centric Mindset” and “One DS Culture.” *2 “Compassion for Patients” Strategy activities. Based on our slogan “Compassion for Patients,” these are internal and external activities where we create and provide opportunities for direct interaction between patients and healthcare professionals with our employees, with the aim of contributing to the realization of “daily living with a smile” for people around the world. *3 A global initiative to promote 100% corporate renewable energy, run by the Climate Group, an international environmental NGO, in partnership with CDP, which encourages companies to disclose information about their climate change initiatives. – 【Platform for Supporting Strategy Execution】 – To strengthen our platform for supporting the execution of our four strategic pillars, we will implement data-driven management by advancing digital transformation and advance company transformation with cutting-edge digital technology. In addition, we will realize agile decision-making through our new global management structure. – During the fiscal 2021, we began global operation of an analytical platform that enables integrated data analysis of Enhertu inside and outside the Company. In addition, the Oncology Business Unit was newly established to promptly respond to rapid changes in treatment systems and the market environment in the field of oncology from both business and scientific perspectives. Going forward, we will accelerate data-driven management and continue to strengthen our global structure in line with changes and expansion of our business operations. 【Shareholder Return Policy】 In addition to maintaining the ordinary dividend of ¥27 per share, we will increase dividend that takes account of our profit growth. We will also flexibly acquire own shares and will enhance shareholder returns. – We have adopted dividend on equity*4 (DOE) based on shareholders’ equity as a KPI in line with our policy of providing stable returns to shareholders. Going forward, we aim to maximize shareholder value, with a target for DOE of 8% or more in fiscal 2025, exceeding the cost of shareholders’ equity. 18 – In the fiscal 2021, the Company paid an interim dividend of ¥13.5 per share. Together with the tentative year-end dividend of ¥13.5, the Company plans to pay total annual dividend of ¥27 per share. In April 2021, we cancelled 180 million treasury shares. DOE for the fiscal 2021 is 3.9%, and we will continue to aim for DOE of 8% or more in fiscal 2025. *4 Dividend on equity = Total dividend amount / Equity attributable to owners of the Company 【Fiscal 2025 Financial Targets】 – Revenue: ¥1.6 trillion (Oncology: ¥600.0 billion or more) – Core operating profit ratio before research and development expenses: 40% or more – ROE: 16% or more – DOE: 8% or more Assumption of exchange rate for fiscal 2025: 1 USD=¥105, 1 EUR = ¥120 (6) Strategic Targets and Forward-Looking Statements – Strategic targets, forward-looking statements and other information disclosed in this material are all determined by the Company based on information obtained at the time of disclosure of this material with certain assumptions, premises and future forecasts, and thus, there are various inherent risks as well as uncertainties involved. As such, actual results of the Company may diverge materially from the content of this material. – Various risks and uncertainties are included in these, such as risks regarding Enhertu/Dato-DXd clinical trials and less returns on the executed investments. 19 2. Matters Relating to Corporate Governance (1) Systems and Policies on Corporate Governance – In addition to creating a management structure that can respond speedily and flexibly to changes in the business environment, the Daiichi Sankyo is working to secure legal compliance and management transparency and to strengthen oversight of management and the conduct of operations. We place great importance on building up a corporate governance structure that is responsive to the trust of our stakeholders, especially our shareholders. 1) Corporate Governance Structure a. To clarify Directors management responsibility and reinforce their oversight of management and the conduct of operations, their terms of office are set at one year, and four out of our nine Directors are Outside Directors. Since June 2020, an Outside director has been appointed chairman of the Board of Directors. b. To ensure management transparency, nomination of candidates for Director and Corporate Officer, successor plan of CEO and compensation thereof are deliberated on by a Nomination Committee and a Compensation Committee, respectively, which are established as voluntary committees. It is comprised by four Outside Directors and one Outside Audit & Supervisory Board Member participates as the observer in each committee. c. For audits of legal compliance and soundness of management, the Company has adopted an Audit & Supervisory Board system and established the Audit & Supervisory Board comprising five Audit & Supervisory Board Members, including three Outside Audit & Supervisory Board Members. d. The Company prescribes specific criteria on the judgment of independence of Outside Directors and Outside Audit & Supervisory Board Members and basic matters regarding execution of duties by Directors and Audit & Supervisory Board Members. e. Under the global management structure, the Management Executive Meeting with business unit heads as members is held as appropriate to deliberate on important matters related to the strategy, policy, and execution of group management, and to contribute to management decision-making. f. The Company employs a Corporate Officer System which contributes to appropriate and swift management decision-making and the conduct of operations. g. With the aims of ensuring effectiveness and efficiency of operations, ensuring reliability of financial reporting, complying with applicable laws and regulations relevant to business activities, and safeguarding assets, the Company structures its internal control system to consist of self-monitoring carried out by respective organizations which execute its functions (primary controls), policy development and monitoring for respective organizations carried out by the corporate organization (secondary controls), and internal auditing encompassing monitoring carried out by the Internal Audit Department (tertiary controls). 20 2) Policies and Procedures for Appointment of Directors, Audit & Supervisory Board Members, and CEO – Directors shall meet the requirement of being personnel of excellent character and insight who contribute to maximizing the corporate value of the Group. – Directors shall meet the requirements of being appropriate persons with respect to term of office and age, and of being suitably competent of performing timely and accurate judgment, looking at the changes in the business environment while giving importance to the continuance of management policies, etc. – Directors shall meet the requirements that they are the individuals with expertise, experience, and insight in one or more of the following fields: corporate management and management strategy, finance and accounting, science and technology, business strategy and marketing, global business, human resources and HR development, legal and risk management, sustainability and ESG, and/or DX and IT. – Directors shall meet the requirements that there shall always be Outside Directors included to strengthen the decision-making functions based on various perspectives and to strengthen the function of supervising conduct of operations. – In principle, it is a requirement that Outside Directors have no more than three concurrent positions as officers of listed companies, excluding the Company. – The Company recognizes that ensuring the diversity of Directors particularly in terms of gender, nationality, race, etc. as well as incorporating diverse opinions into management are important for strengthening the supervisory function and decision-making of the Board of Directors. The Company will continue to discuss the selection of candidates for Directors going forward. 21 – When appointing the candidates for Directors, the Board of Directors shall appoint the candidates after they have been sufficiently deliberated by the Nomination Committee, of which Outside Directors form a majority. – Directors should attend Board of Directors meetings and maintain an attendance rate of at least 75% or more unless there are unavoidable circumstances. – Audit & Supervisory Board Members shall meet the requirement of whether they can fulfil their duties and ensure their independence from the representative directors, Directors, and corporate officers. – When appointing the candidates for Audit & Supervisory Board Members, the Board of Directors shall appoint the candidates after they have been deliberated by the Nomination Committee, and agreed by the Audit & Supervisory Board. – Outside Directors and Outside Audit & Supervisory Board Members shall be confirmed to have no problems according to specific criteria on the judgment of independence. – When appointing the candidates for Directors and Audit & Supervisory Board Members, the General Meeting of Shareholders shall appoint the candidates after the relevant proposal. – Candidates for CEO shall be appointed based on the successor plan and defined eligibility requirements, etc.