Annual Report 2004 · 2017-02-14 · 4 Dainippon Pharmaceutical Co., Ltd. Annual Report 2004...

DAINIPPON PHARMACEUTICAL CO., LTD.

For the year ended March 31, 2004

Annual Report 2004

Corporate Profile

Dainippon Pharmaceutical Co., Ltd., as one of the pioneers of

the modern pharmaceutical industry in Japan, has

continuously striven to contribute to society with its research

and development of better pharmaceuticals and in the supply

of those products to the health care world.

Since its foundation in 1897, the Company has used its novel

perspectives and insights toward the creation of ever more

useful pharmaceuticals. Many of our quality products have

won firm confidence and an enviable reputation in the health

care profession.

● ContentsFinancial Highlights 1

Message from the Management 2

Highlights of the Year 4

Research and Development 6

Summary of Major Development Candidates 9

New Durgs in the R&D Pipeline 10

Business Development 11

Review of Operations 12

Commitment to Environmental Protection 20

Financial Section 21

Corporate Information 42

Disclaimer Regarding Forward-looking StatementsStatements made in this annual report regarding Dainippon Phermaceutical’s plans,strategies, beliefs, and other statements that are not historical facts, are forward-looking statements based on management’s assumptions and beliefs in light ofinformation avaliable at the time of publication, and involve risks uncertainties thatcould cause the Company’s actual results to differ materially from those presented inthis report.

Dainippon Pharmaceutical Co., Ltd. Annual Report 2004 ●

Financial Highlights

1

Millions of Yen Percent Thousands ofChange U.S. Dollars (Note)

2004 2003 2004/2003 2004For the Year:

Net sales ........................................................... ¥ 170,842 ¥ 172,162 -0.8% $ 1,611,717Operating income .............................................. 9,283 12,876 -27.9 87,575Net income ........................................................ 7,968 6,364 25.2 75,170R&D costs ......................................................... 15,929 15,218 4.7 150,274Capital expenditures ......................................... 4,294 6,532 -34.3 40,509Depreciation and amortization .......................... 5,821 5,316 9.5 54,915

At Year-End:Total assets ....................................................... 193,238 187,416 3.1 1,823,000Shareholders’ equity ......................................... 129,569 116,044 11.7 1,222,349

Yen U.S. Dollars (Note)

Per Share Data:Net income ........................................................ ¥ 48.05 ¥38.02 26.4 $ 0.45Net income assuming full dilution ..................... 36.36Cash dividends ................................................. 10.00 10.00 0.09

Percent

Key Ratios:Return on equity (ROE) .................................... 6.5% 5.5%Return on assets (ROA) ................................... 4.2 3.4%

Note: U.S. dollar amounts are translated from yen, for convenience only, at the rate of ¥106 to US$1 prevailing on March 31, 2004.

● Dainippon Pharmaceutical Co., Ltd. Annual Report 2004

Message from the Management

OverviewThis report covers the performance of

Dainippon Pharmaceutical Co., Ltd. and itsconsolidated subsidiaries (the DainipponPharmaceutical Group) for fiscal 2004, theyear ended March 31, 2004.

Dainippon Pharmaceutical strives to be acompany that widely contributes to societythrough value creation, based on its continualresearch and development for the bettermentof healthcare and fuller lives for all peopleworldwide. In order to realize such ideals, ourbusiness activities are infused with the prin-

ciples of customer satisfaction, human re-source development, and expanding the trustof society. As a responsible member of society,the Company is aiming for further growth inthe fields of human and animal health throughaggressive business development and con-stant adaptation to a rapidly changing busi-ness environment. Dainippon Pharmaceutical’sstrategy for medium- to long-term growth is itsPhase II 5-Year Management Plan, which waslaunched in fiscal 2003. To succeed amidincreasingly severe competition through abasic aim of “realization of qualitative opera-

2

tions,” Dainippon Pharmaceutical is strivingto expand the profitability of its domesticpharmaceutical operations and maximize thepotential of products while ensuring closecollaboration among its divisions of research,development, sales and production. We arealso continuing to work toward developingnon-pharmaceutical operations into fullyindependent businesses with solid earningsand profit bases. Finally, we aim to reducecosts and increase operating efficiencythroughout the Company.

ResultsIn the pharmaceutical industry, measures to

restrain healthcare costs such as revisions to theNational Health Insurance Law in April 2003,caused the growth rate of the domestic market toslow. Amid these conditions, foreign-ownedcompanies have increased their presence andcompetition has intensified. Consequently, netsales declined 0.8 percent from the previousfiscal year to ¥170.8 billion. Operating income

decreased 27.9 percent year-on-year to ¥9.2billion due to an increase in the cost of sales ratioresulting from changes in the product mix andhigher depreciation expenses in connection withthe construction of new facilities necessitated bythe consolidation of plant operations. Net incomerose 25.2 percent compared with the previousyear to ¥7.9 billion due to an increase in royaltyincome and gains on transfer of the substitutionalportion of the government pension program.

Looking at results by business segment, in thepharmaceuticals business, sales of the mainproducts GASMOTIN®, a gastroprokinetic agent,and PRORENAL®, an agent for the improvementof peripheral circulation, grew substantially.However, sales of the new quinolone antibacte-rial, GATIFLO®, declined unavoidably, in keepingwith its lowered marketability. As a result, netsales in this business segment declined 2.9percent year-on-year to ¥118.4 billion.

In the animal health products business, netsales rose 6.9 percent year-on-year to ¥28.6billion, due in part to the first full-year contribution

Main Management Tasks of the RevisedPhase II 5-Year Management Plan

1. Strengthening domestic pharmaceutical operationsStrategically allocate management resources to products thatcontribute to profits, with the aim of increasing sales to the fullestextent by maximizing those products’ potential.

2. Active investment in research and developmentAs in the original Phase II plan, target investment towardresearch and development to create compounds with new valueand ensure speedy market launches of the products developed.In addition, focus on further increasing R&D efficiency.

3. Acceleration of overseas developmentWork to accelerate overseas development by promoting the globaldevelopment of Dainippon Pharmaceutical’s international strategicproducts based on proactive strategies for out-licensing.

4. Implementation of further cost reduction measuresPromote further streamlining and increased efficiency in areasincluding reducing fixed costs by reviewing the functions ofadministrative divisions, and cutting costs by strengtheningprocurement.

5. Introduction of a new personnel systemPromote business competitiveness by establishing a thoroughresults-oriented system and reviewing the remuneration system,while working to revitalize the Company by introducing a newpersonnel system that aims to improve employee motivation.


Takeshi TomotakeChairman

Kenjiro MiyatakePresident

3

to sales of the product lineup acquired fromTanabe Seiyaku Co., Ltd. during the previousfiscal year. Net sales in other businesses,including food and food additives, totaled ¥23.7billion, a 1.4 percent increase over the previousfiscal year.

Dainippon Pharmaceutical revised the salesand income targets of the Phase II 5-YearManagement Plan, implemented since April2002, based on recent developments such as thepreviously unreported side effects that affectedthe marketability of GATIFLO®—a product thatwas expected to become a cornerstone of theCompany’s earnings and profit base under theplan—and suspension of the development of adiabetes treatment originally positioned tobecome an international strategic product.Although the numerical management targetshave changed in the Revised Phase II 5-YearManagement Plan, the basic aim of the “realiza-tion of qualitative operations” remains unchangedas Dainippon Pharmaceutical continues with therapid implementation of the following operationalgoals.

Final year targets (by fiscal 2007)Operating income ratio: 11.0 percentReturn on equity (ROE): 6.8 percentEarnings per share (EPS): ¥55

OutlookIn fiscal 2005, Dainippon Pharmaceutical will

work toward further growth by prioritizing invest-ment of management resources in high-marginproducts, particularly GASMOTIN®, agastroprokinetic agent, PRORENAL®, for theimprovement of peripheral circulation, andQVAR™, an inhaled steroid asthma treatment.However, net sales are expected to increase onlyslightly year-on-year, due to revisions to NHIdrug prices (an average decrease of 4.2 percentthroughout the industry) enacted at the beginningof the fiscal year.

In addition, we expect operating income,ordinary income and net income to decreaseyear-on-year, due to the Company’s plans toincrease investment in R&D over the level of theprevious year in order to enhance the pipelineand expedite development, as well as a pro-jected increase in operating expenses, such as

Takeshi Tomotake

Chairman

Kenjiro MiyatakePresident

promotional costs associated with the aggressivemarket development of strategic products.

Dainippon Pharmaceutical will work in concertto achieve the objectives of the Phase II 5-YearManagement Plan, aiming for profit-focusedmanagement. We look forward to our stakehold-ers’ continued cooperation and support.


Highlights of the Year


Dainippon Licenses OutAntidementia Agent to Aventis

In February 2004, Dainippon Pharmaceuticalconcluded an agreement to license out itsoriginal antidementia agent AC-3933 to Frenchpharmaceutical company Aventis Pharma S.A.Under the agreement, Aventis has acquiredworldwide development and marketing rights forAC-3933, excluding Japan. Dainippon is cur-rently conducting Phase IIa clinical trials inEurope, after which Aventis will then pursue thesubsequent development of AC-3933 in itslicensed territories.

AC-3933, a benzodiazepine receptor partialinverse agonist, has an innovative mechanism ofaction, and is one of Dainippon’s foremostproducts under development, with the potentialto become a key product for Dainippon. Throughits collaboration with Aventis, Dainippon willaccelerate AC-3933’s development in order toquickly launch it as a next-generationantidementia agent.

Development of AntidiabeticAgent Halted

In September 2003, Dainippon Pharmaceuti-cal and Takeda Pharmaceutical CompanyLimited announced that they would discontinuethe domestic and worldwide development of AJ-9677 (TAK-677), a ß3-adrenaline receptoragonist discovered by Dainippon. In Japan,Dainippon had been conducting Phase II clinicaltrials on patients with diabetes mellitus, whilelicensee Takeda had been conducting Phase IIclinical trials in the U.S. and Europe for diabetesmellitus and obesity. However, while there wereno safety concerns during the course of theclinical studies, the studies did not show suffi-cient efficacy to continue development of thisagent.

Dainippon Launches OPSO® andStarts Co-Promotion of MorphinePreparation with TAIHO Pharma-ceutical Co., Ltd.

In June 2003, Dainippon Pharmaceuticalintroduced OPSO® (morphine hydrochloridesolution), its original, liquid-based cancer painmedication. OPSO® is the first liquid morphineproduct to be standardized in Japan. The liquidformulation masks the bitterness of morphine,and can be stored for a long time at room tem-perature. It is also useful as an analgesic forpatients unable to tolerate a solid formulation.

In addition, Dainippon has begun co-promot-ing two of its morphine products, OPSO® and thelong-acting cancer pain reliever KADIAN®, withTAIHO Pharmaceutical Co., Ltd. Through thepartnership with TAIHO—a prominent company inthe field of anticancer drugs—Dainippon expectsthat KADIAN® will become even more popularand OPSO® will quickly penetrate the market.

OPSO®, a liquid-based cancer

pain medication

Phase II 5-Year Management PlanRevised

Following a review of its Phase II 5-YearManagement Plan (fiscal 2003—fiscal 2007),Dainippon Pharmaceutical announced theRevised Phase II 5-Year Management Plan inFebruary 2004. The basis for this review was thenecessity to revise the forecasted net sales andprofits in the Phase II 5-Year Management Planfor both the Japanese and overseas markets dueto changes in the domestic marketability ofGATIFLO® (gatifloxacin)—a new quinoloneantibacterial agent that was expected to be aprimary source of revenue flow—and suspensionof the development of an antidiabetic agentpositioned as an international strategic product.Both a Corporate Cost Restructuring Committeeand a Product Portfolio and Marketing StrategyCommittee were promptly established to reviewkey operational issues, and each Committee’ssubsequent findings and solutions were incorpo-rated into this revised plan.

(Please refer to the Revised Phase II 5-Year ManagementPlan on pages 2 and 3)

P

D

D

D

Dainippon Pharmaceutical Co., Ltd. Annual Report 2004 ●5

Launch of Inactivated CombinedVaccine “BIKEN” for Iridovirus-Streptococcicosis for aquacultureuse

In April 2003, Dainippon Pharmaceuticallaunched Inactivated Combined Vaccine “BIKEN”for Iridovirus-Streptococcicosis, manufactured byThe Research Foundation for Microbial Diseasesof Osaka University. It is a combined vaccine thatcan protect fish of genus yellowtail with oneinjection against both iridoviral disease and -hemolytic streptococcicosis, which are majorcauses of mortality in cultivated fish of genusyellowtail. The vaccine is the world’s first inacti-vated combined vaccine for iridovirus andstreptococcicosis.

Marketing Application Filed forZonisamide in Europe, with a NewFormulation Launched in the U.S.,and a Transfer of Licensing Rights

In November 2003, Ireland-based ElanPharma International Ltd. filed a marketingapplication using the centralized procedure of theEuropean Agency for the Evaluation of MedicinalProducts (EMEA) for the anti-epilepsy medicationzonisamide (marketed as ZONEGRAN® in theU.S.). Also, in January 2004 two new dosagestrengths—a 25-mg capsule and a 50-mg cap-sule—were launched in addition to the 100-mgcapsule in the U.S.

In March 2004, Dainippon signed an agree-ment that transferred licensing for zonisamide inNorth America and Europe from Elan to EisaiCo., Ltd. Due to Elan’s recent realignment of itsbusiness strategy, ZONEGRAN® no longer fittedthe company’s profile for one of its core products.Furthermore, Eisai, which has successfullydeveloped and marketed an anti-Alzheimer’sagent in the U.S. and Europe, has shown astrong interest in ZONEGRAN®. As a result,Dainippon believes this transfer of rights forZONEGRAN® is beneficial for all parties involved.This new arrangement is expected to furtherexpand Dainippon’s zonisamide business world-wide.

L

M Production Consolidated at theSuzuka Plant

With the closure of the Osaka Plant on April 1,2003, Dainippon Pharmaceutical’s productionactivities were consolidated at the Suzuka Plant.To allow such consolidation to proceed, theSuzuka Plant was equipped with packaging,warehousing and quality control functions. Con-struction of the new GMP-compliant Pharmaceuti-cal Manufacturing Plant was completed in April2003. It is anticipated that these developments willfurther optimize the productivity of DainipponPharmaceutical’s production system.

New PharmaceuticalManufacturing Plantat the Suzuka Plant

P

O Overseas Expansion of the FoodBusiness

In Thailand, Betagro-Dainippon Techno-ExCo., Ltd. (BDT) completed construction of a newproduction facility in January 2004. BDT is a jointventure between Dainippon Pharmaceutical,Sumitomo Corporation, and Betagro Agro GroupCo., Ltd.—one of Thailand’s largest poultrygrowing, pig farming and animal feed manufac-turing interests. The completion of the plantprovides Dainippon Pharmaceutical with a stablesource of raw materials for its extracts businessfrom Thailand in addition to its existing sources inJapan, allowing the company to further expandthis area of its business in the future.

In China, Kunshan Dafu Food TechnologyCo., Ltd., a joint venture between DainipponPharmaceutical and Sanwa Shoji Co., Ltd.,completed construction of a foodstuffs productionfacility in March 2004. With the completion of theproduction facilities, combined with the R&D andquality control functions that have been opera-tional since October 2003, the company formallylaunched its foodstuffs operations in Chinaproducing among other products, thickeners,stabilizers, and flavorings.

Research and Development


With the rapid evolution in life sci-ences, the pharmaceutical research anddevelopment process has been requiredto become ever more sophisticated inorder to harness the benefits. Reflectingthe needs of this exciting environment,Dainippon Pharmaceutical has estab-lished both a separate Drug ResearchDivision and a Drug Development Divi-sion, thereby establishing and clarifyingtheir independent roles and responsibili-ties.

A lateral “project system” has alsobeen introduced that allows the Researchand Development Divisions to moreeffectively collaborate together, whilecreating synergies from their indepen-dent strengths. The “project system”encourages all personnel related to aproject—from those involved in basic

research to those involved in post-market-ing—to increase the speed and efficiencyof development through the use of projectteams.

These teams have strengthened thelateral ties between the research, clinicaldevelopment and marketing divisions,while also promoting the professionaldevelopment of team members throughpractical experience in multidisciplineR&D. To support this project system, anelectronic R&D Project Support Systemwas also introduced. This electronicsystem enables centralized managementof information on schedules, projectprogress and resource uses, as well asfacilitating the easy sharing of informationamong project members, thus raising theefficiency of both research and develop-ment.


Drug Research Division

■ Basic AimsGlobal R&D investment for new drug

development has nearly doubled in the pastten years, but the number of new drugslaunched has fallen by roughly 50 percent.Pharmaceutical companies are being forcedto make drastic changes to their drug devel-opment strategies in the face of such fiercecompetition.

The primary aim of the Drug ResearchDivision is to increase the speed and successof global drug discovery activities. As antici-pated, with the Company’s separated re-search and development functions, thediscovery research operations of the Divisionhave become more streamlined while con-tinuing to ensure strict observance of bothdomestic and international regulationsinvolving quality assurance.

Dainippon Pharmaceutical’s researchorganization is comprised of four laboratoryfacilities—the Chemistry Research Laborato-ries, the Pharmacology & MicrobiologyResearch Laboratories, the Safety ResearchLaboratories and the PharmacokineticsResearch Laboratories. This organizationalstructure has served to clarify eachlaboratory’s roles and responsibilities regard-ing the selection of new candidates and thefocus of resources in the development of newdrugs.

■ Areas of Exploratory ResearchDainippon Pharmaceutical is concentrat-

ing on exploratory research in its four se-lected areas of vascular, psychic & neuro-logic, immuno-inflammatory and infectiousdiseases. Clear definition of research priori-ties within the exploratory research stage andthe introduction of a research team systemhave helped to enhance the speed andefficiency of research activities. Early-stageevaluation using early ADME/TOX screeninghas also assured an improved success rate.

■ Genomic Drug DiscoveryThe introduction of high throughput

screening (HTS) and automated combinato-rial chemistry systems in the 1990s resultedin a quantitative change in drug discoveryresearch activities. The announcement of themapping of the human genome sequence in2001 represents an even greater qualitativechange in the process. In response,Dainippon Pharmaceutical established theAdvanced Pharmacology Group within thePharmacology & Microbiology ResearchLaboratories to conduct genetic research and

the Structural Chemistry Group within theChemistry Research Laboratories to analyzeprotein expression and structure. BothGroups are working to identify and validatedrug targets using genomics, proteomics andbioinformatics. Also considerable progresshas been made on the development ofnecessary skills for in-house HTS of newtargets.

Dainippon Pharmaceutical also plans tomake use of genome technology and infor-mation for predicting pharmacokinetics anddrug safety for humans, not only for use inexploring drug targets but also to improve thelikelihood of success in research. We arecontinually challenging to improve our know-how of leading-edge technologies by activelyparticipating in various projects with externalresearch institutions and the conduct of jointresearch.

7


Drug Development Division

■ Basic AimsThe first basic aim of the Drug Develop-

ment Division is to shorten the developmentperiod. Currently, the target period from thestart of clinical trials to application for ap-proval is five years. A key strategy for reduc-ing this timeframe is to concentrate develop-ment resources on high-priority candidates.The Division is also making effective use ofexternal resources, such as clinical researchorganizations (CRO) and site managementorganizations (SMO) in clinical trials. Thesecond basic aim is prompt rapid assess-ment of product characteristics. To this end,the Division conducts clinical studies fromPhase I to the proof-of-concept (POC) study,wherever the quickest development ispossible, whether it be in Japan or overseas.The third basic aim is value-added develop-ment.

Pharmacovigilance & Medical Informationis part of the Drug Development Division.This structure allows for a unified develop-ment strategy encompassing the entireprocess from Phase I clinical trials to post-marketing activities, and a clinical develop-ment system that generates product informa-tion from the development stage for use inpost-marketing activities. Management ofsafety data has also been centralizedthrough all stages. The basic aims ofPharmacovigilance & Medical Informationinclude establishing and maintaining areliable post-marketing survey system,promoting proper use at the internationallevel, and providing support forpharmacovigilance activities through effectiveuse of product information.

The Drug Development Division is com-prised of Development Management, ClinicalDevelopment, International Clinical Develop-ment, Biostatistics, GCP Assurance andPharmacovigilance & Medical Information.Development Management is responsible forproject management, regulatory affairs, andresource management, Clinical Development

handles clinical studies in Japan and Interna-tional Clinical Development is in charge ofclinical development outside Japan.Pharmacovigilance & Medical Informationconducts post-marketing surveys, preparespost-marketing product information andmanages safety data.

■ Globalization of DevelopmentFor development candidates identified by

Dainippon Pharmaceutical, the Companygenerally conducts clinical trials up to thePOC study stage either in Japan or overseas,and then searches for a licensee to furtherdevelop the product overseas. In the case ofcandidates, such as AC-5216, where alicensee company expressed interest at avery early stage, a licensing agreement maybe finalized at that time.

With the slow pace of clinical trials longbeing a problem in Japan, Dainippon Phar-maceutical leverages the results of clinicaltrials completed overseas to shorten the timeto approval and launch in Japan. Overseasclinical trials are managed by InternationalClinical Development in cooperation withDainippon Pharmaceutical U.S.A. Corpora-tion and the London office, and performedusing local CROs. At present, AS-3201 isundergoing Phase II trials in the U.S. andCanada, and AC-3933 is undergoing Phase IItrials in Europe. Overseas clinical trials beingconducted by licensees include Phase II trialsfor mosapride citrate by Takeda Pharmaceuti-cal Company Limited in the U.S. In Europe,Almirall Prodesfarma, S.A. is conductingPhase II trials for blonanserin and NovartisPharma AG is conducting Phase I trials forAC-5216. In addition, during fiscal 2004 ElanPharma International Ltd. filed through theEuropean centralized procedure a EuropeanMarketing Authorization Application forzonisamide and it transferred its interests inzonisamide in North America and Europe toEisai Co., Ltd.


■ BlonanserinBlonanserin has a novel chemical structure that is

completely different from existing antipsychotic agents.The results of recently completed clinical trials haveproven that this serotonin-2 (5-HT2) and dopamine-2receptor antagonist has efficacy on both the positiveand negative symptoms of schizophrenia, and suggestthat blonanserin causes fewer extrapyramidal adversereactions compared to older agents. In addition, theundesirable side effects, such as weight gain andelevated blood sugar levels, that are associated withother new antipsychotics were not observed. DainipponPharmaceutical is conducting Phase III trials. Spanishpharmaceutical company Almirall Prodesfarma, S.A.has licensed from Dainippon Pharmaceutical the rightsto develop and market blonanserin worldwide, exclud-ing east Asia, and is currently conducting Phase II trialsin Europe and the U.S.

■ AS-3201In diabetic patients, glucose—which cannot be

metabolized in the usual manner—is metabolized byaldose reductase into sorbitol, which accumulates incells, causing complications such as nerve and bloodvessel damage, kidney disease, and retinopathy. AS-3201, discovered by Dainippon Pharmaceutical, is analdose reductase inhibitor (ARI) that prevents complica-tions due to the accumulation of sorbitol in the cells ofdiabetic patients. Due to its strong enzyme-inhibitingactivity and long-acting effects, AS-3201 is expected todemonstrate clear clinical efficacy compared withsimilar agents on the market or under development.Dainippon Pharmaceutical is conducting Phase II trialsin the U.S. and Canada. A 12-week clinical biopsy studywas completed within fiscal 2004, which showed thatAS-3201 inhibits the polyol pathway in sural nerve,improves nerve function, and tends to improve someclinical measures.

■ Zonisamide (EXCEGRAN®)Zonisamide is an antiepileptic agent developed by

Dainippon Pharmaceutical that has been marketed inJapan under the brand name EXCEGRAN® since 1989.At the Neurology Department of the University of Tokyo,when epilepsy patients with Parkinson’s symptomswere given zonisamide, their Parkinson’s symptomsimproved significantly. These findings attracted a greatdeal of attention when they were reported at the Annual

Meeting of the Japanese Society of Neurology held inMay 2001. Parkinson’s disease is currently treated withL-dopa, which becomes less effective as the diseaseprogresses. However, zonisamide produces a beneficialeffect through a completely different mechanism ofaction, and there are high expectations for its clinicalefficacy. Dainippon Pharmaceutical is conducting latePhase II/Phase lll trials for the additional indication forzonisamide as a treatment for Parkinson’s disease.

■ AC-3933The nursing of elderly patients with Alzheimer’s

dementia and cerebrovascular dementia has become amajor social issue, and treatments for senile dementia,have become increasingly important. AC-3933 is abenzodiazepine receptor inverse agonist with a novelmechanism of action that is expected to improvememory loss, one of the core symptoms of seniledementia. Compared with antidementia agents alreadymarketed, it is expected that AC-3933 will demonstratebetter efficacy for improving memory deficit by en-hancement of the cholinergic function through theallosteric reduction of GABA activity, as well as byenhancement of the glutamatergic function. At present,AC-3933 is undergoing Phase II trials in Europe.

(See Highligts of the Year)

■ AC-5216Dainippon Pharmaceutical’s discovery research

team for neuropsychiatric agents has concentrated formany years on benzodiazepine receptors. AC-3933 andAC-5216 are two drugs of this class with novel mecha-nisms of action that have gained wide attention in theexpanding market for anxiety and depression treat-ments. AC-5216 is an antianxiety/antidepressant drugwith an innovative mechanism that is different fromexisting benzodiazepine type antianxiety agents. Unlikemost of the currently available antianxiety agents thatbelong to the benzodiazepine type, AC-5216 is anagonist for mitochondrial benzodiazepine receptors andpromotes the production of neurosteroids, which act onthe GABAA receptors.

Dainippon Pharmaceutical is conducting Phase Itrials in Japan. In February 2002, Novartis Pharma AGreceived exclusive rights to develop and market AC-5216 globally, excluding east Asia, and is currentlyconducting Phase I trials in Europe.

Summary of Major Development Candidates

9


New Drugs in the R&D Pipeline

10

(As of June 30, 2004)

Stage Brand name Generic name Formulation Category Remarks

Approved GLIMICRON HA® gliclazide Tablet Oral Developed*New Formulation: hypoglycemic in-house20mg tablet


NDA filed ANPEC® morphine Injection Analgesic Co-developed*New Administration hydrochloride with 4 other companiesRoute: epiduralinjection

EPHEDRINE NAGAI® ephedrine Injection Hypotension Co-developed*New Administration hydrochloride during with 2 other companiesRoute: intravenous anesthesiainjection

QVARTM beclomethasone Non-CFC Bronchial Licensed from*Additional Use: dipropionate Metered asthma 3MPediatric dose inhaler

EBASTEL® ebastin OD Tablet Antiallergic Licensed from*New Formulation Almirall

Stage Brand name Generic name Formulation Category Remarks(Code name)

Phase III LONASEN® blonanserin Tablet Antipsychotic Developed(AD-5423) Powder in-house

ZANIDIP® lercanidipine Tablet Anti- Licensed fromhydrochloride hypertensive Recordati

(Ca antagonist) Co-developedwith Tsumura


Late Phase II / EXCEGRAN® zonisamide Tablet Antiparkinson DevelopedPhase III *New Indication disease in-house

Stage Brand name Generic name Formulation Category Remarks(Code name)

Phase II AURORIX® moclobemide Tablet Antidepressant Licensed fromRoche

AS-3201 Not determined Tablet Aldosereductaseinhibitor

AC-3933 Not determined Tablet Antidementia

GASMOTIN® mosapride Tablet Post- Developed*New Indication citrate gastrectomy in-house

syndrome

Stage Code name Generic name Formulation Category Remarks

Phase I AC-5216 Not determined Tablet Antianxiety & DevelopedAntidepressant in-house

Developed in-housePreparation for phase IIb trialsin the U.S. and Canada

Developed in-housePhase II trials under way in EuropePhase I trials under way in Japan


Business Development

Being a research-driven pharmaceuticalcompany, Dainippon Pharmaceutical’sprimary aim is to bring the best medicines tothe marketplace to help those people whoneed them most. At the same time,Dainippon Pharmaceutical is constantlychallenging to improve its strategy for growthin the pursuit of ever-higher performance.While promoting these ideals, DainipponPharmaceutical continues to expand itsbusiness and research base by developingopportunities and by establishing productiverelationships with other companies, therebyrealizing synergiesthrough combinedphilosophies, capabili-ties and assets.

During fiscal 2004,Dainippon Pharmaceu-tical entered into twoagreements with othercompanies, establish-ing new collaborationsthat will maximize thepotential of our mutualactivities and fulfillpotential opportunities.

In February 2004,Dainippon Pharmaceutical concluded anagreement to grant Aventis Pharma S.A.exclusive world-wide development andmarketing rights (except Japan) ofDainippon Pharmaceutical’s novelantidementia agent AC-3933. AC-3933 actsas a partial inverse agonist at the GABA-benzodiazepine receptor complex, and thusenhances cholinergic function. Currentlyunder development in Europe by DainipponPharmaceutical, it is expected to demon-strate better efficacy for improving memorydeficit than the existing treatments.

In October 2003, Dainippon Pharmaceuti-cal licensed out Dainippon Pharmaceutical’soriginal topoisomerase II inhibitor anticancer,AG-7352 to Sunesis Pharmaceuticals, Inc.,an American company that has received theexclusive worldwide development and mar-keting rights. Being a quinolone analogue,AG-7352 is expected to expand the antitumorspectrum, and to show potent activitiesagainst various multi-drug-resistant cancers.

Dainippon Pharmaceutical believes thatthese strategic alliances will allow bothDainippon Pharmaceutical and its partnering

companies to continuously activate ourmutual pipelines in these collaborative fieldsand promote us to stronger positions in themarketplace.

Dainippon Pharmaceutical’s central focusis on the greatest current and future needs forpatient medication. Through our partnershipswith outside talent, Dainippon Pharmaceuticalenvisages contributing even more to thosemedical needs.

11

Dainippon Pharmaceutical andAventis Pharma S.A. signing anagreement for AC-3933.


Review of Operations

Pharmaceuticals

Ethical Pharmaceuticals

■ Domestic OperationsDainippon Pharmaceutical is progressing

positively with its efforts to increase produc-tivity in its sales operations, through suchinitiatives as the organizational restructure ofMRs, which now emphasizes solutions-basedmarketing activities. By extending the skillsand efficiency of Dainippon Pharmaceutical’sMRs, it is believed that the present salesforce of 700 can effectively perform with thecreativity of 1,000. In October 2003, theproject system implemented in the Researchand Development Divisions was also intro-duced in the Sales Division to nurture existingproduct lines and strengthen product life-cycle management, in conjunction the num-ber of product managers was also increasedto strengthen product-specific marketing.

The pharmaceuticals business,Dainippon Pharmaceutical’s core field ofoperations, focuses on ethical pharma-ceuticals in addition to offering over-the-counter drugs and diagnostics. In theethical pharmaceuticals business,Dainippon Pharmaceutical is promotingstrategic and effective marketing with anarea team marketing system. This systemis designed to respond to the shift towardthe localized, self-contained health caresystems of secondary healthcare zones,which are the future of healthcare provi-sion, as well as other changes in thepharmaceutical industry, such as theseparation of the medical prescription anddispensing functions. In fiscal 2004,pharmaceuticals sales totaled ¥118,481million, accounting for 69.3 percent oftotal sales.

12


Management resources for sales arebeing allocated strategically, with a priorityfocus on GASMOTIN®, PRORENAL® andQVARTM, with the goal of realizing the fullpotential of each product. Specific measuresinclude implementation of an evidence-basedmedicine (EBM) strategy, product-focusedpromotional activities, and the rapid estab-lishment of a structure incorporating 750MRs.

During fiscal 2004, in an environment ofintensifying market competition, net salesdecreased 2.9 percent year-on-year to¥118.4 billion. A brief overview highlightingthe performance of major pharmaceuticalproducts follows below.

The gastroprokinetic GASMOTIN®

(mosapride citrate) was independentlydeveloped by Dainippon Pharmaceutical,and promotional efforts since its launch haveestablished it as one of the Company’sflagship products. Sales in fiscal 2004increased 20.8 percent to ¥15.7 billion. Theworld’s first selective serotonin 5-HT4 recep-tor agonist, GASMOTIN® promotesgastrointestinal motility, and becauseGASMOTIN® does not block dopamine D2

receptors, there is a reduced likelihood ofextrapyramidal adverse reactions or pro-longed QT intervals. Naturally, GASMOTIN®

has earned a reputation as an extremelyeffective agent. Through efforts to increaseawareness of functional dyspepsia and

13

establish evidence in the treatment of thisdisease, the Company plans to further cementits position as a mainstay product.

Sales of PRORENAL® (limaprostalfadex)—an orally administered prostaglan-din agent for the improvement of peripheralcirculation, which was jointly developed withOno Pharmaceutical Co., Ltd.—increased36.4 percent year-on-year to ¥8.3 billion.Sales of PRORENAL® have grown rapidlysince 2001, when it was approved for theadditional indication of lumbar spinal canalstenosis. Although lumbar spinal canal steno-sis occurs in many elderly people, its impor-tance and the need for treatment are not yetwell recognized. Therefore, to further grow themarket for PRORENAL®, Dainippon Pharma-ceutical will concentrate its efforts to bettereducate about this disease.

Sales of the inhaled steroid asthmatreatment QVARTM(beclomethasonedipropionate), launched in August 2002, were¥1.5 billion. Licensed from 3M Pharmaceuti-cals, QVARTM is an MDI that uses an ozone-safe non-CFC propellant. Because it is anextrafine aerosol, it is as effective as previousproducts at only half the dosage. Reflectingthe asthma prevention guidelines enacted inJapan in 1998, the market for inhaled steroidmedications is expected to continue to expandfurther. Additionally, QVARTM was filed forpediatric use in January 2004. DainipponPharmaceutical co-markets QVARTM in Japan

with Schering-Plough K.K.The antiepileptic agent

EXCEGRAN® (zonisamide),developed in-house, ishighly valued by specialistsfor its broad spectrum ofactivity and superiorefficacy in refractory cases.In fiscal 2004, sales ofEXCEGRAN® decreased10.0 percent to ¥5.9 billiondue to a decline in exports.Dainippon Pharmaceuticalintends to further expandthe potential of this prod-

GASMOTIN®, a gastroprokinetic agent


uct, with therapeutic trials for the additionalindication of Parkinson’s disease now underway.

EBASTEL® (ebastine), an antiallergy druglicensed from Almirall Prodesfarma, S.A.,experienced a year-on-year decrease in salesof 8.3 percent to ¥10.2 billion due to a sharpdecline in the dispersal of cedar pollen in thepast season and intensified competition in themarket. Although competition has increased,EBASTEL® exhibits potent antihistamine actionand superior efficacy with a single daily dose,in combination with a low incidence of undesir-able effects such as drowsiness. By promotinggreater awareness of EBASTEL®’s advan-tages, the Company will work to maintain itsmarket share.

The macrolide antibiotic KLARICID®

(clarithromycin), the enteral nutrition productENSURE LIQUID®, and the humanized mono-clonal antibody for prevention of respiratorysyncytial virus (RSV) infection SYNAGIS®

(palivizumab), which were developed byDainabot Co., Ltd. (now Abbott Japan Co.,Ltd.), posted sales of ¥18.9 billion, ¥13.8billion, and ¥5.4 billion, respectively.

Sales of the oral hypoglycemicGLIMICRON® (glicazide), the psychotropicdrug SERENACE® (haloperidol) and the ACEinhibitor CETAPRIL® (alacepril), mid-levelproducts in terms of net sales, were limited to¥5.0 billion, ¥3.1 billion, and ¥2.8 billion,respectively.

Sales of the new quinolone antibacterialGATIFLO® (gatifloxacin), which DainipponPharmaceutical co-markets with Kyorin Phar-maceutical Co., Ltd., were ¥1.3 billion.

■ Overseas OperationsDainippon Pharmaceutical’s international

operations have for many years been centeredin Asia. However, overseas sales and earningshave increased substantially in other marketsfollowing the April 2000 launch of zonisamidein the United States. Although export sales ofzonisamide were ¥2.5 billion in fiscal 2004 (adecrease of 23.6 percent compared with theprevious fiscal year), this was not due to adecline in net sales or the number of prescrip-

tions but merely an adjustment from fiscal2003, when Elan, Dainippon Pharmaceutical’sU.S. licensee, caused sales of bulk pharma-ceuticals to exceed anticipated demand bystockpiling products in preparation for relocat-ing a manufacturing facility. Elan filed amarketing authorization application forzonisamide in Europe in November 2003, andDainippon Pharmaceutical will continueseeking business opportunities for zonisamideoutside of the U.S. and Europe, with the hopeof expanding sales and further developing it asmajor export product. In addition, DainipponPharmaceutical signed an agreement thattransferred licensing for zonisamide in theU.S. and Europe from Elan to Eisai Co., Ltd. inMarch 2004. Since the agreement went intoeffect, Eisai has begun marketing zonisamidein the U.S., and Dainippon Pharmaceutical’szonisamide business is expected to expandeven further.

Mosapride citrate, a gastroprokinetic agentintroduced in Japan in 1998, was launched inJune 2001 in China and in April 2002 in SouthKorea. In fiscal 2004, export sales totaled ¥0.5billion. Approval is also expected in Taiwanduring the first half of 2005, and Takeda Phar-maceutical Company Limited are seekingapproval in other countries as mosapride citratefirmly establishes itself as DainipponPharmaceutical’s second major export productfollowing zonisamide.

Dainippon Pharmaceutical also markets awide range of other products internationally,

Zonisamide is marketed in the U.S. under thetrade name of ZONEGRAN®


from ethical pharmaceuticals—such asquinolone antibacterials, a cardiovascularagent, an intravenous iron preparation and anantiallergic agent—to animal health products,food additives and diagnostic products.

All of these ethical pharmaceuticals areintroduced under licensing agreements, andare marketed in each country by the licensee.However, Dainippon Pharmaceutical isconsidering marketing its own products in thefuture, should such an opportunity arise.

Overseas bases consist of DainipponPharmaceutical U.S.A. Corporation, as wellas offices in Beijing and London, whichprovide support for overseas product devel-opment, facilitate communication with licens-ees, and collect information on local markets.A wholly owned subsidiary in Taiwan, TaiwanDainippon Pharmaceutical Co., Ltd., isinvolved not only in product development butalso in marketing. Currently, DainipponPharmaceutical is reviewing its operations inSouth Korea, where the largest number of itsproducts are out-licensed, and is consideringexpanding its activities in the country byestablishing an office in Seoul.

Diagnostics

Dainippon Pharmaceutical develops andmarkets in vitro diagnostic products, includingkits that diagnose illness by measuring ordetecting biochemical markers and kits thatmeasure the blood concentration of givendrugs.

In March 2002, Dainippon Pharmaceuticallaunched RAPICHECK® H-FABP, a point-of-care in vitro diagnostic. Developed jointly withWakunaga Pharmaceutical Co., Ltd.,RAPICHECK® is a reagent that usesimmunochromatography to detect humanheart fatty acid-binding protein (H-FABP) inwhole blood within 15 minutes. Because of itsability to rapidly diagnose early phases ofacute myocardial infarction, this product isparticularly popular with emergency hospitalsand medical practitioners. Dainippon Pharma-

ceutical also markets MARKIT®-M H-FABP,which measures H-FABP concentration usingthe enzyme-linked immunosorbent assay(ELISA) method.

Other products in the MARKIT® seriesinclude MARKIT®-M PA, which measuresprostate-specific antigen (PSA) in blood andis used in the diagnosis of prostate cancer,and MARKIT®-M PSA-ACT, which measuresthe new diagnostic prostate marker PSA -Éø1

-antichymotrypsin complex (PSA-ACT).Hyperlipemia diagnostics include MARKIT®-M LPL, which measures lipoprotein lipase(LPL) in post-heparin plasma, and a kit thatmeasures hepatic triglyceride lipase (HTGL)for which approval is pending.

The MARKIT® series of diagnostic kits tomeasure the blood concentration of drugsinclude MARKIT®-M Haloperidol II andMARKIT®-M Bromperidol II, which test for theanti-schizophrenic drugs haloperidol andbromperidol. Introduced in May 2003, theMARKIT®-G series of automated kits nowallow the automated testing for haloperidol orbromperidol. MARKIT®-M Zonisamide wasdesigned to measure blood levels of the in-house developed antiepileptic drugzonisamide. In October 2003, DainipponPharmaceutical also launched MARKIT®-MMorphine, a new product to measure theblood concentration of morphine. All of thesekits are used for therapeutic drug monitoring(TDM).

Dainippon Pharmaceutical was the firstcompany in Japan to develop such diagnos-tic kits and obtain manufacturing approval fortheir in vitro use. The kits are now widelyused in hospitals and clinical assay laborato-ries throughout Japan.


Based on the theme of offering com-prehensive health care for pets,Dainippon Pharmaceutical’s animal healthproducts business focuses marketing onthe veterinary market for companionanimals. The product lineup consists ofpharmaceuticals for the prevention ortreatment of various animal diseases, aswell as canine and feline nutritionalformulas licensed from Hill’s Pet Nutri-tion, Inc.

Dainippon Pharmaceutical is alsofurther expanding its business activitiesin the farm animal and aquaculture fieldsafter the transfer to Dainippon Pharma-ceutical of the animal health business ofTanabe Seiyaku Co., Ltd. in fiscal 2003.

In fiscal 2004, sales in the animalhealth business totaled ¥28,654 million,accounting for 16.8 percent of total sales.

Animal HealthProducts



Animal Health Products

Based on the theme of comprehensivehealthcare for pets, Dainippon Pharmaceu-tical’s animal health business operationsfocus on the veterinary market for companionanimals. Our product lineup includes wide-ranging pharmaceuticals used in the preven-tion or treatment of various animal diseasesand the specialized pet foods, PRESCRIP-TION DIET®, a nutritional formula for veteri-nary clinics, and SCIENCE DIET®, a premiumpet food recommended by veterinarians, bothof which are licensed from Hill’s Pet Nutrition,Inc.

The sales and marketing activities ofDainippon Pharmaceutical in the animalhealth field is based on the database itdeveloped to cover the members of theVeterinarians & Maru-P Association (VMA)—a membership network of animal hospitalsthroughout Japan that Dainippon Pharma-ceutical organizes. Such an approachenables Dainippon Pharmaceutical’s salesand marketing activities to be more efficientand effective by allowing Dainippon Pharma-ceutical to comprehend the current needs ofveterinarians and then systematically linkingproducts for the prevention and treatment ofanimal diseases. In addition, DainipponPharmaceutical’s subsidiary, Marupi LifetechCo., Ltd., with operations dedicated to clinicallab tests for companion animals, has enjoyedstrong support from veterinarians for itssuperior testing and diagnostic services insuch areas as histopathology, viral tests andimmunology.

This quality-based focus on the field ofcompanion animals has made DainipponPharmaceutical a leading company in theanimal health products business. In order tostay ahead in this competitive market,Dainippon Pharmaceutical acquired the rightsto the animal health business for livestockand fish from Tanabe Seiyaku Co., Ltd. inNovember 2002. Through this businesstransfer, Dainippon Pharmaceutical not onlyestablished a foothold for full-scale entry intothe farm animal field—the largest market foranimal health products—but significantly

17

bolstered its marketing capabilities in the fieldof companion animals by increasing thenumber of experienced sales and marketingstaff.

In fiscal 2004, sales of animal healthproducts were ¥28.6 billion, with a number ofDainippon Pharmaceutical’s products boastingthe top share in their respective sectors of thecompanion-animal market. Such productsinclude PRESCRIPTION DIET®, in-licensedfrom Hill’s Pet Nutrition, Inc.; the VICTAS®-Sseries of new quinolone antibacterial prepara-tions containing the active ingredientorbifloxacin, originated and developed byDainippon Pharmaceutical; CARDOMEC®, apreventative for canine heartworm diseasefrom Merial, Ltd; and ISOFLU®, an inhaledanesthetic in-licensed from Abbott Laborato-ries.

In fiscal 2004, Dainippon Pharmaceuticallaunched Inactivated Combined Vaccine“BIKEN” for Iridovirus-Streptococcicosis foraquaculture use—manufactured by TheResearch Foundation for Microbial Diseasesof Osaka University—which contributedstrongly to the increase in sales of animalhealth products business. The launches infiscal 2002 of RIMADYL®, a canine non-steroidal anti-inflammatory and analgesic in-licensed from Pfizer Japan Inc., andTEAROSE®, a non-steroidal treatment forcanine conjunctivitis in-licensed from SenjuPharmaceutical Co., Ltd., also contributed tothe overall increase in sales.

Dainippon Pharmaceutical is also in theleading position in the electronic identificationsystem for companionanimals. The numberof companion animalhospitals usingLIFECHIP®, an IDmicrochip in-licensedfrom Digital AngelCorporation, continuesto steadily increase,reflecting the Decem-ber 2000 enactment ofthe Law Concerningthe Protection andControl of Animals. VICTAS®-S series, new quinolone autibacterial


Other Products

Other businesses include food science,which focuses on food additives, such asnatural thickening agents, stabilizers andseasonings; industrial chemicals; andresearch materials, including researchreagents, cell culture products and mea-suring equipment for laboratory use. Infiscal 2004, sales of other businessestotaled ¥23,707 million, accounting for13.9 percent of total sales.

18

Food and Food Additives

The Food and Food Additives operationshandle food ingredients, such as naturaladditives and seasonings. Because theseingredients are used in daily food prepara-tion, high levels of safety, purity and qualityare required. By utilizing its technologies forpurity control developed as a pharmaceuticalmanufacturer, Dainippon Pharmaceutical hasearned a high reputation in the food industry.Main products currently marketed areGLYLOID®, a natural hydrocolloid used as athickening and stabilizing agent in tonkatsu(pork cutlet) sauce and ice cream, andAJIPOL®, a natural seasoning used in ramensoup and other types of foods.

During fiscal 2004, the business condi-tions for this segment of the Company’soperations and the Japanese food industryoverall continued to be severe, due in part tothe continuing domestic discoveries of bovinespongiform encephalopathy (BSE) and theaddition of domestic discoveries of avianinfluenza within this fiscal year.



search reagents, including antibody reagents,cytokine-related reagents and genetic re-agents, and in April 2004, succeeded indeveloping and marketing the world’s firstguinea pig IgE measurement reagent(Guinea Pig IgE ELISA Marupi) for use inallergy research. Dainippon Pharmaceuticalmarkets tissue culture materials, supplyingJapanese researchers with a variety ofanimal-derived cells, particularly human-derived cells. In particular, human adipocytesused in diabetes research and mouse embry-onic stem (ES) cells used in regenerativemedicine research, have been highly evalu-ated.

Dainippon Pharmaceutical also marketsmicroplate readers to detect absorbance,fluorescence and luminescence, as well asmeasuring equipment widely used in molecu-lar biology research, including PCR equip-ment, nucleic acid purification devices, and aSingle Nucleotide Polymorphisms (SNPs)scoring device.

In fall 1998, Dainippon Pharmaceuticalbegan sales of FLUCLET®, the first softwaresystem developed in-house, which providesfully automated measurement of circulatorydynamics and the activity of the autonomicnervous system. This innovative system,which performs analysis in a matter ofseconds using electrocardiogram and bloodpressure waveform data, has gained atten-tion as a basicresearch tool fromuniversity hospitals,pharmaceuticalmanufacturers andother researchinstitutes for the studyof biocybernetics.

19

Dainippon Pharmaceutical expanded itsoverseas operations in fiscal 2004. In Thai-land, Betagro-Dainippon Techno-Ex Co., Ltd.,an affiliated extract production company,completed construction of a new factory inJanuary 2004, thereby ensuring a stablesupply source for the extracts business fromboth Japan and Thailand. In China, KunshanDafu Food Technology Co., Ltd., an affiliatedfood ingredient company that has integratedoperations covering research and develop-ment to production and quality management,completed construction of a manufacturingplant and commenced sales activities inChina in March 2004. In April 2004, DainipponPharmaceutical opened the Tokyo TechnoCenter, a research facility in Tokyo that isequipped for product development togetherwith guests from food processing companies.In pursuit of new business opportunities,Dainippon Pharmaceutical is currently alsoundertaking new projects related to foodingredients.

Industrial Chemicals

The industrial chemicals business playsan important role in improving the functional-ity, value and quality of a wide range ofproducts, from sophisticated electronicmaterials to daily necessities such as cosmet-ics, by supplying chemicals used in informa-tion technology (IT)-related products, per-sonal care products and dyeing auxiliaries.

In fiscal 2004, sales of the mainstayGARO® series of sensitizers for photoresistsincreased substantially in a strong market forIT-related fields. This offset a decrease insales of personal care products used incosmetics and other applications, resulting inan overall increase in sales for this business.

Research Materials

The main research materials imported andmarketed by Dainippon Pharmaceutical areresearch reagents, cell culture products andmeasuring equipment for laboratory use. TheCompany offers approximately 5,000 re-

● Dainippon Pharmaceutical Co., Ltd. Annual Report 2004●20

Commitment to Environmental Protection

■ Principal Directive on Environmen-tal Conservation“As a company focused on the health and

prosperity of people around the world,Dainippon Pharmaceutical endeavors to makeour society a better place to live by activelypromoting environmental conservation in all ofits operating activities.”

Dainippon Pharmaceutical’s principaldirective on environmental conservationgoverns all its efforts to protect the environ-ment. Key initiatives include implementationof an environmental management system thatencompasses the activities of all divisions;ensured compliance with all laws and regula-tions; and reduction of environmental impact.

■ ImplementationThe Suzuka Plant obtained ISO14001

certification for its environmental managementsystem in December 2000, and likewise inMay 2004 the Research Laboratories suc-ceeded in obtaining its ISO14001 certification.In addition, Dainippon Pharmaceutical isendeavoring to further implement environ-mental management systems throughout theorganization.

Dainippon Pharmaceutical is committed tofulfilling its environmental responsibilities as acorporate enterprise and adheres to allenvironment-related laws and regulations, aswell as conducting itself in accordance with itsprincipal directive on environmental conserva-tion. Not only does the Company fully complywith laws and Prefectural ordinances regard-ing emissions that affect air and water, but ithas also established its own, stricter criteriafor self-management of emissions.

Furthermore, Dainippon Pharmaceuticalhas targeted reductions in carbon dioxideemissions, industrial waste and chemicalsubstance emissions throughout R&D andmanufacturing operations as a priority issue,and has established specific policies toachieve these goals. In particular, as apharmaceutical company, self-management ofchemical substances is regarded as an issueof the utmost importance. As a result, inSeptember 2003 Dainippon built a chloroformrecovery system, which has drastically

reduced atmospheric emissions. In addition,Dainippon Pharmaceutical established anEnergy Service Company business at theResearch Laboratories as a means of reduc-ing CO2 emissions, and is working to developenergy conservation measures.

In 2001, Dainippon Pharmaceutical estab-lished a page on its website devoted to theCompany’s environmental protection efforts,and began publishing an annual Environmen-tal Report. Dainippon Pharmaceutical’s thirdEnvironmental Report was published in 2003.The Company also introduced the practice ofpublicly disclosing the results of environmen-tal accounting in 2003.

■ Future DirectionIn fiscal 2005, Dainippon Pharmaceutical

will consider building a 1,2-dichloroethanerecovery system as a measure to furtherreduce chemical emissions, and will continueworking to reduce its chemical emissions intothe environment. In addition, the Companywill establish an Energy Service Companybusiness at the Suzuka Plant, and developmeasures to halt global warming. DainipponPharmaceutical will also work to reduce thefinal amount of industrial waste disposed ofby promoting thorough waste separation andexpanded recycling.


Financial Section

● CONTENTSSix-Year Summary ....................................................... 22Management’s Discussion and Analysis ..................... 23Consolidated Balance Sheets ..................................... 26Consolidated Statements of Income ........................... 28Consolidated Statements of Shareholders’ Equity ...... 29Consolidated Statements of Cash Flows .................... 30Notes to Consolidated Financial Statements .............. 31Independent Auditors’ Report ...................................... 41



Six-Year SummaryDainippon Pharmaceutical Co., Ltd. and Consolidated Subsidiaries

Thousands ofMillions of Yen U.S. Dollars

2004 2003 2002 2001 2000 1999 2004

RESULTS OF OPERATIONS:Net sales ....................................... ¥ 170,842 ¥ 172,162 ¥ 164,117 ¥ 158,873 ¥ 155,497 ¥ 146,452 $ 1,611,717Cost of sales ................................. 110,013 108,046 100,073 97,126 97,195 92,889 1,037,859Selling, general and

administrative expenses ........... 51,546 51,240 46,863 45,597 45,616 45,603 486,283Operating income .......................... 9,283 12,876 17,181 16,150 12,686 7,960 87,575Income before income taxes and

minority interests ....................... 13,836 12,718 17,863 17,619 13,595 9,438 130,528Net income .................................... 7,968 6,364 9,596 9,376 6,884 3,319 75,170

FINANCIAL POSITION:Current assets ............................... 118,562 116,241 119,247 117,877 117,548 120,128 1,118,509Net property, plant

and equipment .......................... 34,473 35,374 33,637 31,487 31,188 32,640 325,217Total assets ................................... 193,238 187,416 186,834 187,309 171,064 172,978 1,823,000Current liabilities ........................... 46,712 61,507 49,784 56,409 44,836 55,413 440,679Long-term debt .............................. 7,000 11,118 11,119 17,005 17,005 66,038Shareholders’ equity ..................... 129,569 116,044 115,985 109,267 98,092 89,012 1,222,349

OTHER STATISTICS:R&D costs ..................................... 15,929 15,218 13,124 12,565 12,079 12,276 150,274Capital expenditures ..................... 4,294 6,532 6,414 4,074 2,041 5,699 40,509Depreciation and amortization ...... 5,821 5,316 4,334 4,267 3,936 3,629 54,915

Yen U.S. Dollars

PER SHARE OF COMMON STOCK:Basic net income........................... ¥ 48.05 ¥ 38.02 ¥ 57.06 ¥ 55.75 ¥ 40.93 ¥ 19.73 $ 0.45Diluted net income ........................ 36.36 54.18 52.70 39.05 19.16

Cash dividends applicable to the year ................................. 10.00 10.00 10.00 8.50 8.50 7.50 0.09

Note: The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been translatedat the rate of ¥106 to $1, the approximate rate of exchange at March 31, 2004.


Management’s Discussion and AnalysisDainippon Pharmaceutical Co., Ltd. and Consolidated SubsidiariesYears ended March 31

Results of Operations

For the fiscal year ended March 31, 2004, net salesdecreased 0.8 percent to ¥170,842 million. This decrease innet sales was related to the adverse impact of the discoveryof previously unreported side effects that lowered themarket potential of GATIFLO®, a new quinolone antibacterialthat had been anticipated to be a major source of earningsunder the Phase II 5-Year Management Plan. However,sales of two drugs developed in-house that contributestrongly to profit, GASMOTIN® (a gastroprokinetic agent)and PRORENAL® (a prostaglandin agent for the improve-ment of peripheral circulation) increased substantially.

Operating income decreased 27.9 percent to ¥9,283million, continuing the unfavorable operating income perfor-mance of the previous fiscal year. Two major reasonscaused an increase in the cost of sales ratio. One is changein Dainippon Pharmaceutical’s product lineup. The other isan increase in depreciation expenses for launching newmanufacturing facilities at Suzuka Plant resulting consolida-tion of its production facilities. In addition, Dainippon Phar-maceutical increased research and development costs toaccelerate product development.

Research and development costs increased 4.7percent to ¥15,929 million.

Net income increased 25.2 percent to ¥7,968 million.Dainippon Pharmaceutical incurred a loss in connectionwith the discontinuation of development of a new in-housecompound for treating diabetes that had previously beenexpected to become a strategic international product. Theclosure of the Osaka Plant also incurred a loss on disposalof property, plant and equipment. However, royalty incomeincreased with Dainippon Pharmaceutical’s out-licensing ofan antidementia agent developed in-house to AventisPharma S.A. of France. The Company also sold a portionof its shares held in Abbott Japan Co., Ltd. to AbbottFinance Company S.A., which resulted in gains on sales ofinvestment securities. Moreover, Dainippon Pharmaceuti-cal recorded substantial gains on transfer of the substitu-tional portion of the government pension program inconnection with the implementation of the Defined BenefitPension Plan Law.

As a result of the above, the operating margin was 5.4percent, return on average total shareholders’ equity(ROE) was 6.5 percent, and earnings per share (EPS)amounted to ¥48.05.


Operating Performance by Business Segment

Sales of pharmaceuticals decreased 2.9 percent to¥118,481 million. Operating income in this segmentdecreased 22.9 percent to ¥10,227 million due to anincrease in the cost of sales ratio and higher research anddevelopment costs. Sales of the core productGASMOTIN®, a gastroprokinetic agent, increased 20.8percent to ¥15.7 billion. In addition, sales of PRORENAL®,an agent for the improvement of peripheral circulation,increased 36.4 percent to ¥8.3 billion. Sales ofPRORENAL® have grown rapidly since 2001, when it wasapproved for an additional indication. However, sales ofGATIFLO®, a new quinolone antibacterial, decreased 75.7percent to ¥1.3 million due to the discovery of previouslyunreported side effects that lowered its market potential.The Company also continued to aggressively promotesales of other core pharmaceuticals, including EBASTEL®,a long-lasting antiallergenic agent, EXCEGRAN®, anantiepileptic agent developed in-house, GLIMICRON®, anoral hypoglycemic, and QVARTM, an inhaled steroidasthma treatment introduced during the previous fiscalyear.

The table below presents a detailed breakdown ofsales of major pharmaceutical products.

Sales of animal health products increased 6.9 percentto ¥28,654 million. Operating income in this segmentincreased 22.3 percent to ¥1,257 million. The Company

aggressively marketed core animal health pharmaceuti-cals, such as CARDOMEC®, which helps prevent canineheartworm disease and VICTAS®, a synthesized quinoloneantibacterial developed in-house, as well as caninenutritional formulas. In addition, this segment’s salesreflected the first full-year contribution of the product lineupacquired from Tanabe Seiyaku Co., Ltd. in November2002.

Sales of other products increased 1.4 percent to¥23,707 million. Operating income in this segment de-creased 4.6 percent to ¥1,486 million. Dainippon Pharma-ceutical aggressively marketed these products, includingECHO GUM® and GLYLOID®, which are natural hydrocol-loid stabilizers used as food additives; AJIPOL® naturalseasonings; industrial chemical products; as well asresearch reagents and instruments.

Financial Position

As of March 31, 2004, total assets were ¥193,238million, an increase of ¥5,822 million from a year earlier.Factors included a substantial increase in unrealized gainson investment securities resulting from the recovery instock prices during the past fiscal year. In addition, cashand time deposits increased, due in part to decrease intrade notes and accounts receivable and inventories.

Current assets increased ¥2,321 million from a yearearlier to ¥118,562 million. With the aim of increasing cash

Sales of Major Pharmaceutical Products (Fiscal Years ended March 31; Billions of Yen)

Brand name Category Sales for Sales for(Generic name) Fiscal Year 2003 Fiscal Year 2004KLARICID® (clarithromycin) Macrolide antibiotic 19.4 18.9GASMOTIN® (mosapride citrate) Gastroprokinetic 13.0 15.7ENSURE LIQUID® ( – ) Enteral nutrition 14.4 13.8EBASTEL® (ebastine) Antiallergic 11.1 10.2PRORENAL® (limaprost alfadex) Vasodilator 6.1 8.3EXCEGRAN® (zonisamide) Antiepileptic 6.5 5.9SYNAGIS® (palivizumab) Monoclonal antibody 3.9 5.4GLIMICRON® (gliclazide) Oral hypoglycemic 5.2 5.0SEVOFRANE® (sevoflurane) Anesthetic 3.9 4.1LOPEMIN® (loperamide hydrochloride) Antidiarrheal 3.3 3.2SERENACE® (haloperidol) Psychotropic 3.5 3.1CETAPRIL® (alacepril) Antihypertensive 3.2 2.8RISUMIC® (amezinium metilsulfate) Antihypotensive 2.6 2.5PIMENOL® (pirmenol hydrochloride) Antiarrhythmic 2.0 1.8ERYTHROCIN® (erythromycin stearate) Macrolide antibiotic 1.9 1.7QVARTM (beclomethasone dipropionate) Bronchial asthma 1.4 1.5ANPEC® (morphine hydrochloride) Analgesic 1.7 1.4GATIFLO® (gatifloxacin) New quinolone 5.2 1.3

antibacterialKADIAN® (morphine sulfate) Analgesic 1.6 1.2


flow, Dainippon Pharmaceutical worked to acceleratecollection of receivables, resulting in a reduction in tradenotes and accounts receivable. Moreover, inventoriesdecreased because Dainippon Pharmaceutical completedconsolidation of production facilities at the Suzuka Plantand manufactured using safety stocks. As a result, cashand time deposits increased substantially from a yearearlier.

Property, plant and equipment decreased ¥901 millionfrom a year earlier to ¥34,473 million. Dainippon Pharma-ceutical completed the construction of a packaging andmaterial center as part of the consolidation of production atthe Suzuka Plant. The completed projects were transferredto buildings and structures and machinery and equipment,resulting in a substantial decrease in construction inprogress. An increase in depreciation also reduced re-ported property, plant and equipment.

Investments and other assets increased ¥4,402 millionfrom a year earlier to ¥40,203 million. Factors included asubstantial increase in unrealized gains on investmentsecurities resulting from the recovery in stock prices.However, deferred tax assets decreased.

Current liabilities decreased ¥14,795 million to ¥46,712million. The Company redeemed 1.4% unsecured convert-ible bonds on their redemption date of September 30,2003. In addition, lower taxable income resulted in adecrease in income taxes payable.

Long-term liabilities increased ¥7,010 million from ayear earlier to ¥16,258 million. The Company borrowed¥7,000 million in long-term debt from financial institutionsto redeem 1.4% unsecured convertible bonds due toSeptember 30, 2003. However, liability for retirementbenefits decreased substantially because of the impact ofthe transfer of the substitutional portion of the governmentpension program, mainly.

Shareholders’ equity increased ¥13,525 million from ayear earlier to ¥129,569 million. Retained earnings in-creased resulting in appropriation of net income, andunrealized gains on available-for-sale securities, net of taxincreased due to the recovery in stock prices during the

past fiscal year. The ratio of shareholders’ equity to totalassets therefore increased 5.2 percentage points to 67.1percent. Shareholders’ equity per share of common stockoutstanding at the end of the period increased ¥82.15 froma year earlier to ¥784.24.

Cash Flows

Net cash provided by operating activities increased¥6,384 million year-on-year to ¥12,522 million. Factorsincluded the increase of ¥1,118 million in income beforeincome taxes and minority interests to ¥13,836 million, andthe contribution to cash flow from the substantial decreasein trade notes and accounts receivable and inventories.

Net cash used in investing activities decreased ¥7,679million to ¥66 million, primarily because of a reduction inpurchases of property, plant and equipment and purchasesof investment securities.

Net cash used in financing activities increased ¥445million to ¥5,872 million. While the redemption of 1.4%unsecured convertible bonds due to September 30, 2003used cash totaling ¥11,118 million, proceeds from long-term debt totaled ¥7,000 million because of borrowingsfrom financial institutions.

As a result, cash and cash equivalents as of March 31,2004 totaled ¥23,483 million, an increase of ¥6,584 millionfrom a year earlier.

Dividend Policy

The consistent payment of appropriate dividends toshareholders is a primary management priority. Althoughpaying steady dividends is a basic policy, management willcontinue linking dividend payments to corporate perfor-mance, while promoting the Company’s financial structureto support future growth. On the basis of this policy, cashdividends applicable to the fiscal year were ¥10.00 pershare. The Company intends to deploy capital resourcesmainly for investment in research and development inJapan and overseas, and in property, plant and equipmentto increase operating efficiency.


Consolidated Balance SheetsDainippon Pharmaceutical Co., Ltd. and Consolidated SubsidiariesMarch 31, 2004 and 2003

Thousands ofU.S. Dollars

Millions of Yen (Note 1)ASSETS 2004 2003 2004

CURRENT ASSETS:Cash and time deposits (Note 3) .......................................................................... ¥ 20,441 ¥ 13,907 $ 192,839Marketable securities (Notes 3 and 5) .................................................................. 4,797 5,090 45,255Receivables:

Trade notes ................................................................................................... 5,392 6,274 50,868Trade accounts ............................................................................................. 59,316 61,040 559,585Due from affiliates ......................................................................................... 65 50 613Allowance for doubtful receivables ............................................................... (86) (85) (811)

64,687 67,279 610,255Inventories (Note 4) .............................................................................................. 21,808 24,134 205,736Deferred tax assets (Note 7) ................................................................................ 3,399 3,095 32,066Prepaid expenses and other current assets ......................................................... 3,430 2,736 32,358

Total current assets ....................................................................... 118,562 116,241 1,118,509

PROPERTY, PLANT AND EQUIPMENT (Note 2.e):

Land ...................................................................................................................... 5,148 5,175 48,566Buildings and structures ....................................................................................... 37,635 36,058 355,047Machinery and equipment .................................................................................... 38,983 35,712 367,764Construction in progress ....................................................................................... 1,268 4,778 11,963

Total ................................................................................................. 83,034 81,723 783,340Accumulated depreciation .................................................................................... (48,561) (46,349) (458,123)

Net property, plant and equipment .............................................. 34,473 35,374 325,217

INVESTMENTS AND OTHER ASSETS:Investment in unconsolidated subsidiaries

and associated companies ........................................................................... 816 738 7,698Investment securities (Note 5) .............................................................................. 31,615 22,154 298,255Deferred tax assets (Note 7) ................................................................................ 114 4,024 1,076Other assets .......................................................................................................... 7,658 8,885 72,245

Total investments and other assets ............................................ 40,203 35,801 379,274

TOTAL ....................................................................................................................... ¥ 193,238 ¥ 187,416 $ 1,823,000

See notes to consolidated financial statements.



Millions of Yen (Note 1)LIABILITIES AND SHAREHOLDERS’ EQUITY 2004 2003 2004

CURRENT LIABILITIES:Short-term bank loans (Note 6) ............................................................................ ¥ 970 ¥ 1,020 $ 9,1511.4% unsecured convertible bonds due September 2003 (Note 6) ..................... 11,118Payables:

Trade notes ................................................................................................... 2,951 3,565 27,840Trade accounts ............................................................................................. 30,987 32,565 292,330Due to affiliates ............................................................................................. 387 323 3,651

34,325 36,453 323,821Income taxes payable ........................................................................................... 2,922 3,975 27,566Accrued expenses ................................................................................................ 5,547 5,581 52,330Other current liabilities (Note 6) ............................................................................ 2,948 3,360 27,811

Total current liabilities ................................................................. 46,712 61,507 440,679

LONG-TERM LIABILITIES:Long-term debt (Note 6) ....................................................................................... 7,000 66,038Liability for retirement benefits (Notes 2.f and 8) ................................................. 6,503 9,248 61,349Deferred tax liabilities (Note 7) ............................................................................. 1,196 11,283Other liabilities ...................................................................................................... 1,559 14,708

Total long-term liabilities ............................................................. 16,258 9,248 153,378

MINORITY INTERESTS ............................................................................................. 699 617 6,594

COMMITMENTS AND CONTINGENT LIABILITIES(Notes 11 and 13):

SHAREHOLDERS’ EQUITY (Notes 6, 9 and 14):Common stock: authorized - 600,000,000 shares;

issued, 168,184,154 shares .......................................................................... 13,444 13,444 126,830Capital surplus ...................................................................................................... 15,860 15,860 149,623Retained earnings ................................................................................................. 95,579 89,300 901,689Unrealized gains on available-for-sale securities, net of tax ............................... 8,048 761 75,924

Total ................................................................................................. 132,931 119,365 1,254,066Treasury stock - at cost

3,004,357 shares in 2004 and 2,946,313 shares in 2003 ............................ (3,362) (3,321) (31,717)

Total shareholders’ equity ............................................................ 129,569 116,044 1,222,349

TOTAL ....................................................................................................................... ¥ 193,238 ¥ 187,416 $ 1,823,000


Consolidated Statements of IncomeDainippon Pharmaceutical Co., Ltd. and Consolidated SubsidiariesYears Ended March 31, 2004 and 2003


Millions of Yen (Note 1)2004 2003 2004

NET SALES ................................................................................................................ ¥ 170,842 ¥ 172,162 $ 1,611,717

COST OF SALES ....................................................................................................... 110,013 108,046 1,037,859Gross profit .................................................................................................... 60,829 64,116 573,858

SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ................................... 51,546 51,240 486,283Operating income .......................................................................................... 9,283 12,876 87,575

OTHER INCOME (EXPENSES):Interest and dividend income ................................................................................ 883 858 8,330Interest expense ................................................................................................... (133) (204) (1,255)Gains on transfer of the substitutional portion of the

government pension program (Note 8) ........................................................ 2,273 21,443Gains on sales of investment securities (Note 5) ................................................. 1,960 1,853 18,491Loss on discontinued development of new compound ........................................ (426) (4,019)Loss on devaluation of investment securities ....................................................... (1,494)

Special retirement expenses (Note 8) .................................................................. (845)Other - net ............................................................................................................. (4) (326) (37)

Other income (expenses) - net ..................................................................... 4,553 (158) 42,953INCOME BEFORE INCOME TAXES AND MINORITY INTERESTS ........................ 13,836 12,718 130,528

INCOME TAXES (Note 7):

Current .................................................................................................................. 6,010 7,966 56,698Deferred ................................................................................................................ (210) (1,661) (1,981)

Total income taxes ....................................................................... 5,800 6,305 54,717

MINORITY INTERESTS IN NET INCOME ................................................................ 68 49 641Net income ............................................................................................................ ¥ 7,968 ¥ 6,364 $ 75,170

Yen U.S. Dollars

PER SHARE OF COMMON STOCK (Note 2.l):Basic net income .................................................................................................. ¥ 48.05 ¥ 38.02 $ 0.45Diluted net income ............................................................................................... 36.36Cash dividends applicable to the year ................................................................. 10.00 10.00 0.09



Consolidated Statements of Shareholders’ EquityDainippon Pharmaceutical Co., Ltd. and Consolidated SubsidiariesYears Ended March 31, 2004 and 2003

Millions of YenIssued Unrealized

Number of Gains onShares of Common Capital Retained Available-for-sale Treasury

Common Stock Stock Surplus Earnings Securities Stock

BALANCE, APRIL 1, 2002 .......................... 168,184,154 ¥ 13,444 ¥ 15,860 ¥ 84,767 ¥ 1,960 ¥ (46)Net income .............................................. 6,364

Cash dividends, ¥10.75 per share .......... (1,795)Bonuses to directors and corporate auditors .............................................. (36)

Increase in treasury stock (2,909,368 shares) ............................ (3,275)Net unrealized losses on

available-for-sale securities ............... (1,199)

BALANCE, MARCH 31, 2003 ..................... 168,184,154 13,444 15,860 89,300 761 (3,321)

Net income .............................................. 7,968Cash dividends, ¥10.00 per share .......... (1,652)Bonuses to directors and corporate

auditors .............................................. (32)Loss on sales of treasury stock .............. (5)Increase in treasury stock

(58,044 shares) .................................. (41)Net unrealized gains on available-for-sale securities ............... 7,287

BALANCE, MARCH 31, 2004 ..................... 168,184,154 ¥ 13,444 ¥ 15,860 ¥ 95,579 ¥ 8,048 ¥ (3,362)

Thousands of U.S. Dollars (Note 1)UnrealizedGains on

Common Capital Retained Available-for-sale TreasuryStock Surplus Earnings Securities Stock

BALANCE, MARCH 31, 2003 ................................................ $ 126,830 $ 149,623 $ 842,453 $ 7,179 $ (31,330)

Net income ......................................................................... 75,170Cash dividends, $0.09 per share ....................................... (15,585)Bonuses to directors and corporate auditors .................... (302)

Loss on sales of treasury stock ......................................... (47)Increase in treasury stock (58,044 shares) ...................... (387)Net unrealized gains on available-for-sale securities ........ 68,745

BALANCE, MARCH 31, 2004 ................................................ $ 126,830 $ 149,623 $ 901,689 $ 75,924 $ (31,717)



Consolidated Statements of Cash FlowsDainippon Pharmaceutical Co., Ltd. and Consolidated SubsidiariesYears Ended March 31, 2004 and 2003


Millions of Yen (Note 1)2004 2003 2004

OPERATING ACTIVITIES:Income before income taxes and minority interests ............................................. ¥ 13,836 ¥ 12,718 $ 130,528Adjustments for:

Depreciation and amortization ...................................................................... 5,821 5,316 54,915Provision for liability for retirement benefits, less payments ........................ 764 (174) 7,208Interest and dividend income ........................................................................ (883) (858) (8,330)Interest expense ........................................................................................... 133 204 1,255Gains on transfer of the substitutional portion of the government pension program ....................................................... (2,273) (21,443)Gains on sales of investment securities ....................................................... (1,960) (1,853) (18,491)Loss on devaluation of investment securities ............................................... 1,494Changes in assets and liabilities: Decrease (increase) in receivables ......................................................... 2,590 (2,150) 24,434 Decrease (increase) in inventories .......................................................... 2,326 (1,364) 21,943

Increase (decrease) in payables ............................................................. (2,127) 3,700 (20,066)Other - net ..................................................................................................... 603 (2,603) 5,689 Sub-total .............................................................................................. 18,830 14,430 177,642Interest and dividend received ...................................................................... 883 858 8,330Interest paid .................................................................................................. (129) (204) (1,217)Income taxes paid ......................................................................................... (7,062) (8,946) (66,623) Net cash provided by operating activities .......................................... 12,522 6,138 118,132

INVESTING ACTIVITIES:Purchases of property, plant and equipment ........................................................ (4,449) (6,472) (41,972)Proceeds from sales of investment securities ...................................................... 4,132 3,905 38,981Proceeds from sales of marketable securities ..................................................... 1,078 1,638 10,170Purchases of investment securities ...................................................................... (848) (3,398) (8,000)Other - net ............................................................................................................. 21 (3,418) 198

Net cash used in investing activities .................................................. (66) (7,745) (623)

FINANCING ACTIVITIES:Net decrease in short-term bank loans ................................................................ (50) (350) (472)Proceeds from long-term debt .............................................................................. 7,000 66,038Redemption of convertible bonds ......................................................................... (11,118) (104,887)Increase in treasury stock ..................................................................................... (45) (3,275) (424)Dividends paid ...................................................................................................... (1,652) (1,795) (15,585)Dividends paid to minority interests ...................................................................... (7) (7) (66)

Net cash used in financing activities .................................................. (5,872) (5,427) (55,396)

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS .................. 6,584 (7,034) 62,113

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR ................................... 16,899 23,933 159,425

CASH AND CASH EQUIVALENTS, END OF YEAR (Note 3) .................................. ¥ 23,483 ¥ 16,899 $ 221,538



Notes to Consolidated Financial StatementsDainippon Pharmaceutical Co., Ltd. and Consolidated SubsidiariesYears Ended March 31, 2004 and 2003

1. BASIC OF PRESENTING CONSOLIDATED FINANCIAL STATEMENTS

The accompanying consolidated financial statements havebeen prepared in accordance with the provisions set forth inthe Japanese Securities and Exchange Law and its relatedaccounting regulations, and in conformity with accountingprinciples generally accepted in Japan, which are different incertain respects as to application and disclosure requirementsof International Financial Reporting Standards.

In preparing these consolidated financial statements, cer-tain reclassifications and rearrangements have been made tothe consolidated financial statements issued domestically in or-der to present them in a form which is more familiar to readersoutside Japan. In addition, certain reclassifications have been

made in 2003 financial statements to conform to the classifica-tions used in 2004.

The consolidated financial statements are stated in Japa-nese yen, the currency of the country in which Dainippon Phar-maceutical Co., Ltd. (the “Company”) is incorporated and oper-ates. The translations of Japanese yen amounts into U.S. dol-lar amounts are included solely for the convenience of readersoutside Japan and have been translated at the rate of ¥106 to$1, the approximate rate of exchange at March 31, 2004. Suchtranslations should not be construed as representations thatthe Japanese yen amounts could be converted into U.S. dol-lars at that or any other rate.

2. SUMMARY OF SIGNIFICANT ACCOUNT POLICIES

a. ConsolidationThe consolidated financial statements include the

accounts of the Company and its 4 significant subsidiaries(together, the “Group”) .

Under the control or influence concept, those compa-nies in which the Company, directly or indirectly, is able toexercise control over operations are fully consolidated, andthose companies over which the Group has the ability toexercise significant influence are accounted for by theequity method.

Investments in the unconsolidated subsidiaries and allassociated companies are stated at cost. If the equitymethod of accounting had been applied to the investmentsin these companies, the effect on the accompanyingconsolidated financial statements would not have beenmaterial.

The differences between the costs of the Company’sinvestments in consolidated subsidiaries and its equities inthe net assets at the respective dates of acquisition, areamortized over 5 years.

All significant intercompany balances and transactionshave been eliminated in consolidation. All material unreal-ized profit included in assets resulting from transactionswithin the Group is eliminated.

b. Cash Equivalents Cash equivalents are short-term investments that are

readily convertible into cash and that are exposed toinsignificant risk of changes in value. Cash equivalentsinclude time deposits, certificate of deposits, commercialpaper and bond funds, all of which mature or become duewithin three months of the date of acquisition.

c. Marketable and Investment SecuritiesMarketable and investment securities are classified and

accounted for, depending on management’s intent, asfollows: i) held-to-maturity debt securities, which are

expected to be held to maturity with the positive intent andability to hold to maturity are reported at amortized cost,and ii) available-for-sale securities, which are not classi-fied as either trading securities or held-to-maturity debtsecurities, are reported at fair value, with unrealized gainsand losses, net of applicable taxes, reported in a separatecomponent of shareholders’ equity. Non-marketableavailable-for-sale securities are stated at cost determinedby the moving-average method. For other than temporarydeclines in fair value, investment securities are reduced tonet realizable value by a charge to income.

d. InventoriesInventories are stated at cost, determined by the

average method.

e. Property, Plant and EquipmentProperty, plant and equipment are stated at cost.

Depreciation of buildings is computed by the straight-linemethod over the estimated useful lives of the assets.Depreciation of machinery and equipment is computed bythe declining-balance method over the estimated usefullives of the assets. Ranges of useful lives used in thecomputation of depreciation are as follows:

Buildings 3 - 60 yearsMachinery and equipment 2 - 17 years

f. Liability for Retirement BenefitsUpon retirement or termination of employment,

employees are normally entitled to lump-sum and/orannuity payments based on current rate of pay and lengthof service.

The Group has the lump-sum plan and two types ofpension plans for employees: a non-contributory and acontributory funded defined benefit pension plan. Theliability for retirement benefit is provided based on pro-jected benefit obligations and plan assets at the balance


sheet date.The liability for retirement benefits for directors and

corporate auditors is recorded to state the liability at theamount that would be required if all directors and corporateauditors retired at each balance sheet date. Theseamounts are paid subject to approval of the shareholders.Liability for retirement benefits includes retirement benefitsfor those officers at March 31, 2004 and 2003 of ¥497million ($4,689 thousand) and ¥543 million, respectively.

g. Research and Development CostsResearch and development costs are charged to

income as incurred. Research and development costsincluded in selling, general and administrative expensesfor the years ended March 31, 2004 and 2003 were¥15,929 million ($150,274 thousand) and ¥15,218 million,respectively.

h. LeasesAll leases are accounted for as operating leases.

Under Japanese accounting standards for leases, financeleases that deem to transfer ownership of the leasedproperty to the lessee are to be capitalized, while otherfinance leases are permitted to be accounted for asoperating lease transactions if certain “as if capitalized”information is disclosed in the notes to the lessee'sfinancial statements.

i. Income TaxesThe provision for income taxes is computed based on

the pretax income included in the consolidated statementsof income. The asset and liability approach is used torecognize deferred tax assets and liabilities for the ex-pected future tax consequences of temporary differencesbetween the carrying amounts and the tax bases of assetsand liabilities. Deferred taxes are measured by applyingcurrently enacted tax laws to the temporary differences.

j. Appropriations of Retained EarningsAppropriations of retained earnings are reflected in the

financial statements for the following year upon sharehold-ers’ approval.

k. Foreign Currency ItemsAll short-term and long-term monetary receivables and

payables denominated in foreign currencies are translatedinto Japanese yen at the exchange rates at the balancesheet date. The foreign exchange gains and losses fromtranslation are recognized in the income statement.

l. Per Share InformationBasic net income per share is computed by dividing net

income available to common shareholders, which is moreprecisely computed than under previous practices, by the

weighted-average number of common shares outstandingfor the period, retroactively adjusted for stock splits.

Diluted net income per share reflects the potentialdilution that could occur if securities were exercised orconverted into common stock. Diluted net income pershare of common stock assumes full conversion of theoutstanding convertible notes and bonds at the beginningof the year (or at the time of issuance) with an applicableadjustment for related interest expense, net of tax, and fullexercise of outstanding warrants. The number of sharesused in the calculation of basic net income per share was165,212 thousand for the year ended March 31, 2004 andthe number of shares used in the calculation of basic netincome per share and diluted net income per share was166,558 thousand and 176,730 thousand, respectively, forthe year ended March 31, 2003.

Cash dividends per share presented in the accompany-ing consolidated statements of income are dividendsapplicable to the respective years including dividends to bepaid after the end of the year.

m. New Accounting PronouncementsIn August 2002, the Business Accounting Council

issued a Statement of Opinion, “Accounting for Impairmentof Fixed Assets”, and in October 2003 the AccountingStandards Board of Japan (ASB) issued ASB GuidanceNo.6, “Guidance for Accounting Standard for Impairment ofFixed Assets”. These new pronouncements are effectivefor fiscal years beginning on or after April 1, 2005 withearly adoption permitted for fiscal years ending on or afterMarch 31, 2004.

The new accounting standard requires an entity toreview its long-lived assets for impairment wheneverevents or changes in circumstances indicate that thecarrying amount of an asset or asset group may not berecoverable. An impairment loss would be recognized if thecarrying amount of an asset or asset group exceeds thesum of the undiscounted future cash flows expected toresult from the continued use and eventual disposition ofthe asset or asset group. The impairment loss would bemeasured as the amount by which the carrying amount ofthe asset exceeds its recoverable amount, which is thehigher of the discounted cash flows from the continued useand eventual disposition of the asset or the net sellingprice at disposition.

The Company is currently in the process of assessingthe effect of adoption of these pronouncements.


5. MARKETABLE AND INVESTMENT SECURITIESMarketable and investment securities as of March 31, 2004 and 2003 consisted of the following :


2004 2003 2004

Current:Government and corporate bonds ........................................................................ ¥ 1,736 ¥ 2,079 $ 16,377Commercial paper and other ................................................................................ 3,061 3,011 28,878

Total ............................................................................................................... ¥ 4,797 ¥ 5,090 $ 45,255

Non-current:Equity securities .................................................................................................... ¥ 25,996 ¥ 16,958 $ 245,245Government and corporate bonds ........................................................................ 2,580Trust fund investments and other ......................................................................... 5,619 2,616 53,010

Total ............................................................................................................... ¥ 31,615 ¥ 22,154 $ 298,255

33

3. CASH AND CASH EQUIVALENTSCash and cash equivalents at March 31, 2004 and 2003 for purposes of the consolidated statements of cash flows consisted

of the following:

4. INVENTORIESInventories at March 31, 2004 and 2003 consisted of the following:


2004 2003 2004

Finished goods ........................................................................................................... ¥ 13,551 ¥ 16,490 $ 127,840Semi-finished goods and work in process ................................................................. 3,622 3,448 34,170Raw materials and supplies ....................................................................................... 4,635 4,196 43,726Total ....................................................................................................................... ¥ 21,808 ¥ 24,134 $ 205,736


2004 2003 2004

Cash and time deposits .............................................................................................. ¥ 20,441 ¥ 13,907 $ 192,839Time deposits with maturity over three months ......................................................... (19) (19) (179)Marketable securities with a maturity of three months or less when purchased ....... 3,061 3,011 28,878

Cash and cash equivalents ........................................................................................ ¥ 23,483 ¥ 16,899 $ 221,538

The carrying amounts and aggregate fair values of marketable and investments securities at March 31, 2004 and 2003 were asfollows:

Millions of Yen2004

Unrealized Unrealized FairCost Gains Losses Value

Securities classified as:Available-for-sale:

Equity securities ............................................................................... ¥ 12,038 ¥ 13,411 ¥ (136) ¥ 25,313Bonds and debentures ..................................................................... 80 156 236Other securities ................................................................................ 4,433 285 (99) 4,619

Held-to-maturity ..................................................................................... 1,500 (306) 1,194


Millions of Yen2003



Equity securities ............................................................................... ¥ 11,987 ¥ 4,004 ¥ 807 ¥ 15,184Bonds and debentures ..................................................................... 109 109Other securities ................................................................................ 4,524 1,908 2,616

Held-to-maturity ..................................................................................... 4,550 3 531 4,022

Thousands of U.S. Dollars2004



Equity securities ............................................................................... $ 113,566 $ 126,519 $ (1,283) $ 238,802Bonds and debentures ..................................................................... 755 1,471 2,226Other securities ................................................................................ 41,821 2,689 (934) 43,576

Held-to-maturity ..................................................................................... 14,151 (2,887) 11,264

Available-for-sale securities and held-to-maturity securities whose fair value is not readily determinable as of March 31, 2004and 2003 were as follows:

Carrying AmountThousands of

Millions of Yen U.S. Dollars2004 2003 2004

Available-for-sale:Equity securities .................................................................................................... ¥ 1,683 ¥ 1,774 $ 15,877Money management funds (MMF) and other ....................................................... 61 11 576

Held-to-maturity:Commercial paper ................................................................................................. 3,000 3,000 28,302

Total ................................................................................................................... ¥ 4,744 ¥ 4,785 $ 44,755

Proceeds from sales of available-for-sale securities were ¥2,037 million ($19,217 thousand) and ¥1,900 million for the yearsended March 31, 2004 and 2003, respectively. On those sales, gross realized gains and losses computed on a moving averagecost basis were ¥1,960 million ($18,491 thousand) and ¥1 million ($9 thousand), respectively for the year ended March 31, 2004and ¥1,853 million and ¥0 million, respectively for the year ended March 31, 2003. Gross realized gains of ¥1,853 million($17,481 thousand), respectively, for the years ended March 31, 2004 and 2003 resulted from sales of equity securities ofABBOTT JAPAN Co., Ltd.

The carrying values of debt securities by contractual maturities for securities classified as available-for-sale and held-to-maturity at March 31, 2004 and 2003 were as follows:


2004 2003 2004

Due in one year or less .............................................................................................. ¥ 4,736 ¥ 5,079 $ 44,679Due after one year through five years ........................................................................ 579Due after five years through ten years ....................................................................... 2,000

Total ................................................................................................................... ¥ 4,736 ¥ 7,658 $ 44,679

At March 31, 2004, investment securities of ¥16 million ($151 thousand) were pledged as collateral for accounts payable of¥76 million ($717 thousand).


Short-term bank loans consist of unsecured loans frombanks bearing interest of 0.69% to 0.79% and of 0.53% to2.49% at March 31, 2004 and 2003, respectively. Othercurrent liabilities as of March 31, 2004 and 2003 includedeposits received from customers in the amount of ¥738million ($6,962 thousand) and ¥736 million, respectively,bearing interest of 1.7% and 2.7%, respectively. Unusedshort-term bank loan credit lines were ¥10,000 million($94,340 thousand) at March 31, 2004 and 2003.

On September 30, 1994, the Company issued 1.4%unsecured convertible bonds due September 30, 2003, in an

aggregate amount of ¥12,000 million. The remaining portionof the bonds were redeemed at the due date.

As is customary in Japan, short-term and long-term bankloans are made under general agreements which provide thatsecurity and guarantees for future and present indebtednesswill be given upon request of the bank, and that the banksshall have the right, as the obligations become due, or incase of default, to offset cash deposits against such obliga-tions due to the banks. None of the lenders has ever exer-cised these rights against debts of the Group.

6. SHORT-TERM BANK LOANS AND LONG-TERM DEBT

7. INCOME TAXES

The Group is subject to Japanese national and localincome taxes which, in the aggregate, resulted in a normaleffective statutory tax rate of approximately 42.0% for theyears ended March 31, 2004 and 2003.

On March 31, 2003, Cabinet Order No. 9 entitled “Reformof a Portion of Local Tax Law” was issued and this reform willapply to fiscal years beginning after April 1, 2004. As a resultof this reform, the statutory income tax rate to be used for the

calculation of deferred income taxes concerning temporarydifferences, which are expected to be realized or settled afterApril 1, 2004, was changed from 42.0% to 40.4%. The effectof this change was to decrease deferred tax assets by ¥147million, and to increase income taxes-deferred by ¥167million, and net unrealized gain on available-for-sale securi-ties by ¥20 million, respectively, for the year ended March 31,2003.

Long-term debt at March 31, 2004 and 2003 comprise the following:


2004 2003 2004

1.4% unsecured convertible bonds due to 2003 ........................................................ ¥ 11,118Unsecured loan from banks and financial institutions due to 2008 ........................... ¥ 7,000 $ 66,038

Total ....................................................................................................................... 7,000 11,118 66,038Less current portion .............................................................................................. (11,118)Long-term debt, less current portion .................................................................... ¥ 7,000 $ 66,038

The annual maturities of long-term debt were as follows:

Thousands ofYear ending March 31 Millions of Yen U.S. Dollars2008 .................................................................................................................................................... ¥ 7,000 $ 66,038

Total ............................................................................................................................................... ¥ 7,000 $ 66,038


Significant components of deferred tax assets and liabilities as of March 31, 2004 and 2003 were as follows:


2004 2003 2004

Deferred tax assets:Liability for retirement benefits .............................................................................. ¥ 2,199 ¥ 2,191 $ 20,745Accrued enterprise taxes ...................................................................................... 291 363 2,745Accrued bonuses to employees ........................................................................... 1,664 1,475 15,698Accrued other expenses ....................................................................................... 379 352 3,576Loss on devaluation of investment securities ....................................................... 1,080 1,266 10,189Other ..................................................................................................................... 2,445 2,155 23,066

Total deferred tax assets ............................................................................... 8,058 7,802 76,019Deferred tax liabilities:

Unrealized gains on available-for-sale securities ................................................. (5,532) (520) (52,188)Deferred gain on sales of fixed assets ................................................................. (156) (159) (1,472)Other ..................................................................................................................... (53) (4) (500)

Total deferred tax liabilities ........................................................................... (5,741) (683) (54,160)

Net deferred tax assets .............................................................................................. ¥ 2,317 ¥ 7,119 $ 21,859

A reconciliation between the normal effective statutory tax rates and the actual effective tax rates reflected in the accompany-ing consolidated statement of income for the years ended March 31, 2004 and 2003 was as follows:

2004 2003

Normal effective statutory tax rate ................................................................................................................. 42.0% 42.0%Increase (decrease) in taxes due to:

Expenses not deductible for tax purposes ............................................................................................... 6.9 8.3Non-taxable dividend income ................................................................................................................... (2.3) (1.4)Tax credits for research and development costs ...................................................................................... (6.7)Adjustment of deferred tax assets and liabilities due to change in tax rates ........................................... 1.3Other ......................................................................................................................................................... 2.0 (0.6)

Actual effective tax rate .................................................................................................................................. 41.9% 49.6%

8. RETIREMENT AND SEVERANCE BENEFITS

36

The liability (asset) for employees’ retirement benefits at March 31, 2004 and 2003 consisted of the following:


2004 2003 2004

Projected benefit obligation ........................................................................................ ¥ 39,093 ¥ 65,879 $ 368,802Fair value of plan assets ............................................................................................ (28,314) (30,525) (267,113)Unrecognized prior service benefit ............................................................................. 3,807 2,879 35,915Unrecognized actuarial loss ....................................................................................... (9,019) (29,528) (85,085)

Prepaid pension cost .................................................................................................. 439 4,141

Liability for employee’s retirement benefit .................................................................. ¥ 6,006 ¥ 8,705 $ 56,660


In addition to the above costs, the special retirement costscharged to income are ¥845 million for the years ended March31, 2003.

The Company has two types of pension plans foremployees: a non-contributory and a contributory fundeddefined benefit pension plan. The contributory funded definedbenefit pension plan, established under the Japanese WelfarePension Insurance Law, covers a substitutional portion of thegovernmental pension program managed by the Company onbehalf of the government and a corporate portion establishedat the discretion of the Company. In accordance with theDefined Benefit Pension Plan Law enacted in April 2002, theCompany applied for an exemption from obligation to paybenefits for future employee services related to thesubstitutional portion which would result in the transfer of thepension obligations and related assets to the governmentupon approval. The Company obtained approval forexemption from the future obligation by the Ministry of Health,Labor and Welfare on September 25, 2003 and recognized a

37

Consolidated subsidiaries have adopted the simplified calculation method for projected benefit obligation allowed for smallbusiness entities in Japan. The components of net periodic benefit costs were as follows:


2004 2003 2004

Service cost ................................................................................................................ ¥ 1,769 ¥ 1,914 $ 16,689Interest cost ................................................................................................................ 1,320 1,834 12,453Expected return on plan assets ................................................................................................ (570) (922) (5,377)Amortization of prior service cost .............................................................................................. (223) (223) (2,104)Recognized actuarial loss .......................................................................................... 1,671 1,354 15,764Net periodic benefit costs ........................................................................................... ¥ 3,967 ¥ 3,957 $ 37,425

Assumptions used for the years ended March 31, 2004 and 2003 were set forth as follows:

Method of attributing benefits to periods of service ......................................................................................... straight-line basisDiscount rate ..................................................................................................................................................... 2.5%Expected rate of return on plan assets ............................................................................................................ 2.5%Amortization period for prior service cost ......................................................................................................... 15 yearsRecognition period for actuarial loss ................................................................................................................ 15 years

gain on exemption from the future pension obligation of thegovernmental program in the amount of ¥2,273 million($21,443 thousand) for the year ended March 31, 2004. Thesubstitutional portion of the plan assets which will betransferred to the government in the subsequent year ismeasured to be approximately ¥13,426 million ($126,660thousand) as at March 31, 2004.

Also, according to the enactment of the DefinedContribution Pension Plan Law in October 2001, the Companywill implement a defined contribution pension plan in April 2,2004 by which the part of the lump-sum payment plan wereterminated. The Company applied accounting treatmentsspecified in the guidance issued by the Accounting StandardsBoard of Japan. The effect of this transfer was to decreaseincome before income taxes and minority interests by ¥154million ($1,453 thousand) and was recorded as loss ontransfer of pension plans in the income statement for the yearended March 31, 2004.

9. SHAREHOLDERS’ EQUITYJapanese companies are subject to the Japanese Com-

mercial Code (the “Code”) to which certain amendmentsbecame effective from October 1, 2001.

The Code was revised whereby common stock par valuewas eliminated resulting in all shares being recorded with nopar value and at least 50% of the issue price of new shares isrequired to be recorded as common stock and the remainingnet proceeds as additional paid-in capital, which is included in

capital surplus. The Code permits Japanese companies, uponapproval of the Board of Directors, to issue shares to existingshareholders without consideration as a stock split. Suchissuance of shares generally does not give rise to changeswithin the shareholders’ accounts.

The revised Code also provides that an amount at leastequal to 10% of the aggregate amount of cash dividends andcertain other appropriations of retained earnings associated


11. LEASES

The Group lease certain machinery, computer equipment,office space and other assets.

Total rental expenses for the years ended March 31, 2004and 2003 were ¥2,471 million ($23,311 thousand) and ¥2,407million, respectively, including ¥699 million ($6,594 thousand)and ¥493 million of lease payments under finance leases.

Pro forma information of leased property such as acquisi-tion cost, accumulated depreciation, obligation under financelease, depreciation expense of finance leases that do nottransfer ownership of the leased property to the lessee on a“as if capitalized” basis for the years ended March 31, 2004and 2003 was as follows:

38

10. TRANSACTIONS WITH AFFILIATES

Transactions of the Group with affiliates for the years ended March 31, 2004 and 2003 were as follows:


2004 2003 2004

Sales ....................................................................................................................... ¥ 203 ¥ 230 $ 1,915Purchases ................................................................................................................... 2,623 2,673 24,745

with cash outlays applicable to each period shall be appropri-ated as a legal reserve (a component of retained earnings)until such reserve and additional paid-in capital equals 25%of common stock. The amount of total additional paid-incapital and legal reserve that exceeds 25% of the commonstock may be available for dividends by resolution of theshareholders. In addition, the Code permits the transfer of aportion of additional paid-in capital and legal reserve to thecommon stock by resolution of the Board of Directors.

The revised Code eliminated restrictions on the repur-chase and use of treasury stock allowing Japanese compa-nies to repurchase treasury stock by a resolution of theshareholders at the general shareholders meeting anddispose of such treasury stock by resolution of the Board ofDirectors beginning April 1, 2002. The repurchased amountof treasury stock cannot exceed the amount available forfuture dividend plus amount of common stock, additionalpaid-in capital or legal reserve to be reduced in the casewhere such reduction was resolved at the general sharehold-ers meeting.

At the general shareholders meeting held on June 27,

2003, the Company’s shareholders authorized the Companyto repurchase up to 5,000,000 shares of the Company’scommon stock (aggregate amount of ¥5,000 million) astreasury stock until the closing of the next general sharehold-ers meeting in accordance with the Code. The Companyrepurchased none of share because of consideration ofeconomic and market environment.

The amount of retained earnings available for dividendsunder the Code was ¥88,277 million ($832,802 thousand) asof March 31, 2004, based on the amount recorded in theCompany’s general books of account. In addition to theprovision that requires an appropriation for a legal reserve inconnection with the cash payment, the Code imposes certainlimitations on the amount of retained earnings available fordividends.

Dividends are approved by the shareholders at a meetingheld subsequent to the fiscal year to which the dividends areapplicable. Semiannual interim dividends may also be paidupon resolution of the Board of Directors, subject to certainlimitations imposed by the Code.


2004 2003 2004

Machinery and equipment:Acquisition cost ..................................................................................................... ¥ 2,663 ¥ 2,583 $ 25,122Accumulated depreciation .................................................................................... (1,245) (964) (11,745)

Net leased property .................................................................................................... ¥ 1,418 ¥ 1,619 $ 13,377


12. SEGMENT INFORMATIONThe Group operates principally in the manufacture and sale of products in three business segments - pharmaceuticals, animal

health products and other products. The business segment information of the Group for the years ended March 31, 2004 and2003 was as follows:

Millions of Yen2004

Animal Health Other Eliminations/Pharmaceuticals Products Products Total Corporate Consolidated

I. Sales and operating incomeSales to customers ................................. ¥ 118,481 ¥ 28,654 ¥ 23,707 ¥ 170,842 ¥ 170,842Intersegment sales/transfers .................. 1,389 1,389 ¥ (1,389) Total .................................................... 118,481 28,654 25,096 172,231 (1,389) 170,842Operating expenses ................................ 108,254 27,397 23,610 159,261 2,298 161,559

Operating income .............................. ¥ 10,227 ¥ 1,257 ¥ 1,486 ¥ 12,970 ¥ (3,687) ¥ 9,283

II. Identifiable assets, depreciation and capital expendituresIdentifiable assets ................................... ¥ 114,988 ¥ 9,403 ¥ 13,583 ¥ 137,974 ¥ 55,264 ¥ 193,238Depreciation ............................................ 5,090 237 140 5,467 266 5,733Capital expenditures ............................... 3,691 167 121 3,979 315 4,294

Thousands of U.S. Dollars2004


I. Sales and operating incomeSales to customers ................................. $ 1,117,745 $ 270,321 $ 223,651 $ 1,611,717 $ 1,611,717Intersegment sales/transfers .................. 13,104 13,104 $ (13,104) Total ................................................... 1,117,745 270,321 236,755 1,624,821 (13,104) 1,611,717Operating expenses ................................ 1,021,264 258,463 222,736 1,502,463 21,679 1,524,142 Operating income .............................. $ 96,481 $ 11,858 $ 14,019 $ 122,358 $ (34,783) $ 87,575

II. Identifiable assets, depreciation and capital expendituresIdentifiable assets ................................... $ 1,084,792 $ 88,708 $ 128,142 $ 1,301,642 $ 521,358 $ 1,823,000Depreciation ............................................ 48,019 2,236 1,321 51,576 2,509 54,085Capital expenditures ............................... 34,821 1,575 1,141 37,537 2,972 40,509

39

Obligations under finance leases:


2004 2003 2004

Due within one year .................................................................................................... ¥ 603 ¥ 611 $ 5,689Due after one year ...................................................................................................... 815 1,008 7,688

Total ....................................................................................................................... ¥ 1,418 ¥ 1,619 $ 13,377

Depreciation expenses, which are not reflected in the accompanying statements of income, computed by the straight-linemethod were ¥699 million ($6,594 thousand) and ¥493 million for the years ended March 31, 2004 and 2003, respectively.


13. CONTINGENT LIABILITIES

Contingent liabilities for guarantees of indebtedness of an associated company, and employees’ housing loans guaranteed atMarch 31, 2004 were as follows:


Guarantees of indebtedness ............................................................................................................... ¥1,557 $14,689Loans guaranteed ................................................................................................................................ 21 198

14. SUBSEQUENT EVENT

On June 29, 2004, the shareholders of the Company approved payment of a year-end cash dividend to shareholders of recordat March 31, 2003 of ¥5.00 ($0.05) per share or a total of ¥826 million ($7,792 thousand), and bonuses to directors and corporateauditors of ¥25 million ($236 thousand).

Millions of Yen2003


I. Sales and operating incomeSales to customers ................................. ¥ 121,970 ¥ 26,816 ¥ 23,376 ¥ 172,162 ¥ 172,162Intersegment sales/transfers .................. 1,683 1,683 ¥ (1,683)

Total ................................................... 121,970 26,816 25,059 173,845 (1,683) 172,162Operating expenses ................................ 108,713 25,788 23,501 158,002 1,284 159,286

Operating income ............................. ¥ 13,257 ¥ 1,028 ¥ 1,558 ¥ 15,843 ¥ (2,967) ¥ 12,876

II. Identifiable assets, depreciation and capital expendituresIdentifiable assets ................................... ¥ 116,183 ¥ 8,881 ¥ 13,663 ¥ 138,727 ¥ 48,689 ¥ 187,416Depreciation ............................................ 3,488 104 119 3,711 225 3,936Capital expenditures ............................... 5,716 203 189 6,108 424 6,532

Each business segment comprises the following:

Business Segment Major Product

Pharmaceuticals Cardiovascular system drugsAntibacterial and antibiotic agentsCentral nervous system and antiallergic drugsNutrients, hormones and vitaminsDiagnostics

Animal Health Products Animal health productsFeeds and feed additives

Other Products Food additivesOther products (industrial chemicals, research reagents and instruments, etc.)

Geographical segment information and overseas sales information are not disclosed, because none of the Company’s con-solidated subsidiaries is located outside Japan, and the overseas sales of the Group for the years ended March 31, 2004 and2003 were less than 10% of consolidated net sales.


Deloitte Touche TohmatsuOsaka Kokusai Building2-3-13, Azuchi-machiChuo-ku, Osaka 541-0052Japan

Tel: +81 6 6261 1381Fax:+81 6 6261 1238www.deloitte.com/jp

41

Independent Auditors’ Report

To the Board of Directors of Dainippon Pharmaceutical Co., Ltd.:

We have audited the accompanying consolidated balance sheets of Dainippon Pharmaceutical Co., Ltd. and

consolidated subsidiaries as of March 31, 2004 and 2003, and the related consolidated statements of income,

shareholders’ equity, and cash flows for the years then ended, all expressed in Japanese yen. These consoli-

dated financial statements are the responsibility of the Company’s management. Our responsibility is to

express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Those standards

require that we plan and perform the audit to obtain reasonable assurance about whether the financial

statements are free of material misstatement. An audit includes examining, on a test basis, evidence

supporting the amounts and disclosures in the financial statements. An audit also includes assessing the

accounting principles used and significant estimates made by management, as well as evaluating the overall

financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects,

the consolidated financial position of Dainippon Pharmaceutical Co., Ltd. and consolidated subsidiaries as of

March 31, 2004 and 2003, and the consolidated results of their operations and their cash flows for the years

then ended in conformity with accounting principles generally accepted in Japan.

Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our

opinion, such translation has been made in conformity with the basis stated in Note 1. Such U.S. dollar

amounts are presented solely for the convenience of readers outside Japan.

June 29, 2004


Businesses of Consolidated SubsidiariesGokyo Trading Co., Ltd.: Purchasing and sales of industrial chemicals,

food and food additives, and other chemicalproducts

Nichiei Sangyo Co., Ltd.: Parking garage management, clinical assayand testing of pharmaceuticals

Marupi Drug Co., Ltd.: Sales of over-the-counter pharmaceuticals

Marupi Butsuryu Service Co., Ltd.: Warehouse management

Corporate Data(As of March 31, 2004)

FoundationMay 14, 1897

Capital13,444 million yen

Number of Employees2,445

Board of Directors(As of June 29, 2004)

Chairman andRepresentative DirectorTakeshi Tomotake

President andRepresentative DirectorKenjiro Miyatake

Managing DirectorTadashi Inoue

DirectorsHisashi FujitaHironobu KanedaTadahiro SawayamaFujio OkamotoTetsuya Oida

Full-Time Corporate AuditorsToshiro FunakuraFuminori Hashimoto

Corporate AuditorsMichihiro IshiiTakayuki Usui

Head Office6-8, Doshomachi 2-chome, Chuo-ku,Osaka 541-8524Tel 06-6203-5307Fax 06-6203-6581

Tokyo Office2-5, Nihonbashi Honcho 2-chome,Chuo-ku, Tokyo 103-0023Tel 03-3270-2011

Osaka Business Affairs Office5-51, Ebie 1-chome, Fukushima-ku,Osaka 553-0001Tel 06-6454-8151

Suzuka Plant1450, Yasuzuka-cho, Suzuka City 513-0818Tel 0593-82-8951

Research Laboratories33-94, Enoki-cho, Suita City 564-0053Tel 06-6337-5876

Branch OfficeSapporo, Sendai, Tokyo 1st, Tokyo2nd, Yokohama, Koshin-etsu, Nagoya,Kyoto, Osaka, Kobe, Hiroshima,Takamatsu, Fukuoka

Stock Price Range and Turnover

Corporate Information

42

6-8, Doshomachi 2-chome, Chuo-ku, Osaka 541-8524, JapanTel 06-6203-5307Fax 06-6203-6581URL http://www.dainippon-pharm.co.jp

Annual Report 2004 · 2017-02-14 · 4 Dainippon Pharmaceutical Co., Ltd. Annual Report 2004...

Documents

Transcript of Annual Report 2004 · 2017-02-14 · 4 Dainippon Pharmaceutical Co., Ltd. Annual Report 2004...