大塚ホールディングス（4578） – Consolidated Financial Results for the First Quarter of the Fiscal Year Ending December 31, 2022 [IFRS]

Consolidated Financial Results for the First Quarter of the Fiscal Year Ending December 31, 2022 [IFRS] May 13, 2022 Company name Stock exchange listing Code number URL Representative Contact Scheduled date of quarterly securities report submission Scheduled date of dividend payment commencement Supplementary materials for quarterly financial results Earnings announcement for quarterly financial results : Otsuka Holdings Co., Ltd. : Tokyo Stock Exchange : 4578 : https://www.otsuka.com/en/ : Tatsuo Higuchi President and Representative Director, CEO : Yuji Kogure Director, Investor Relations Department Telephone: +81-3-6361-7411 : May 13, 2022 : – : Yes : Yes (for institutional investors, analysts and the press) 1. Consolidated Financial Results for the First Quarter of the Year Ending December 31, 2022 (January 1, 2022 to March 31, 2022) (1) Consolidated Operating Results (cumulative) (Figures are rounded down to the nearest million unless otherwise stated) Revenue Business profit (% indicates percentage of change from the same period of the previous fiscal year) Total comprehensive income for the period Profit attributable to owners of the Company Profit for the period Operating profit FY2022 Q1 FY2021 Q1 Millions of yen 380,308 336,789 % 12.9 (0.8) Millions of yen 42,467 48,907 % Millions of yen 20,749 50,092 (13.2) (3.1) % Millions of yen 24,184 45,735 (58.6) (7.1) % Millions of yen 23,255 44,682 (47.1) 18.7 % Millions of yen 86,686 102,474 (48.0) 18.5 % (15.4) – * Business profit is an indicator of ordinary earnings power calculated as follows: Revenue – Cost of sales – Selling, general and administrative expenses – Research and development expenses + Share of profit of investments accounted for using the equity method Basic earnings per share Diluted earnings per share Yen 42.87 82.38 Yen 42.71 81.61 FY2022 Q1 FY2021 Q1 (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 attributable to owners of the Company per share Millions of yen Millions of yen Millions of yen 2,886,028 2,820,915 2,103,931 2,045,189 2,069,078 2,010,994 As of March 31, 2022 As of December 31, 2021 2. Dividends FY2021 FY2022 FY2022 (forecast) First Quarter end Second Quarter end Annual dividend per share Third Quarter end Yen – – Yen 50.00 50.00 Yen – – * Revisions to dividends forecast most recently announced: None % 71.7 71.3 Yen 50.00 50.00 Yen 3,814.72 3,707.64 Yen 100.00 100.00 Year-end Total 3. Forecast of Consolidated Operating Results for the Year Ending December 31, 2022 (January 1, 2022 to December 31, 2022) Revenue Business profit Operating profit (% indicates percentage of change from the previous fiscal year) Profit for the year Profit attributable to owners of the Company Basic earnings per share Q2 (YTD) FY2022 Millions of yen 767,000 1,550,000 % 6.7 3.5 Millions of yen 111,000 190,000 % Millions of yen 112,500 192,000 6.5 20.9 % Millions of yen 87,500 149,000 1.2 24.3 % Millions of yen 86,000 146,000 (6.6) 15.3 % (5.9) 16.4 Yen 158.55 269.17 * Revisions to financial forecast most recently announced: None 4. Others (1) Changes in significant subsidiaries during the three-month period ended March 31, 2022 (changes in specified subsidiaries resulting in a 1) Number of shares issued and outstanding as of the end of the reporting period (including treasury shares): change in scope of consolidation): None (2) Changes in accounting policies and changes in accounting estimates 1) Changes in accounting policies required by IFRS: None 2) Changes in accounting policies due to other reasons: None 3) Changes in accounting estimates: None (3) Number of shares issued and outstanding (common stock) 2) Number of shares of treasury shares as of the end of the reporting period: March 31, 2022 December 31, 2021 March 31, 2022 December 31, 2021 557,835,617 shares 557,835,617 shares 15,443,722 shares 15,443,722 shares 3) Average number of shares outstanding during the reporting period: Three-month period ended March 31, 2022 Three-month period ended March 31, 2021 542,391,895 shares 542,334,793 shares * This report is out of scope of reviews by the external auditor. * Note to ensure appropriate use of forecasts, and other comments in particular Forecasts and other forward-looking statements included in this report are based on information currently available and certain assumptions that Otsuka Holdings Co., Ltd. (hereinafter referred to as the “Company”) deems reasonable. Actual performance and other results may differ significantly due to various factors. Please refer to “1. Qualitative Information (3) Forecast for Consolidated Operating Results” on page 8 for details with regard to the assumptions and other matters concerning the financial forecast. The Company plans to hold an earnings release conference call for institutional investors, analysts and the press on May 13, 2022. Presentation materials and the webcast of the call will be available on the Company’s website promptly after the call. Attachment Index 1. Qualitative Information ………………………………………………………………………………………………………………………………… 2 (1) Consolidated Operating Results ……………………………………………………………………………………………………………….. 2 (2) Consolidated Financial Position ……………………………………………………………………………………………………………….. 7 (3) Forecast for Consolidated Operating Results ……………………………………………………………………………………………… 8 2. Condensed Interim Consolidated Financial Statements and Major Notes ………………………………………………………… 9 (1) Condensed Interim Consolidated Statements of Financial Position ……………………………………………………………….. 9 (2) Condensed Interim Consolidated Statements of Income …………………………………………………………………………….. 11 (3) Condensed Interim Consolidated Statements of Comprehensive Income ……………………………………………………… 12 (4) Condensed Interim Consolidated Statements of Changes in Equity ……………………………………………………………… 13 (5) Condensed Interim Consolidated Statement of Cash Flows ………………………………………………………………………… 15 (6) Notes to Condensed Interim Consolidated Financial Statements …………………………………………………………………. 16 Note to Going Concern Assumptions ………………………………………………………………………………………………………. 16 Operating Segments ……………………………………………………………………………………………………………………………… 16 Impairment of Assets ……………………………………………………………………………………………………………………………. 17 Subsequent Events ……………………………………………………………………………………………………………………………….. 17 – 1 – 1. Qualitative Information (1) Consolidated Operating Results The forward-looking statements in this report were prepared based on information available as of March 31, 2022. Summary of operating results for the three-month period ended March 31, 2022 The Company and its subsidiaries (hereinafter referred to as the “Group”) adopted “Business profit” as an indicator of ordinary earnings power, which is calculated as follows: investments accounted for using the equity method Revenue – Cost of sales – Selling, general and administrative expenses – Research and development expenses + Share of profit of Three-month period ended March 31, 2021 Three-month period ended March 31, 2022 (Millions of yen) Change % Change Business profit before research and development expenses Revenue Business profit Operating profit Profit before tax Profit for the period Profit attributable to owners of the Company Research and development expenses Impairment losses 336,789 97,511 48,907 50,092 58,001 45,735 44,682 48,603 51 380,308 101,815 42,467 20,749 30,985 24,184 23,255 59,347 23,831 43,519 4,304 (6,439) (29,343) (27,016) (21,550) (21,426) 10,743 23,780 12.9 % 4.4 % (13.2) % (58.6) % (46.6) % (47.1) % (48.0) % 22.1 % – Based on the concept of total health care, the Group has been promoting corporate activities to maintain and promote health and to diagnose and treat disease. To respond to social issues brought about by a highly uncertain world amid a changing social environment due to the impact of the spread of COVID-19, geopolitical risks, etc., the Group will incorporate new technologies and needs arising from changes in the environment and harness the opportunities presented by a growing awareness of health in order to demonstrate the Group’s true value as a total healthcare company, especially now, and continue to move toward the realization of sustainable growth. For the three-month period ended March 31, 2022, the Group recorded consolidated revenue of ¥380,308 million (up 12.9% over the same period of the previous fiscal year) as revenue grew steadily in the pharmaceutical business, which includes the four global products (the long acting antipsychotic agent ABILIFY MAINTENA, the antipsychotic agent REXULTI/RXULTI, the V2-receptor antagonist JINARC/JYNARQUE and the anti-cancer agent LONSURF), nutraceutical business, consumer product business and other businesses. In the pharmaceutical business, business performance was driven by sales growth of the four global products and clinical nutrition. In the nutraceutical business, revenue increased due to a recovery in sales of POCARI SWEAT, and growth in sales of Nature Made, EQUELLE, etc. in line with a rising awareness toward self-management of health. However, as a result of an increase in co-promotion expenses accompanying sales growth of ABILIFY MAINTENA and REXULTI/RXULTI, an increase in selling, general and administrative expenses due to the impact of exchange rate fluctuations, etc., and a decrease in share of profit of investments accounted for using the equity method, business profit before research and development expenses was ¥101,815 million (up 4.4%). Moreover, mainly due to an increase in development expenses based on a collaboration and license agreement executed with Sumitomo Pharma Co., Ltd. and Sunovion Pharmaceuticals Inc. for joint development and commercialization related to antipsychotic agent with a novel mechanism of action, an increase in development expenses related to centanafadine due to the launch of a new clinical trial for the treatment of attention-deficit hyperactivity disorder (ADHD) in pediatric patients and binge-eating disorder, and an increase in development expenses for sibeprenlimab/VIS649 under development for the treatment of IgA nephropathy, as well as the impact of exchange rate fluctuations, research and development expenses totaled ¥59,347 million (up 22.1%). As a result, although business profit was ¥42,467 million (down 13.2%), the results were solid compared to the forecast if the impact of exchange rate fluctuations is excluded. Due to recording impairment losses of ¥23,831 million related to vadadustat and others, the Group recorded operating profit of ¥20,749 million (down 58.6%), profit for the period of ¥24,184 million (down 47.1%), and profit attributable to owners of the Company of ¥23,255 million (down 48.0%). – 2 – Pharmaceuticals Nutraceuticals Others Adjustments Total Revenue and business profit by business segment during FY2022 Q1 Revenue 252,058 Business profit (loss) Reference (FY2021 Q1) 40,819 90,340 11,175 Consumer products 7,673 (234) Consumer products 6,830 2,143 Pharmaceuticals Nutraceuticals Others Adjustments Total Revenue 225,322 Business profit 44,696 76,854 9,010 35,871 4,045 (8,090) 336,789 (10,988) 48,907 39,048 2,432 (8,813) 380,308 (11,725) 42,467 (Millions of yen) (Millions of yen) Revenue for the three-month period ended March 31, 2022 totaled ¥252,058 million (up 11.9%), with business profit of ¥40,819 million (down 1) Pharmaceuticals 8.7%). Main products ● Four global products The Company positions the long acting antipsychotic agent ABILIFY MAINTENA, the antipsychotic agent REXULTI*1/RXULTI*2, the V2-receptor antagonist Samsca/JINARC*3/JYNARQUE*4 and the anti-cancer agent LONSURF as its four global products. Sales of those products totaled ¥135,602 million (up 18.0%). *1: Brand name for the antipsychotic agent outside Japan and Europe *2: Brand name for the antipsychotic agent in Europe *3: Brand name for autosomal dominant polycystic kidney disease (“ADPKD”) treatment in multiple regions outside Japan *4: Brand name for ADPKD treatment in the U.S. ・ Long acting antipsychotic agent ABILIFY MAINTENA In the U.S., sales increased atop growth in prescriptions, mainly due to promoting the efficacy of the product for bipolar disorder and schizophrenia patients, who have problems adhering to drug regimens, as well as an increase in face-to-face detailing activities. In Japan, sales were solid mainly due to the addition of an indication for the suppression of recurrence and relapse of mood episodes in bipolar I disorder in September 2020. Also in Europe, sales increased, particularly in major markets. As a result, sales of ABILIFY MAINTENA totaled ¥35,801 million (up 16.0%). ・ Antipsychotic agent REXULTI/RXULTI In the U.S., where antipsychotic agent REXULTI is sold as adjunctive therapy in major depressive disorder and a treatment for schizophrenia, prescriptions grew and sales increased, mainly due to the use of direct-to-consumer advertising, and an increase in face-to-face detailing activities. In Japan, sales were solid with the launch of orally disintegrating tablets in November 2021, increasing convenience, and stronger information provision activities. As a result, sales of REXULTI/RXULTI totaled ¥34,254 million (up 21.9%). ・ V2-receptor antagonist Samsca In Japan, where the drug is sold as treatment for fluid retention in patients with heart failure and hepatic cirrhosis, ADPKD and another condition, sales increased due to online detailing activities such as web seminars. In the U.S., where the drug is sold as a treatment for hyponatremia, and in Europe, where the drug is sold as a treatment for hyponatremia caused by syndrome of inappropriate antidiuretic hormone secretion (SIADH), generics were launched after the expiry of the exclusive sales period. As a result, sales of Samsca totaled ¥23,098 million (up 11.1%). ・ V2-receptor antagonist JINARC/JYNARQUE In the U.S., the number of prescriptions for ADPKD increased mainly due to continued efforts to raise awareness of the disease and provide information about clinical data. As a result, sales of JINARC/JYNARQUE totaled ¥28,899 million (up 20.9%). ・ Anti-cancer agent LONSURF In the U.S., sales increased since at-home care and the use of oral anti-cancer agents are recommended due to the spread of COVID-19*5, 6. Prescriptions continued to be robust in Japan and Europe. As a result, sales of LONSURF totaled ¥13,548 million (up 20.3%). *5: Pelin Cinar et al., Safety at the Time of the COVID-19 Pandemic: How to Keep our Oncology Patients and Healthcare Workers Safe. J Natl Compr Canc Netw, 2020 Apr 15;1-6. *6: ASCO. COVID-19 Patient Care Information, Cancer Treatment and Supportive Care. https://www.asco.org/covid-resources/patient-care-info/cancer-treatment-supportive-care Updated 17 September 2021, Accessed 20 January 2022. Revenue for the three-month period ended March 31, 2022 totaled ¥90,340 million (up 17.5%), with business profit of ¥11,175 million (up 2) Nutraceuticals 24.0%). – 3 – Main products The Company positions POCARI SWEAT, Nature Made and the Nutrition & Santé SAS brand as its three major brands. Sales of those brands totaled ¥55,646 million (up 17.2%). Total sales of its three nurture brands, the Daiya Foods Inc. brand, EQUELLE and BODY MAINTÉ, were ¥7,073 million (up 3.9%). ● Three major brands Sales of POCARI SWEAT, an electrolyte supplement drink, increased in Japan amid the continuing impact of the spread of COVID-19 due to rising awareness among consumers regarding health management in addition to increased recognition of the importance of hydration and replenishment of electrolytes and promotion of consumption in daily life at home, etc. Overseas, sales of POCARI SWEAT increased overall for the brand, as a result of conducting education about hydration and replenishment of electrolytes and developing markets in line with the culture and situation in each region. Amid a more sophisticated awareness of physical conditioning among consumers accompanying the spread of COVID-19, consumers’ trust in the brand and quality of Nature Made supplements by Pharmavite LLC is further rising, and sales increased. Although sales decreased slightly for the Nutrition & Santé SAS brand, which sells health food products mainly in Europe, mainly due to stalled growth in the high value-added organic food market*7, etc. accompanying a rapid rise in inflation in Europe and disruptions in product shipping, efforts are being made to expand e-commerce adapted to new lifestyles and carry out other measures. *7: IRI Syndicated Retail Data, 2022 Jan-Mar ● Three nurture brands Plant-based foods of the Daiya Foods Inc. brand in North America maintained the largest market share in the dairy alternative cheese market*8, and the brand has been making positives moves, including new product launches and expansion of production facilities. Although sales declined slightly mainly due to the impact of disruptions in product shipping caused by the spread of COVID-19 and natural disasters, efforts were continued to enhance the product lineup by utilizing its original technology and expand distribution. Sales of EQUELLE, a food and supplement brand containing equol that supports women’s health and beauty, continued to grow steadily due to increased recognition of the product through the wide-ranging spread of information on the product. In addition, the Company conducted a nationwide survey of women regarding “working women’s health consciousness.” The survey results are available on our press release. (https://www.otsuka.co.jp/en/company/newsreleases/2022/20220308_1.html) As for BODY MAINTÉ, a protective beverage brand containing the plant-based lactic-acid bacteria B240*9, although sales declined, efforts were made to strengthen activities for increasing awareness of the product value and to promote increased recognition and consumption of the product. *8: SPINS Satori, Total US- MULO & Natural Enhanced Channel, 12 Weeks ending 3/20/2022 *9: Lactiplantibacillus pentosus ONRICb0240: Strain isolated by Tokyo University of Agriculture, for which Otsuka Pharmaceutical has confirmed efficacy. 3) Consumer products 4) Others In mineral water products, sales volume performed solidly, primarily of 700-milliliter PET bottles of mainstay brand CRYSTAL GEYSER. However, sales volume declined slightly overall for the brand mainly due to a decrease in sales volume through e-commerce. Sales volume of MATCH, a carbonated vitamin drink, increased overall for the brand mainly due to the launch of the new products MATCH Muscat and MATCH Jelly Pineapple Blend and increased opportunities for activities by consumers. As a result, revenue for the three-month period ended March 31, 2022 totaled ¥7,673 million (up 12.3%), while business loss was ¥234 million (¥2,143 million at the same period of the previous fiscal year) due to the share of loss of investments accounted for using the equity method. Sales in the specialty chemical business increased due to continuing favorable market conditions and adjustments in selling prices to more appropriate levels. Sales in the fine chemical business increased significantly, mainly due to an increase in sales of antibiotic intermediates. In the transportation and warehousing business, sales increased due to the capture of new external customers in line with the promotion of a “common distribution platform” and an increase in the handling volume. As a result, although revenue for the three-month period ended March 31, 2022 totaled ¥39,048 million (up 8.9%), business profit was ¥2,432 million (down 39.9%) mainly due to the impact of rising raw material costs and transportation costs. * Please refer to the Supplement Documents (FACT BOOK) for sales by product and other information. https://www.otsuka.com/en/ir/library/materials.html Business sites Sales Supply chains Impact of the situation involving Ukraine and Russia on business operations and operating results The Group is deeply concerned about the current situation involving Ukraine and Russia (hereinafter referred to as “both countries”), and hopes for an early and peaceful resolution. Regarding the impact on business operations and operating results for the three-month period ended March 31, 2022, the overall impact was limited despite some supply chain disruptions, impacts on clinical trials, etc. The Group does not have any business sites in both countries. Although the anti-tuberculosis drug Deltyba and others are sold through business partners in both countries, the impact on business operations and operating results is limited. Under its corporate philosophy, “Otsuka-people creating new products for better health worldwide,” the Group will carefully monitor the situation and intends to do its utmost to ensure that the supply of Deltyba and others is maintained so that patients who need the drugs can receive them. Despite some disruptions in supply chains, including international transportation, the impact on business operations and operating results is limited as a result of switching to alternative raw materials, changing transportation routes and other measures. – 4 – Research and Development There are some impacts on clinical trials, and plans to launch clinical trial facilities and register patients in both countries have been put on hold. In order to minimize delays in ongoing clinical trials, the Group is responding by changing to other areas, etc., and is currently examining the impact on the progress of development. The Group also intends to do its utmost so that the supply of investigational drugs to the subjects participating in the clinical trials can be maintained and appropriate follow-up can be conducted. Going forward, in the event that the impact of this situation becomes prolonged or more serious, the Group assumes that there will be further increases in raw material prices, supply chain disruptions, impacts of exchange rate fluctuations, etc., and will monitor the impact on business operations and operating results. – 5 – Research and Development Activities Pharmaceuticals Research and development expenses for the three-month period ended March 31, 2022 totaled ¥59,347 million. The primary areas of research and development as well as the status of new product development by segment were as follows: The Group conducts research and development with a primary focus on the areas of psychiatry and neurology, and oncology. The Group also conducts research and development focusing on fields that are yet to be fully addressed such as cardiovascular, renal system, etc. Research and development expenses in the pharmaceutical business for the three-month period ended March 31, 2022 were ¥56,184 million. Research and development activities in the pharmaceutical business carried out for the three-month period ended March 31, 2022 are Psychiatry and neurology (centanafadine) EB-1020 ・Phase II / III trial for the treatment of binge-eating disorder was initiated in Status summarized below. Category Brand Name, (Generic name), Development Code REXULTI (brexpiprazole) OPC-34712 (futibatinib) TAS-120 Oncology (zimberelimab + pimitespib) AB122 + TAS-116 Arokaris (fosnetupitant) Pro-NETU Samtasu (tolvaptan sodium phosphate) OPC-61815 (vadadustat) AKB-6548 Cardiovascular and renal system February 2022. ・Development for the treatment of borderline personality disorder was halted due to development strategy. ・An application for the indication of cholangiocarcinoma was filed in March 2022. ・Phase I trial for the treatment of solid tumors*1 was initiated in February 2022. ・Approval was granted for the indication of chemotherapy-induced nausea and vomiting in March 2022. ・Approval was granted for the indication of cardiac edema in March 2022. ・Otsuka Pharmaceutical has decided to terminate its global license agreements with Akebia Therapeutics, Inc. on May 13, 2022. These licenses were signed in in December 2016 for the U.S. and April 2017 for Europe and other regions. *1: pimitespib combination cohort during the Phase I trial in Japan for zimberelimab Nutraceuticals In the nutraceutical business, the Group draws on its knowledge in the pharmaceutical business to constantly conduct research and development of world-class products centering on functional foods and beverages that support the maintenance and improvement of day-to-day well-being. In the SOYJOY brand of soy snack bars, which delivers a convenient way to consume the nutrition of whole soybeans, SOYJOY Plant-Based bars, a new series in the brand made with plant-based ingredients, were launched in two flavors (White Chocolate & Lemon and Banana) in March 2022. For the Calorie Mate brand of balanced nutrition food, Calorie Mate BLOCK Vanilla was launched in March 2022 as a new item. In addition, POCARI SWEAT*1 in PET bottles made with 30% recycled PET resin*2 was launched in the spring of 2022. Going forward, we will introduce this change to other items successively while proceeding with further technological development. Research and development expenses in the nutraceutical business for the three-month period ended March 31, 2022 were ¥1,747 million. *1: POCARI SWEAT 500 ml and 300 ml (including label-less bottles) manufactured at Otsuka Pharmaceutical’s Fukuroi Factory and Takasaki Factory *2: PET resin reproduced from collected PET bottles In the consumer product business, the Group is engaged in the research and development of original and unique products in the field of food and beverage that are part of everyone’s daily life. The Group is creating and proposing innovative products based on the themes of food and health, targeting businesses in retort foods, beverages, and plant-based foods, with the aim of solving various issues associated with the changing society, such as those involving health, the environment, population and the aging society. Research and development expenses in the consumer product business for the three-month period ended March 31, 2022 were ¥148 million. In the other businesses, the Group is primarily engaged in the research and development of specialty chemical products and fine chemicals. The Group is focusing on organic and inorganic synthesis technologies and conducting research and development of new products centered on own technology as well as research and development of next-generation fields. Research and development expenses in the other businesses for the three-month period ended March 31, 2022 were ¥1,266 million. Consumer products Others – 6 – (2) Consolidated Financial Position 1) Assets, Liabilities and Equity Current assets Non-current assets Total assets Current liabilities Non-current liabilities As of December 31, 2021 As of March 31, 2022 Change (Millions of yen) 1,049,389 1,771,526 2,820,915 467,910 307,815 775,725 1,065,896 1,820,131 2,886,028 474,167 307,929 782,097 Total liabilities Total equity 2,045,189 2,103,931 16,507 48,605 65,113 6,257 114 6,372 58,741 a. Assets (Current Assets) (Non-current Assets) b. Liabilities (Current Liabilities) c. Equity 2) Cash Flows Total assets as of March 31, 2022 were ¥2,886,028 million, an increase of ¥65,113 million compared to ¥2,820,915 million as of December 31, 2021. Current assets increased by ¥16,507 million, and non-current assets increased by ¥48,605 million. Current assets as of March 31, 2022 were ¥1,065,896 million, an increase of ¥16,507 million compared to ¥1,049,389 million as of December 31, 2021. This was mainly due to increases in cash and cash equivalents by ¥12,678 million, inventories by ¥15,990 million and other financial assets by ¥10,834 million, partially offset by a decrease in trade and other receivables by ¥27,140 million. Non-current assets as of March 31, 2022 were ¥1,820,131 million, an increase of ¥48,605 million compared to ¥1,771,526 million as of December 31, 2021. This was mainly comprised of exchange rate fluctuations that increased goodwill by ¥18,188 million, intangible assets by ¥8,734 million and investments accounted for using the equity method by ¥13,754 million. Total liabilities as of March 31, 2022 were ¥782,097 million, an increase of ¥6,372 million compared to ¥775,725 million as of December 31, 2021. Current liabilities increased by ¥6,257 million, and non-current liabilities decreased by ¥114 million. Current liabilities as of March 31, 2022 were ¥474,167 million, an increase of ¥6,257 million compared to ¥467,910 million as of December 31, 2021. This was mainly due to increases in bonds and borrowings by ¥2,039 million, income taxes payable by ¥2,336 million and other current liabilities by ¥17,496 million, partially offset by a decrease in trade and other payables by ¥15,561 million. (Non-current Liabilities) Non-current liabilities as of March 31, 2022 were ¥307,929 million, an increase of ¥114 million compared to ¥307,815 million as of December 31, 2021. This was mainly due to increases in deferred tax liabilities by ¥2,000 million and other non-current liabilities by ¥2,154 million, partially offset by decreases in bonds and borrowings by ¥2,336 million and contract liabilities by ¥2,517 million. Total equity as of March 31, 2022 was ¥2,103,931 million, an increase of ¥58,741 million compared to ¥2,045,189 million as of December 31, 2021. This was mainly due to an increase in other components of equity by ¥62,136 million as a result of exchange rate fluctuations, partially offset by a decrease in retained earnings by ¥4,206 million which consisted of dividend payments of ¥27,119 million net of profit attributable to owners of the Company of ¥23,255 million. Cash and cash equivalents as of March 31, 2022 was ¥423,362 million, an increase of ¥12,678 million compared to the balance as of December 31, 2021. For the three-month period ended March 31, 2022, net cash flows provided by operating activities were ¥57,698 million, while net cash flows used in investing activities were ¥22,797 million mainly as a result of investments in the pharmaceutical business toward sustainable growth. Net cash flows used in financing activities were ¥34,561 million as a result of repayments of borrowings and lease liabilities and ¥27,428 million of dividends paid. Thus, cash and cash equivalents were increased to ¥423,362 million as operating cash inflows exceeded the total cash outflows from investing and financing activities, further augmented by the effect of ¥12,338 million of exchange rate fluctuations on cash and cash equivalents as a result of the depreciation of the yen. The following provides details around cash flow movements for the three-month period ended March 31, 2022: Cash Flows from Operating Activities Net cash flows provided by operating activities were ¥57,698 million, a decrease of ¥15,498 million compared to the figure for the three-month period ended March 31, 2021. Cash flows from operating activities for the three-month period ended March 31, 2022 mainly consisted of ¥30,985 million of profit before tax, adjusted for ¥23,831 million of impairment losses and reversal of impairment losses, ¥37,746 million decrease in trade and other receivables, ¥24,856 million decrease in trade and other payables and ¥8,701 million of income taxes paid. The decrease of ¥15,498 million in inflows was primarily due to a ¥13,526 million decrease in inflow from trade and other receivables. – 7 – Cash Flows from Investing Activities Net cash flows used in investing activities were ¥22,797 million, an increase in outflows of ¥13,987 million compared to the figure for the three-month period ended March 31, 2021. Cash flows used in investing activities for the three-month period ended March 31, 2022 mainly consisted of ¥13,589 million of payments for acquisition of property, plant and equipment and ¥8,628 million of payments for acquisition of investments. The increase of ¥13,987 million in outflows was primarily due to a ¥16,347 million increase in outflow of time deposits. Cash Flows from Financing Activities Net cash flows used in financing activities were ¥34,561 million, a decrease in outflows of ¥218 million compared to the three-month period ended March 31, 2021. Cash flows from financing activities for the three-month period ended March 31, 2022 mainly consisted of ¥4,526 million of repayments of long-term borrowings, ¥4,815 million of repayments of lease liabilities and ¥27,428 million of dividends paid. (3) Forecast for Consolidated Operating Results December 31, 2022 announced on February 10, 2022. There are no changes to the forecast of consolidated financial results for the six-month period ending June 30, 2022 and the year ending – 8 – 2. Condensed Interim Consolidated Financial Statements and Major Notes (1) Condensed Interim Consolidated Statements of Financial Position Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Income taxes receivable Other financial assets Other current assets Subtotal Assets held for sale Total current assets Non-current assets Property, plant and equipment Goodwill Intangible assets Investments accounted for using the equity method Other financial assets Deferred tax assets Other non-current assets Total non-current assets Total assets As of December 31, 2021 (Millions of yen) As of March 31, 2022 410,684 380,191 180,350 8,543 20,074 48,036 1,047,880 1,508 1,049,389 487,089 295,735 522,662 227,790 173,956 31,936 32,355 1,771,526 2,820,915 423,362 353,050 196,341 9,019 30,909 52,861 1,065,545 351 1,065,896 494,836 313,924 531,396 241,544 169,547 49,157 19,725 1,820,131 2,886,028 – 9 – As of December 31, 2021 (Millions of yen) As of March 31, 2022 170,103 32,877 17,096 1,988 10,490 9,542 12,458 213,302 467,859 50 467,910 102,754 59,726 24,815 14,075 1,358 57,771 27,560 19,753 307,815 775,725 81,690 506,724 (45,572) 1,482,197 (14,046) 2,010,994 34,195 2,045,189 2,820,915 154,541 34,916 17,343 2,029 12,826 9,412 12,298 230,798 474,167 － 474,167 100,418 59,196 25,982 14,232 1,376 55,253 29,561 21,907 307,929 782,097 81,690 506,877 (45,572) 1,477,991 48,090 2,069,078 34,853 2,103,931 2,886,028 Liabilities directly associated with assets held for sale Liabilities and equity Liabilities Current liabilities Trade and other payables Bonds and borrowings Lease liabilities Other financial liabilities Income taxes payable Provisions Contract liabilities Other current liabilities Subtotal Total current liabilities Non-current liabilities Bonds and borrowings Lease liabilities Other financial liabilities Net defined benefit liabilities Provisions Contract liabilities Deferred tax liabilities Other non-current liabilities Total non-current liabilities Total liabilities Equity Share capital Capital surplus Treasury shares Retained earnings Other components of equity Non-controlling interests Total equity Total liabilities and equity Equity attributable to owners of the Company Total equity attributable to owners of the Company – 10 – (2) Condensed Interim Consolidated Statements of Income Revenue Cost of sales Gross profit Selling, general and administrative expenses Share of profit of investments accounted for using the equity method Research and development expenses Impairment losses Other income Other expenses Operating profit Finance income Finance expenses Profit before tax Income tax expenses Profit for the period Attributable to: Owners of the Company Non-controlling interests Earnings per share: Basic earnings per share (Yen) Diluted earnings per share (Yen) (Millions of yen) FY2021 (Three-month period ended March 31, 2021) FY2022 (Three-month period ended March 31, 2022) 336,789 (109,972) 226,816 (134,220) 4,915 (48,603) (51) 2,379 (1,142) 50,092 9,514 (1,606) 58,001 (12,266) 45,735 44,682 1,052 82.38 81.61 380,308 (126,340) 253,968 (154,500) 2,346 (59,347) (23,831) 2,358 (245) 20,749 11,272 (1,036) 30,985 (6,800) 24,184 23,255 928 42.87 42.71 – 11 – (3) Condensed Interim Consolidated Statements of Comprehensive Income (Millions of yen) FY2021 (Three-month period ended March 31, 2021) FY2022 (Three-month period ended March 31, 2022) Profit for the period Other comprehensive income Items that will not be reclassified to profit or loss Remeasurements of defined benefit plans Financial assets measured at fair value through other comprehensive income Share of other comprehensive income of investments accounted for using the equity method Subtotal Items that may be reclassified to profit or loss Exchange differences on translation of foreign operations Cash flow hedges Share of other comprehensive income of investments accounted for using the equity method Subtotal Total other comprehensive income Total comprehensive income for the period Attributable to: Owners of the Company Non-controlling interests Total comprehensive income for the period 45,735 1,700 (3,265) (51) (1,616) 51,373 17 6,964 58,356 56,739 102,474 100,648 1,826 102,474 24,184 33 (6,174) 40 (6,100) 56,257 (1) 12,346 68,601 62,501 86,686 85,049 1,636 86,686 – 12 – (4) Condensed Interim Consolidated Statements of Changes in Equity FY2021 (Three-month period ended March 31, 2021) Share capital Capital surplus Treasury shares 81,690 － － 506,295 － － (45,781) － － Equity attributable to owners of the Company Other components of equity Remeasurements of defined benefit plans (Millions of yen) Financial assets measured at fair value through other comprehen- sive income 43,298 － (3,300) (3,300) － － 1,742 1,742 － － － Retained earnings 1,402,644 44,682 － 44,682 － △27,116 － － － － 47 47 1,694 (1,742) (0) △25,422 (1,742) － (0) － － － 81,690 506,457 (45,781) 1,421,904 － 40,045 Equity attributable to owners of the Company Other components of equity Cash flow hedges Total Non-controlling interests Total equity Total 55,965 100,648 (92,474) － 55,965 － － － (1,694) 1,852,375 31,057 1,883,432 44,682 55,965 (0) (27,116) 161 － 1,052 774 1,826 － (1,465) － － 45,735 56,739 102,474 (0) (28,582) 161 － Balance as of January 1, 2021 Profit for the period Other comprehensive income Comprehensive income for the period Purchase of treasury shares Dividends Share-based payment transactions Transfer from other components of equity to retained earnings Total transactions with owners Balance as of March 31, 2021 Balance as of January 1, 2021 Profit for the period Other comprehensive income Comprehensive income for the period Purchase of treasury shares Dividends Share-based payment transactions Transfer from other components of equity to retained earnings － － － － － － － － － － － Exchange differences on translation of foreign operations (135,766) － 57,505 57,505 Total transactions with owners Balance as of March 31, 2021 (78,261) (1,694) (26,955) (38,203) 1,926,067 (1,465) 31,418 (28,421) 1,957,486 － － － 161 － 161 (5) － 17 17 － － － － － 12 – 13 – Share capital Capital surplus Treasury shares Equity attributable to owners of the Company Other components of equity Retained earnings Remeasurements of defined benefit plans 81,690 － － 506,724 － － (45,572) － － 1,482,197 23,255 － 81,690 506,877 (45,572) 1,477,991 Equity attributable to owners of the Company Other components of equity Cash flow hedges Total Non-controlling interests Total equity Total 2,010,994 34,195 2,045,189 (Millions of yen) Financial assets measured at fair value through other comprehen- sive income 28,632 － (6,249) (6,249) － － 504 504 22,888 24,184 62,501 86,686 (28,097) 153 － － － 161 161 － － (161) (161) － 928 707 1,636 (978) － － FY2022 (Three-month period ended March 31, 2022) Balance as of January 1, 2022 Profit for the period Other comprehensive income Comprehensive income for the period Dividends Share-based payment transactions Transfer from other components of equity to retained earnings Total transactions with owners Balance as of March 31, 2022 Balance as of January 1, 2022 Profit for the period Other comprehensive income Comprehensive income for the period Dividends Share-based payment transactions Transfer from other components of equity to retained earnings Total transactions with owners － － － － － － － － － Exchange differences on translation of foreign operations (42,673) － 67,882 67,882 Balance as of March 31, 2022 25,209 48,090 2,069,078 (978) 34,853 (27,944) 2,103,931 － － － － － 23,255 (27,119) － (342) (27,462) (14,046) － 61,793 61,793 － － 342 342 23,255 61,793 85,049 (27,119) 153 － (26,966) － － 153 － 153 (6) － (1) (1) － － － － (8) – 14 – FY2021 (Three-month period ended March 31, 2021) (Millions of yen) FY2022 (Three-month period ended March 31, 2022) (5) Condensed Interim Consolidated Statements of Cash Flows Cash flows from operating activities Profit before tax Depreciation and amortization expenses Impairment losses and reversal of impairment losses Share of profit of investments accounted for using the equity method Finance income Finance expenses Decrease (increase) in inventories Decrease in trade and other receivables Decrease in trade and other payables Others Subtotal Interest and dividends received Interest paid Income taxes paid Net cash flows provided by operating activities Cash flows from investing activities Proceeds from sales of property, plant and equipment Payments for acquisition of property, plant and equipment Payments for acquisition of intangible assets Proceeds from sales and redemption of investments Payments for acquisition of investments Decrease (increase) in time deposits Others Net cash flows used in investing activities Cash flows from financing activities Purchase of treasury shares Change in short-term borrowings, net Proceeds from long-term borrowings Repayments of long-term borrowings Repayments of lease liabilities Dividends paid Net cash flows used in financing activities Increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Effect of exchange rate changes on cash and cash equivalents Cash and cash equivalents at the end of the period 58,001 20,289 51 (4,915) (9,514) 1,606 694 51,272 (25,391) (6,209) 85,883 1,357 (714) (13,330) 73,197 480 (13,680) (2,808) 4,604 (9,733) 10,910 1,416 (8,810) (0) 1,628 12 (3,233) (4,609) (28,579) (34,780) 29,606 356,851 8,972 395,430 30,985 22,126 23,831 (2,346) (11,272) 1,036 (4,832) 37,746 (24,856) (7,038) 65,379 1,687 (666) (8,701) 57,698 2,483 (13,589) (1,477) 3,233 (8,628) (5,436) 618 (22,797) － 1,205 1,003 (4,526) (4,815) (27,428) (34,561) 339 410,684 12,338 423,362 – 15 – (6) Notes to Condensed Interim Consolidated Financial Statements Note to Going Concern Assumptions Not applicable. Operating Segments 1) Overview of reportable segments The Group’s reportable segments are the constituent units of the Group for which separate financial information is available and which are subject to periodic reviews by the Board of Directors in order to make decisions on allocation of business resources and to evaluate the business performance of the respective segments. The Company directs the Group’s strategic planning, monitors group operations and provides various services to its group companies. Business activities are conducted by the Group’s subsidiaries and associates. Centering on the healthcare business, the Group operates activities inside and outside Japan relating to the following four reportable segments: “Pharmaceuticals,” “Nutraceuticals,” “Consumer products” and “Others” businesses. The Group defines the reportable segments as follows: “Pharmaceuticals” comprises manufacturing and sales of prescription drugs and intravenous solutions. “Nutraceuticals” comprises manufacturing and sales of functional beverages, over-the-counter drugs and nutritional supplements. “Consumer products” comprises manufacturing and sales of mineral water, soft beverages and food products. “Others” encompasses logistics, warehousing, manufacturing and sales of chemical products, evaluation systems for LED displays and spectroanalysis devices. 2) Revenues and performance by reportable segment Segment profit is based on operating profit. Intersegment revenue and transfers reflect reasonable prices for intersegment transfers based on market value. Revenues and performance by the Group’s reportable segments are as follows: FY2021 (Three-month period ended March 31, 2021) Reportable segment Pharma- ceuticals Nutra- ceuticals Consumer products Others Total (Millions of yen) Adjustments * Consolidated － － Revenue Revenue from external customers Intersegment revenue or transfers 225,322 76,846 6,826 27,794 336,789 336,789 － 8,077 8,090 (8,090) － Total 225,322 76,854 6,830 35,871 344,879 (8,090) 336,789 Segment profit 45,031 8,698 2,143 5,134 61,006 (10,913) 50,092 * Adjustments to segment profit of ¥(10,913) million include intersegment eliminations of ¥(157) million, unallocated expenses of ¥(11,089) million and other income of ¥333 million. Unallocated expenses are incurred in administrative departments such as headquarters. FY2022 (Three-month period ended March 31, 2022) Reportable segment Pharma- ceuticals Nutra- ceuticals Consumer products Others Total (Millions of yen) Adjustments * Consolidated Revenue Revenue from external customers Intersegment revenue or transfers 252,058 90,337 7,670 30,242 380,308 380,308 － 8,806 8,813 (8,813) － Total 252,058 90,340 7,673 39,048 389,122 (8,813) 380,308 Segment profit (loss) 17,333 11,262 (235) 4,052 32,413 (11,663) 20,749 * Adjustments to segment profit of ¥(11,663) million include intersegment eliminations of ¥85 million, unallocated expenses of ¥(12,072) million and other income of ¥323 million. Unallocated expenses are incurred in administrative departments such as headquarters. 8 3 3 3 – 16 – Impairment of Assets The Group recorded impairment losses of ¥23,831 million for the three-month period ended March 31, 2022, ¥23,760 million of which related to the pharmaceutical business. In the pharmaceutical business, the Group received a Complete Response Letter (CRL) from the U.S. Food and Drug Administration (FDA) for vadadustat for the treatment of anemia during and before dialysis, indicating that the application is not ready for approval in its present form. As a result, impairment losses of ¥23,584 million were recorded, with carrying amounts of in-process research and development recognized as intangible assets and other related assets reduced to zero. Subsequent Events Acquisition of Cullinan Pearl Corp. Taiho Pharmaceutical Co., Ltd. (hereinafter referred to as “Taiho”), a consolidated subsidiary of the Company, entered into an agreement with Cullinan Oncology, Inc. (hereinafter referred to as “Cullinan Oncology”) to acquire all shares of Cullinan Pearl Corp. (hereinafter referred to as “Cullinan Pearl”), an equity-method affiliate of the Company, held by Cullinan Oncology on May 12, 2022 (Japan Standard Time), and Cullinan Pearl will be a wholly-owned subsidiary. Taiho will make an upfront cash payment of $275 million to Cullinan Oncology, with potential to pay up to an additional $130 million in regulatory-based milestone payments, as consideration of this acquisition. The acquisition under this agreement is expected to be completed by the end of the second quarter of FY 2022, subject to necessary legal proceedings. – 17 –