Issues to be Addressed

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Operating Environment and Issues to Be Addressed

In 2020, the Otsuka group's business activities were affected to a certain extent by restrictions on sales activities and a decline in consumption opportunities resulting from the COVID-19 pandemic. Nonetheless, we have been striving to continue business activities while ensuring the safety of employees, and have maintained our ability to stably supply products. We will continue to pay close attention to the impact on future business and financial results assuming that the situation will be prolonged.

At a fundamental level, the healthcare industry is experiencing a changing environment. Aging populations, the introduction of expensive drugs, outbreaks of communicable disease, and other factors are contributing to ever-increasing healthcare costs and making the governments of Japan, the U.S. and Europe more conscious of the overall cost of medical treatment. With limited financial resources, these governments are weighing the balance between the benefits and costs of treatment. In Japan, National Health Insurance (NHI) pricing system reforms and the adoption of generic drugs are ongoing while new technologies such as artificial intelligence, machine learning and gene therapy continue to emerge. Under these circumstances, health consciousness, including with regard to disease prevention measures, is steadily increasing. The Otsuka group will continue to make new contributions to society by doing what only Otsuka can do, and will take this increased health consciousness as a growth opportunity and continue to work toward sustainable growth.

Otsuka has continued to create new value, underpinned by its corporate philosophy of “Otsuka-people creating new products for better health worldwide” and driven by its essence of management—Ryukan-godo (by sweat we recognize the way), Jissho (actualization), and Sozosei (creativity). Integral to this value creation have been: (1) new concepts created from the organic combination of unique and diverse businesses with insights into the world's true needs and technological/scientific know-how; (2) synergies and related developments of diverse operations; and (3) the cultivation of niche areas of business. As a total healthcare company that supports daily maintenance and promotion of health, extending from diagnosis through to the treatment of disease, we aim “to become an indispensable contributor to people's health worldwide” through our Pharmaceutical Business and Nutraceutical Business by offering original products that address both unmet medical needs and yet-to-be-imagined needs.

In the Pharmaceutical Business, we have been engaging in various solution-oriented initiatives that involve addressing the challenge of expanding into new frontiers to do what only Otsuka can do, providing solutions to unmet medical needs and generating innovation from creative and diverse research platforms. We aim to create innovative new drugs drawing on our unique approach of leveraging synergies among our various businesses, with a focus on the psychiatry and neurology, oncology, and cardiovascular and renal areas, where there are still many diseases for which treatment remains unsatisfactory. We will also address challenges involving systematic solutions for optimizing medical care. Moreover, we aim to sustainably evolve and grow by strengthening our drug discovery platforms through alliances, open innovation and partnerships with venture capital, and by taking steps to diversify our drug discovery modalities.

In the Nutraceutical Business, amid growing awareness of health, we aim to make use of the expertise developed in the Pharmaceutical Business, propose new conceptual solutions for latent needs and social issues, and contribute to the extension of healthy life expectancy by maintaining and promoting the health of people worldwide. In anticipation of various changes in the global business environment, we will combine state-of-the-art science and technology with our unique business models to create new value and expand into new categories and new areas. For the various social issues surrounding health, we will continue to conduct activities to raise awareness as issues are brought to the fore, and continue to propose solutions through each of our brands. We will also strengthen collaboration with external institutions to promote these activities.

The current situation and potential management risks for the Otsuka group regarding the COVID-19 pandemic have been identified as follows:

Sales: In the Pharmaceutical Business, although official requests to stay at home and other lockdown measures have led to a decrease in outpatient visits to hospitals, there is an upward trend in long-term prescriptions for patients with chronic diseases. If the current situation were to be prolonged or become more serious, restrictions on visits to healthcare facilities and the voluntary suspension of our disease awareness activities may cause a further decline in new prescriptions and prescriptions such as those related to injections as part of hospital treatment, which may affect revenue. In non-pharmaceutical businesses, on the one hand, demand for some products is increasing due to greater health awareness and increases in at-home consumption and online shopping. On the other hand, there are signs of a decline in consumption opportunities due to limitations on outdoor activities resulting from people staying at home. If the COVID-19 pandemic were to be prolonged or become more serious, revenue may be affected due to a decline in new customer acquisition and the loss of consumption opportunities resulting from voluntary suspension of and restrictions on sales activities.

Manufacturing: With regard to the procurement of raw materials, our purchasing channels overall are secure, although delays are occurring for some import items. Manufacturing on some production lines was temporarily suspended due to employees staying at home, but has since almost been fully restored. Manufacturing operations are adequately staffed and proceeding smoothly. If the COVID-19 pandemic were to be prolonged or become more serious, interrupting the procurement of raw materials, or if a cluster of infections occurred at a manufacturing plant, there may be a delay in the supply of certain products.

Research and Development: Plans to establish clinical trial facilities and enroll patients had been put on hold for some products in development undergoing clinical trials, but these trials are steadily resuming. If the interruption or delay of patient enrollment were to become more serious, there may also be changes in the progress of clinical trials or the development strategy, such as the timing of applications for regulatory approval. In research activities, if the current situation were to be prolonged or become more serious, with impacts such as stay-at-home orders, there may be delays in research activities and in the timeline for new product launches in the medium to long term.

As stated above, while taking account of a wide range of possible impacts on the Otsuka group's businesses due to the COVID-19 pandemic, we will continue to fully recognize management risks in advance and take all possible measures to improve corporate value and achieve the targets of the Third Medium-Term Management Plan.

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