Medium-Term Management Plan

ASKA Pharmaceutical Holdings' Medium-Term Management Plan 2025

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Management Policy

In order to remain a company that is trusted by society, we will continue to contribute to healthcare by transforming into a leading company in the specialty areas within our domestic pharmaceutical business, and by creating pharmaceutical products that meet social needs through innovations. Furthermore, building upon our current business, we are aiming to become a “Total Healthcare Company” by conducting business operations domestically as well as internationally across the entire healthcare market of Prevention, Testing and Diagnostics, Treatment, and post-treatment.

Management Vision

Become a Total Healthcare Company with a Strong Foundation as a Specialty Pharma Company

Four Visions

• 1. Expand business scope centered on pharmaceutical products
• 2. Improve business operations through promoting open innovations
• 3. Become the top domestic company regarding our specialty areas for pharmaceutical products
• 4. Continue to be a company that holds Society’s trust

Target Figures

Progress Chart

Seven Strategies

1. Enhancing Corporate Value by Strengthening Initiatives in the Specialty Areas

• Contribute to improving women's QOL as a leading company in the field of obstetrics and gynecology
• Promote awareness activities within the thyroid field and contribute to the treatment of potential patients

2. Continuous Creation of New Drugs through Advanced Drug Discovery

• Leverage open innovations to continuously create new drugs
• Promote and enhance global alliance activities as well as In-and-Out-licensing activities

3. Overseas Operations

• Develop and provide high-quality pharmaceuticals within Asia, and strengthen our presence

4. Providing New Value to Realize “Total Healthcare”

• Strengthen animal reproduction, immunity, and nutrition to support the health of companion animals
• Take on new business challenges within the Testing and Diagnostic business, etc.

5. Improving Operational Efficiency, managing Costs, and Reinforcing Our Financial Base

• Promote cost efficiency
• Promote operational efficiency by engaging in DX

6. Foster an Organizational Culture that Emphasizes thorough Compliance and Accountability

• Ensure company compliance and enhance trustworthiness from society
• Achieve a high quality and stable supply chain at any given time
• Strengthen corporate governance under the HD system

7. Develop Human Resources to Realize Growth Strategies

• Develop and attract human resources that are capable of responding to new business opportunities as well as the changing environment
• Create an environment in which a diverse range of talent can thrive, including women, professionals at every stage of their work journey and active seniors. “ASKA Pharmaceutical Holdings aims to achieve its financial targets and to contribute to the realization of SDGs by addressing social issues through its business activities.”

（7 Strategies）Medium-Term Management Plan 2025: Results of the 3rd year, and Future Efforts

Financial and Capital Strategy

Practicing management conscious of cost of capital and shareholder value, while also boldly pursuing growth investments

Evaluation of FY2023 Performance and Progress of Medium-Term Management Plan 2025

The business environment remained uncertain in FY2023, due to the fragile international situation as well as inflationary pressure, higher policy interest rates in Europe and the US, and significant fluctuations in forex. Earnings remained favorable in the core pharmaceutical business, despite a persistently challenging business environment marked by soaring manufacturing costs and subdued growth in overall drug expenditure as a result of annual drug price revisions and other measures aimed at reining in medical spending. Due in large part to growth in sales of new products in the Ob/Gyn field, net sales increased ¥2,381 million year on year to ¥62,843 million, for the fifth consecutive fiscal year of growth dating back to before the transition to a holding company structure. With operating profit and ordinary profit similarly increasing year on year for the fourth consecutive fiscal year, business performance has been brisk for several years now. Against this backdrop, the Group targets net sales of ¥70 billion, an operating profit margin of 8%, and ROE (return on equity) of 8% in Medium-Term Management Plan 2025. To achieve those goals, in our domestic operations we must continue to roll out new drugs in the core pharmaceutical business, which accounts for some 90% of net sales, in order to offset negatives such as annual NHI drug price revsions. We must also ensure that Group companies step up efforts to expand adjacent businesses including Femtech, animal health, and testing and diagnostics. In our overseas operations, I think it is essential that we accelerate our efforts in the fast-growing Southeast Asian market. To that end, we are steadily increasing our financial stake in Ha Tay Pharmaceutical Joint Stock Company, our equity-method affiliate in Vietnam.

Cash Allocation and Business Portfolio

The Group operates a pharmaceutical business, animal health business, and testing and diagnostics business under the ASKA Pharmaceutical Holdings umbrella. Common to all are the tasks of globalization and business diversification with a view to becoming a total healthcare company. The steps we take in that direction will form the basis of our basic growth strategy and therefore are the target of our growth investments. When it comes to cash allocation there are four main areas in which we are investing for growth. First, we are focused on expanding our new drug pipeline in order to secure stable future cash inflows for the core pharmaceutical business. In particular, we seek to grow our businesses in the Ob/Gyn and thyroid fields, where we are established already as the leading company, and in the thyroid field. Second, we plan investments in new growth businesses. We are focusing in particular on the Femtech, animal health, and testing and diagnostics businesses, where we expect to see synergies with our existing businesses. In the animal health business, we will launch new products in the companion animal² (CA) field, where we see more opportunities for our company than in the production animal³ (PA) field. When it comes to Femtech, we have started providing materials to support women’s health and work styles within our own company, and we also plan collaborations with other companies. Our third area of focus is overseas expansion. The initial challenge is to accelerate our foray into Southeast Asia. Lastly, we will also actively invest in human capital and in business and capital alliances with other companies, in order to acquire the human resources and capabilities needed to execute our growth strategies. Over the years, we have not hesitated to change our business strategies to suit the times. Some years ago, ASKA Pharmaceutical’s Iwaki Factory in Fukushima Prefecture, which is the Group’s main production base, sustained damage in the 2011 Great East Japan Earthquake, hindering the production and supply of pharmaceuticals. This led to a temporary slump in both sales and profits. At that time, our business was centered on generic drugs, against a backdrop of government policies aimed at reducing drug expenditures. Once we had recovered from the earthquake damage, we decided to alter our business strategy. We changed tack and began concentrating management resources on our traditional specialty areas of internal medicine, Ob/Gyn, and urology, also actively in-licensing products from other companies, both domestically and overseas, and spending heavily on R&D, including drug discovery. I believe that this growth strategy founded on strengthening specialty areas has paid off and is the reason for our strong business performance in recent years. This business portfolio transformation was an essential initiative for sustaining corporate growth. While the Group will continue leveraging its strengths in the aforementioned specialty areas, our aim is to build a portfolio of new businesses to serve as the next pillars of growth. Currently, the Group's products are mainly pharmaceuticals, but we are also venturing into adjacent areas such as digital therapeutics and medical devices, as well as wider-ranging support for addressing women's health concerns. The pharmaceutical industry in Japan is viewed as a defensive sector that is relatively immune to economic vagaries. Pharmaceutical company operations can be significantly affected, though, by NHI drug price revisions and weak yeninduced increases in procurement and manufacturing costs. In order to establish a stronger corporate constitution, I believe we need to build a business portfolio in which multiple businesses support each other in maintaining stability.
<sub>2. Animals such as dogs and cats that are kept as pets
3. Animals such as cows, pigs, and poultry, whose products and labor are useful to humans</sub>

Action to Implement Management That is Conscious of Cost of Capital and Share Price

As noted earlier, earnings have been robust for some years now. That said, there has been little change in market cap, considered a measure of corporate value, and improving the PBR (price-tobook ratio) has been a major challenge. We accordingly conducted an internal analysis and also sought the opinions of shareholders and investors to identify the issues facing the Group, evaluate the current situation, and come up with policies and initiatives for improvement. We released these in November 2023, under the title “About Action to Implement Management That is Conscious of Cost of Capital and Share Price,” the essence of which is outlined below. The PBR remained below 1x from FY2018 through FY2022 even though ROE reached the 8% target set in Medium-Term Management Plan 2025 ahead of schedule in FY2021 and has remained above 8%. We determined that the reasons for this were that (1) the feasibility of our growth strategy was not fully understood; (2) there was insufficient external communication, including through IR; and (3) there was no detailed disclosure concerning cash allocation, which meant that we were not providing a clear direction for our growth strategy and shareholder returns. In addition, we concluded that the market’s evaluation of the Group’s ability to generate profits in our core business had not risen sufficiently. Within “Action to Implement Management That is Conscious of Cost of Capital and Share Price,” we included a basic policy for our growth strategy, disclosing specific cash allocations. In the core pharmaceutical business, we seek to further strengthen our position as a leading company in the Ob/Gyn field, while in the animal health business we will invest in expanding our presence in the companion animal field. In order both to strengthen our drug discovery research as an R&D-oriented company and grow as a total healthcare company, we will invest the cash generated through our business activities not only in the pharmaceutical business, but also in global expansion and in new businesses such as Femtech. In addition, we will allocate cash for investment in human capital and production facilities with a view to strengthening our management base (see diagram) We initiated a new policy for shareholder returns. Previously, our basic policy for returning profits to shareholders was to maintain a stable dividend regardless of profit levels. However, as business performance improved, we began to receive feedback from investors regarding room for enhancing both the dividend amount and the dividend payout ratio. Therefore, as of FY2024 we have shifted to a performance-linked profit distribution system for dividends, setting a consolidated dividend payout ratio benchmark of 30%. By also setting a minimum per-share dividend of ¥30 per year, we aim to maintain a stable dividend while returning profit to shareholders in line with business performance. PBR can be broken down into ROE and PER (price-to-earnings ratio). ROE was rising in line with our business performance, but PER remained low. Shareholders and investors seem to believe that there is a mismatch between our growth strategy and perceptions about the Group’s future, so we decided to strengthen our IR activities in order to deepen shareholders’ understanding of our core business’ potential for generating profits. The PER multiple essentially reflects the market and shareholders’ expectations regarding a company’s growth. We are committed to creating opportunities for fully and promptly explaining our strategies to ensure that stakeholders have the best possible understanding of our growth potential. This includes fleshing out the content of IR meetings, holding results briefings for both individual and institutional investors, hosting small meetings, and organizing pipeline briefings, which are of great interest to stakeholders. Any opinions obtained from these discussions will be reported to the Board of Directors, to be reviewed and potentially parlayed into improvements ensuring timely and appropriate dissemination of information.

Cash Allocation Plan for FY2023-2025 (Released in November 2023)

<sup>4. Assumed operating profit + Depreciation + R&D expenses (excluding tangible assets)
5. CVC: Corporate venture capital
6. CA: Companion animal</sup>

Pursuing Higher Capital Efficiency in Management

The Group seeks to optimize its capital structure with a view to maximizing corporate value. In addition to controlling working capital and strengthening management of fixed assets, we will continue to review non-business assets with the intention either of making effective use of these assets in our businesses or divesting them. As an example, we will examine the appropriateness of continuing to hold crossshareholdings from the perspective of capital efficiency and consider selling those that don’t appear to be worth keeping, for reasons such as a lack of synergy. As a result of sustained efforts to bring the ratio of cross-shareholdings to consolidated net assets below 20% by end-March 2024, as of that point the ratio was 18.4%, down 3.9% from the end of the previous fiscal year. We are committed to practicing management that is conscious of the share price, to meet the expectations of shareholders. With a view to further sharing value with our shareholders, from FY2024 we will expand the scope of restricted share compensation from directors and above to all corporate officers. In Medium-Term Management Plan 2025, we are targeting an ROE of 8%. As a result of our sustained efforts toward improvement, we recorded an ROE of 13.0% in FY2023, remaining above the target set in our medium-term plan. It goes without saying that the Group’s three operating companies each have a strong awareness of ROE. At Group Business Strategy Meetings, ROE figures are presented in the process of reporting on each company’s business progress and performance status, and debate is held on the subject of what each unit can do to further improve ASKA Pharmaceutical Holdings’ ROE. The Group’s emphasis on ROE is also reflected in the design of executive compensation. Executive compensation is linked to various performance indicators, including sales, operating profit and ROE, in order to create a system that contributes to sustained improvement in corporate value. In addition to these performance indicators, since FY2023 we have included non-financial indicators such as the CO2 emissions reduction rate in the performance evaluation items of corporate officers.

PBR (price-to-book ratio) and ROE (return on equity)

Cost of Shareholders’ Equity

As noted earlier, the Group strives to practice management with an awareness of the cost of capital. In addition to improving ROE, we are working to find ways to reduce capital costs based on the belief that there is a positive correlation between PBR and the equity spread, which is ROE less the cost of shareholders’ equity. While acknowledging that there are various ways to look at the cost of shareholders’ equity, I like to think of the cost of equity as the cost incurred by a company when raising funds from shareholders, essentially representing investors’ required rate of return on the securities issued by a company. I believe that IR activities are important in this context. When a company is reluctant to engage in IR activities and provides insufficient disclosure regarding its finances and business, investors can struggle to identify the risks and opportunities, causing them to view investment in the stock as high-risk and to demand a higher rate of return. On the other hand, if a company provides as much disclosure as possible so as not to spring any surprises on investors, investment in the stock will be perceived as low-risk, the expected rate of return will be lower, and the cost of shareholders’ equity is likely to improve as a result. On this basis, by further strengthening our IR activities we aim to reduce the effective cost of shareholders’ equity and work with shareholders and investors toward increasing corporate value.

Cost of Shareholders’ Equity

Continue to take initiatives to swiftly achieve a PBR of above 1x

1. Growth strategy

• Implementation of growth strategy
• Optimal cash allocation

2. Strengthen shareholder returns

• Dividend payout benchmark ratio of 30% from FY2024
• Minimum annual dividend of 30 yen per share