More Focused, More Driven · diabetic neuropathy, various hyperthyroidism symptoms, and uncomfortable symptoms of atopic dermatitis and other conditions. In addition, there are many

More Focused, More Driven2009 Annual Report

Printed in Japan with soybean ink

Tsumura & Co.2-17-11, Akasaka, Minato-ku, Tokyo 107-8521, Japan

Annu

al Rep

ort 20

09

Under our corporate philosophy of “the Best of Nature and Science,” we see our business domain as the traditional Japanese Kampo medicine market and our mission as contributing to the unparalleled medical therapeutic power of the combination of Kampo medicine and Western medicine. We seek to uncover the mechanisms behind Kampo medicines developed over thousands of years using advanced science and technology. At the same time, we continue to provide information on and carry out educational activities about Kampo medicine. Our goal in these activities is to foster an ideal modern health care system where physicians use both Kampo medicine and Western medicine in their treatment of patients.

GLOSSARY

Kampo MedicineThe medicine traditionally practiced in Japan, based on ancient Chinese medicine.

Western Medicine Originating with the practice of medicine in Greece, Western medicine is a word used as the counterpart to Eastern medicine.

Kampo MedicinesKampo medicines used in the practice of Kampo medicine.

BotanicalsBotanicals include the medicinal ingredients of plants, cell contents, secretions, extracts, minerals, and others. Since the major portion of Kampo medicines materials used by Tsumura are plant extracts, these materials are translated as botanical raw materials in this report.

Kampo and Botanicals Business A business model including not only the production of the end product, Kampo products, but also encompassing the cultivation, processing, and storage of botanical raw materials.

FORWARD-LOOKING STATEMENTSIn this annual report, all statements that contain the words “believe,” “anticipate,” “estimate,” “expect,” or other

similar words, and all numbers related to future performance, are considered forward-looking statements that are

not historical facts but rather reflect management’s best judgment and the most information available at the time

this annual report was prepared. The actual results that Tsumura will achieve in the future may differ greatly from

these estimates and forecasts due to various uncertain factors in the business environment and various risks that

are discussed later in this annual report. The forward-looking statements contained herein were deemed reasonable

by management at the time that we prepared this annual report, but it is important to exercise ample caution when

making investment decisions based on these statements.

�

06Financial Highlights

02What is Kampo?

17Frequently Asked

Questions (FAQ)

08Message from the

President

22Review of Operations

20At a Glance

34Corporate Governance

27Production System

41Financial Section

38Corporate Social

Responsibility

73Corporate Data/

Investor Information

30Research and

Development

�

What is Kampo?

Tsumura’s core business is the manufacture and sale of Kampo products. Therefore, the first step in comprehending our business and strategies is to

understand Kampo. In this section, we provide a basic explanation of Kampo, introducing the special features of our Kampo and botanicals business.

�

THE ORIGINS OF KAMPO MEDICINE

Like traditional Chinese medicine, the origins of Kampo medicine lie in ancient China. However, following its in-

troduction into Japan in the fifth or sixth century, Kampo medicine was adapted to Japan’s culture and climate,

evolving independently into Japan’s traditional medicine. Undergoing a period of especially major development

in the �7th century, Kampo medicine took on the form that is practiced today.

Now in Japan, various Kampo medicines, which refer to the medications used in Kampo medicine, are pre-

scribed by doctors.

THE RAW MATERIALS USED IN KAMPO MEDICINES

Kampo medicines are made from medicinal plants, mainly consisting of botanicals that can be found in nature,

and are not chemically synthesized like Western drugs. Kampo medicines are substances contained in the

leaves, skin, and roots of plants that have been proven over time to be effective, which are processed into forms

that are easy to use, store, and transport. For example, Tsumura’s Kampo products use ��8 types of raw

materials, mainly consisting of botanicals.

Blending these medicinal plants and prescribing them as a therapeutic potion based on Kampo medicine,

or diagnosis, is the essence of Kampo medicines. As Kampo medicine is the mixture of multiple medicinal

plants, it offers the benefits of compound treatment compared with taking a single medicinal plant used.

KAMPO MEDICINES AND WESTERN MEDICINES

Kampo medicines and Western medicines are fundamentally different and administer medicine in a very different way.

Western medicine addresses the disease itself, working directly on the cause. Under this method, doctors

treat the disease by eliminating the cause. When prescribing medicine, they administer one drug for each symptom

presented. As a result, Western medicine is powerful and acts quickly. On the other hand, the effect of the drugs

can be overpowering, causing undesirable side effects depending on their usage.

In contrast, Kampo medicine treats the individual, always keeping the

body’s overall balance in mind and working on the body’s ability to cure itself

naturally and build resistance to disease. Under this method, diseases are

treated indirectly. For this reason, Kampo medicine does not diagnose patients

based on the name of the disease alone but takes into consideration the state

of disease in individual patients as well as their constitution in determining

the most appropriate Kampo medicines to use in treatment. Moreover, multiple

ingredients work together to make Kampo medicines effective, indicating that

it can be used for a variety of disorders.

�

Although they may be different, Kampo medicines and Western medicines are not inconsistent, and each

method has its advantages. In combination, the two methods can be utilized to achieve superior therapeutic

results. There are many known cases in which Kampo medicine and Western medicine can be used effectively

together: for example, Western medicines for diabetes that lower blood sugar levels and Kampo medicines

to improve such unpleasant symptoms as peripheral neuropathy, anticancer drugs and Kampo medicines adju-

vants to alleviate side effects, and steroid hormones and Kampo medicines to prevent side effects.

FIELDS PARTICULARLY SUITED TO KAMPO MEDICINES

Kampo medicines are suited to treating chronic and systemic diseases, such as lifestyle diseases, allergies

resulting from excessive immune response, and conditions caused by a nervous or hormone imbalance due

to psychological factors, such as stress. Kampo medicines are effective for bronchial asthma, chronic gastritis,

loss of appetite, irritable bowel syndrome, rheumatism, neuralgia, and conditions that involve repeated ulcers.

Kampo medicines are also useful in the treatment of depression, various symptoms occurring after a stroke,

diabetic neuropathy, various hyperthyroidism symptoms, and uncomfortable symptoms of atopic dermatitis

and other conditions.

In addition, there are many Kampo medicines that are effective for women’s disorders. Because Kampo

medicines are able to treat the many non-specific complaints of women, there are high expectations that

Kampo medicine can make a contribution from the perspective of gender-specific medical treatment.

On the other hand, the antibiotics and surgical techniques used in Western medicine are more effective

in the treatment of such conditions as infectious diseases and malignant tumors.

PROOF OF EFFICACY ON A SCIENTIFIC BASIS

In the past, the accumulation of scientific data on Kampo medicines under identical conditions in the tradition

of Western medicine was difficult, as Kampo medicine is rooted in medical experience developed over a long

history of use with treatment being tailored to the individual characteristics and symptoms of each patient.

Therefore, clinical reports on Kampo medicines were mainly case studies. However, reports on multiple

cases started to appear after the introduction of consistent-quality Kampo extract products and particularly after

Kampo medicines were listed for National Health Insurance (NHI) reimbursement in Japan. Thus, the efficacy of

Kampo medicines is now being scientifically proven.

As a pharmaceutical product, public authorities strictly regulate the quality of Kampo medicines. This

consistency in quality allows for the collection of prescription-specific scientific data. In turn, this data enables

us to provide evidence of efficacy in many Kampo medicines using Western evaluation methods.

�

For example, the results of placebo-controlled double-blind trials have been published showing an improvement

in constipation in patients treated with TJ-8� (Daiokanzoto) and an improvement in allergic rhinitis in patients

treated with TJ-�9 (Shoseiryuto). Progress also is being made with pharmacological tests and research into the active

ingredients of Kampo products. This basic research is steadily revealing the mechanisms behind the efficacy of

Kampo products.

SPECIAL FEATURES OF KAMPO AND BOTANICALS

Our Kampo and botanicals business starts with the growing of the raw material, botanicals. Although Tsumura

imports most of its botanical raw materials from China, our activities are not just limited to the procurement of

botanicals grown in that country. Through our joint companies in different regions of China, we are involved with

the farmers cultivating the botanicals from the cultivation stage, providing them with cultivation instruction and

other support to ensure stable supplies of botanicals.

As mentioned previously, a Kampo product is a mixture of multiple botanicals. Therefore, to provide a stable

supply of that Kampo product, it is necessary to establish a system that can procure on a stable basis all of the

botanical raw materials. Among the many raw materials that Tsumura uses, some require more than five years to

cultivate. Consequently, it is also important to plan cultivation from a long-term perspective. Moreover, because

inclement weather and other cultivation factors cannot be predicted, we have to maintain long-term warehousing

of a certain amount of botanical raw materials to always have supplies on hand. As can be seen, procuring

botanical raw materials is a long and drawn out process.

Furthermore, advanced technology is needed to achieve a specific level of quality and efficacy in the Kampo

products used as prescription drugs. Taking into account the special characteristics of botanicals, the manufac-

turer must develop advanced production technologies and establish state-of-the-art production facilities as well

as quality management and other systems. Accordingly, to increase production of Kampo products, the manu-

facturer must plan the steady expansion of its production facilities well in advance.

Tsumura has established an integrated system that encompasses

its entire Kampo and botanicals business, from procurement of

botanical raw materials to the manufacture and sale of Kampo

products. The entire process represents a long business cycle.

To obtain stable supplies of Kampo products, the basic cycle

must be repeated successively and comprehensively managed in

both the upstream and downstream portions of the procurement,

manufacture, and sales cycle. In this way as well, Kampo products

are substantially different than Western drugs.

�

FiNANciAl HigHligHtSTSUMURA & CO. AND SUBSIDIARIES

YEARS ENDED MARCH ��, �009, �008 AND �007

¥ in millions, except per

share data and financial ratios

% change

US$ in thousands, except per share data

and financial ratios�

2009 �008 �007 �009/�008 2009

FOR THE YEAR

Net sales ¥90,016 ¥9�,799 ¥9�,��7 –�.0% $916,387

Pharmaceutical products 87,249 80,87� 7�,�8� 7.9 888,219

Household products 2,766 ��,9�� ,0�� –80.� 28,168

Operating profit 16,483 ��,8�0 ��,�0� �.� 167,803

Pharmaceutical products 16,481 ��,��8 ��,��0 9.0 167,784

Household products 1 70� 9�� –99.9 18

Net income 10,777 9,��9 ��,�� 7.9 109,713

SG&A expenses 44,504 �7,��9 ��,�8� –�.0 453,065

R&D expenses 3,958 �,��8 �,8�9 –9.� 40,295

Depreciation 3,298 �,�9� �,777 –�.9 33,582

Capital expenditures for property,

plant and equipment 5,479 �,�� ,90� 7�.� 55,782

Free cash flow 7,293 �,�09 ��,�� 7.� 74,245

AT YEAR-END

Total assets ¥126,824 ¥��,�� ¥��,�78 –�.�% $1,291,098

Total net assets� 73,968 7�,�� 9,��8 �.� 753,016

Interest-bearing debt 25,412 �9,7�� ,70� –��.� 258,701

PER SHARE DATA (YEN/DOLLARS)

Net income ¥ 152.80 ¥ ��9.�7 ¥�8�.�� 7.9 $ 1.55

Dividends 34.00 ��.00 �7.00 �7.8 0.34

Net assets� 1,037.76 �,0��.�� 970.�0 ��.0 10.56

FINANCIAL RATIOS (%, TIMES)

Operating profit margin 18.3 ��.7 �7.0

SG&A expenses margin 49.4 �0.0 �0.7

R&D expenses margin 4.4 �.� �.�

ROA 12.6 ��.� ��.�

ROE 14.9 ��.� ��.�

Equity ratio 57.7 ��.0 �7.7

Debt-equity ratio (times) 0.35 0.�� 0.��

� U.S. dollar amounts have been translated from yen, for convenience only, at the rate of ¥98.��=U.S.$�, the prevailing Tokyo foreign exchange market rate as of March ��, �009.� Total net assets has been established as a new financial statement item in the fiscal year ended March �007 because of a change in accounting standards. In calculating the

percentage change in comparing fiscal years, the figures from the prior fiscal year have been adjusted to reflect the new accounting standard.

7

90.0

0

50

100

05 06 07 08 09

NEt SAlES¥ Billion

16.5

0

10

20

80.1Pharmaceutical Products

4.2OTC Medicines and Others

0

10

20

18.3%

05 06 07 08 09

OPERAtiNg PROFit/OPERAtiNg PROFit MARgiN¥ Billion/%

Operating Profit Margin

10.8

0

8

16



0

20

40

14.9%

05 06 07 08 09

NEt iNcOME/ROE¥ Billion/%

ROE

44.5

0

30

60



0

30

60

49.4%

05 06 07 08 09

Sg&A EXPENSES/Sg&A EXPENSES MARgiN¥ Billion/%

4.0

0

5

10



0

4

8

4.4%

05 06 07 08 09

R&D EXPENSES/R&D EXPENSES MARgiN¥ Billion/%

R&D Expenses Margin

5.5

0

3

6

0

4

8



3.3

05 06 07 08 09

cAPitAl EXPENDitURES/ DEPREciAtiON¥ Billion

Capital Expenditures Depreciation

126.8

0

80

160



0

10

20

12.6%

05 06 07 08 09

tOtAl ASSEtS/ROA¥ Billion/%

25.4

0

40

80



0

30

60

57.7%

05 06 07 08 09

iNtERESt-BEARiNg DEBt/ EQUitY RAtiO¥ Billion/%

Equity Ratio

34.0

0

20

40



0

15

30

22.3%

05 06 07 08 09

DiViDENDS PER SHARE/DiViDEND PAYOUt RAtiO ¥/%

Dividend Payout Ratio

SG&A Expenses Margin

ROA

8

MESSAgE FROM tHE PRESiDENt

FISCAL 2009 PERFORMANCE

Two years have passed since Tsumura decided on a new

medium-term management plan in May �007 that had fiscal

�008 as its inaugural year. During that period, we have

focused on business expansion based on positioning our-

selves as a business specializing in Kampo and botanicals

and concentrating our business resources on our core

prescription Kampo product business. Our major action

plan objectives have been “establishing Kampo medicine,”

“promoting drug fostering and evolution of Kampo,”

“internationalizing Kampo,” “developing production systems,”

“establishing a botanical raw materials traceability system,”

and “creating an open company.” We have worked steadily

toward achieving these objectives.

As a result, prescription Kampo product sales in the

fiscal year under review grew in excess of �0% on a unit

sales basis. This expansion supported overall growth in

prescription Kampo product sales despite the April �008

reduction in prices of drugs covered under the National

Health Insurance (NHI) plan.

Nevertheless, due to the sale on August �9, �008 of all

the shares of subsidiary Tsumura Lifescience Co., Ltd., and

its subsequent removal from the scope of consolidation,

Tsumura’s consolidated net sales fell �.0% year on year, to

¥90,0�� million. On the other hand, profits improved, with

operating profit rising �.�%, to ¥��,�8� million, and net

income climbing �7.9% from the previous year, to ¥�0,777

million. In terms of performance indicators, operating profit

margin improved �.� percentage points from a year earlier, to

�8.�%, and return on assets (ROA) increased �.� percentage

points, to ��.�%.

Junichi YoshiiPresident, Representative Director

“ We have focused on business expansion based on positioning ourselves as a business specializing in Kampo and botanicals and concentrating our business resources on our core prescription Kampo product business. ”

9

Reflecting on the business climate in fiscal �009, the

subprime loan problem that began in the United States acted

as the trigger for dramatic declines in global stock markets

and also significantly impacted Japan’s economy. Further-

more, there was no change in the Japanese government’s

policy of curtailing medical expenses through such measures

as reducing prices of drugs covered by the NHI plan. There-

fore the pharmaceutical industry continued to face difficult

conditions. We believe that our Group’s robust performance

under these circumstances can be attributed to our efforts at

“establishing Kampo medicine” and “promoting drug foster-

ing and evolution of Kampo.”

FORMING THE NEW MEDIUM-TERM MANAGEMENT PLAN

Fiscal �0�0 marks the final year of our current medium-term

management plan. However, because the business environ-

ment of the Company has changed drastically during the

past two years, we formulated and announced in May �009

another three-year medium-term management plan (herein-

after referred to as the “new plan“) that we implemented at

the start of fiscal �0�0.

change in Business Structure

The backdrop to the development of the new plan was a

change in our business structure. We made major business

decisions to divest ourselves of some consolidated subsidiaries

and take other actions to enable us to focus our business

resources on our prescription Kampo product business.

To begin with, in November �007 we liquidated our

holdings in Pacific Marketing Alliance, Inc. (PMAI), of the

United States. PMAI sold household products, including

ours, and sales of imported pharmaceuticals. Then, in

August �008, we sold all shares of Tsumura Lifescience to

PLUMERIA CO., LTD., a share transferee company that was

established to purchase the shares by a fund operated by

WISE PARTNERS, INC. As a result, whereas Tsumura used

to operate both pharmaceutical and household products

businesses, we are now a one-business company focused

on pharmaceuticals. In addition, we sold the manufacturing

and sales rights for our external-use anti-fungal drug ASTAT

to Maruho Co., Ltd., in February �009.

Prescription Kampo Product growth

One of the significant changes in our business climate was

the unexpected rate of sales growth of our prescription

Kampo products. When we created the previous medium-

term management plan in May �007, we forecast 7% growth

per annum on a unit sales basis for these products. Surpris-

ingly, sales of prescription Kampo products surged ��.�%

year on year in the fiscal year under review, greatly exceeding

our expectations.

Our Kampo and botanicals business is built around an

integrated system encompassing the procurement of botanical

raw materials to the manufacturing of Kampo products and

their subsequent sales. A special feature of the production

process is its long business cycle. Among the stages, the

procurement of botanical raw materials is based on cultiva-

tion, processing, and storage processes, with the cultivation

period alone sometimes requiring more than five years for

several of our raw materials. Consequently, we must continu-

ally anticipate demand for prescription Kampo products and

prepare for that level of demand well ahead of time. In addi-

tion to increasing our cultivation regions and area under

cultivation as well as expanding our manufacturing capabilities,

we must recruit and train staff for each of the procurement,

manufacturing, and sales processes. Being able to provide

a stable supply of prescription Kampo products requires

managing all of the upstream and downstream processes

and constantly repeating the cycle of growing, harvesting,

testing, and storing consistent-quality botanical raw materials.

“ We must repeatedly run comprehensive simulations of procurement and production systems based on our long-term demand forecasts for prescription Kampo products and botanical raw materials. ”

�0

To achieve sustainable growth, we must repeatedly run

comprehensive simulations of procurement and production

systems based on our long-term demand forecasts for pre-

scription Kampo products and botanical raw materials, and

consequently create appropriate business plans for changes

in conditions. One advantage of this process is that by taking

time to steadily build a system that can provide stable supplies

of prescription Kampo products, we are also strengthening

our presence in the industry.

OUTLINE OF THE NEW MEDIUM-TERM

MANAGEMENT PLAN

We have positioned the new plan as “a new stage of develop-

ment in our business specializing in Kampo and botanicals.”

The plan assumes annual growth in sales of prescription

Kampo products of �0% on a unit sales basis, and has the

following numerical targets and action plan objectives.

Numerical targets

The target for net sales in fiscal �0��, the final year of the

plan, has been set at ¥�0�.� billion, exceeding the ¥�00

billion mark. We are also targeting operating profit of ¥��.�

billion and net income of ¥��.0 billion. Consequently, ROA,

an important management indicator from the point of view of

improving capital efficiency and achieving greater profitabil-

ity, is forecast to exceed ��%.

Looking next at our capital investment plan, we are going

to be flexible in order to maintain a stable supply of Kampo

medicine. We plan to make separate additions to our spray-

drying facilities for manufacturing extract powder, the process

used for making and packaging granular Kampo products,

and other processes at each of our three plants in Ibaraki,

Shizuoka, and Shanghai. In response to the need for greater

volume, we are going to invest a total of ¥��.0 billion over six

Note: On July ��, �008, Tsumura decided to sell all shares in its subsidiary Tsumura Lifescience Co., Ltd., to PLUMERIA CO., LTD. a share transferee company wholly owned by a fund operated by WISE PARTNERS, INC. Tsumura has subsequently revised its performance forecasts for fiscal �009 and �0�0 to reflect this.

0

120

104.3

10 11 12

NEt SAlES¥ Billion

OPERAtiNg PROFit/ROA¥ Billion/%

0

2825.4

16.7%

10 11 12

NEt iNcOME¥ Billion

0

16 15.0

10 11 12

R&D EXPENSES¥ Billion

0

5

3.9

10 11 12

cAPitAl EXPENDitURES¥ Billion

0

12

9.6

10 11 12

NUMERICAL TARGETS *actual

“ We have positioned the new plan as ‘a new stage of development in our business specializing in Kampo and botanicals.’ ”

��

years. Although scheduled total capital investments were

¥��.0 billion when the previous plan was announced in May

�008, we have increased our projected capital expenditures

due to revising upward our forecast of unit sales growth for

prescription Kampo products from 7% per annum to �0% per

annum. Including expansion of ordinary maintenance services,

storage warehousing for botanical raw materials, and other

factors, we plan on capital investments of ¥�.9 billion in fiscal

�0�0, ¥9.� billion in fiscal �0��, and ¥9.� billion in fiscal �0��.

Action Plan Objectives

In principle, the action plan objectives of the new plan

adhere to those of our previous medium-term management

plan. However, their content has been clarified and made

more practical. Specifically, they include the six action plan

objectives of “establishing Kampo medicine,” “promoting

drug fostering and evolution of Kampo,” “internationalizing

Kampo,” “increasing production capacity and enhancing the

quality control system,” “secure the stable supply of safer

botanical raw materials,” and “create an open company.”

Establishing Kampo Medicine

We have set ourselves three goals that we are convinced

will lead to establishing Kampo medicine. All the medical

schools in Japan must introduce required courses on Kampo

medicine and programs to develop medical lecturers to teach

Kampo medicine as well as establish Kampo outpatient clin-

ics. As a result, Kampo medicine questions will be included

in the national examination for medical practitioners.

As of March ��, �009, Kampo medicine education had

been introduced at all 80 medical schools in Japan. Of this

number, 7� had established at least eight Kampo medicine

courses for medical students as the minimum level necessary

for learning the rudiments of Kampo medicine, representing

88.8% of all medical schools. Similarly, the number of medical

school hospitals with Kampo outpatient clinics had reached

�9, representing an 8�.�% establishment rate. Moreover,

our efforts to get all medical schools in Japan to start faculty

development (FD) programs to develop medical lecturers

able to teach Kampo medicine have been rewarded with

an 88.8% success rate, representing 7� medical schools.

Going forward, we believe the goal of �00% establishment

of Kampo outpatient clinics is attainable in fiscal �0�0. We

will work on achieving �00% success rates with our other two

goals through continued activities at all 80 medical schools.

In addition to the above activities, we think it will be

necessary to effect a revision of the Kampo medicine

textbook used by medical schools in order to have Kampo

medicine questions included in the national examination

for medical practitioners. It is essential to standardize the

educational materials by producing a common textbook

divided into categories determined by evidence-based

medicine (EBM) that is easy to understand and interesting

for medical students. We intend to introduce activities in

support of such a revision of the educational materials for

Kampo medicine courses.

Promoting Drug Fostering and Evolution of Kampo

Promoting drug fostering and evolution of Kampo is one way

of using a Western-based scientific approach to get people

to recognize the efficacy of Kampo products. We do so

by examining the recent structure of disease and selecting

a field where medical treatment needs are high and pre-

scription Kampo products demonstrate special efficacy for

disorders that are difficult to treat with Western drugs. We

then focus continuing research on these disorders to collect

clinical and basic research data to build a body of scientific

evidence for the purpose of promoting sales growth for our

prescription Kampo products.

Currently, we are working on collecting scientific evidence

focused on TJ-�� (Rikkunshito), TJ-�� (Yokukansan), and

TJ-�00 (Daikenchuto). The body of scientific evidence for

these three Kampo products is steadily growing. Already,

extremely interesting clinical and basic research data has been

collected on the efficacy of these three Kampo products, and


“ We intend to introduce activities in support of such a revision of the educational materials for Kampo medicine courses. ”

��

they have been the subject of various medical papers and

medical conferences.

In addition to progress with basic and clinical research,

we have created specialist medical representatives (MRs) for

medical school hospitals and designated postgraduate edu-

cation hospitals to boost our efforts to expand use of these

three Kampo products. As a result, we have seen a sharp rise

in their use. During the two years of our previous medium-

term management plan, sales of TJ-�� (Yokukansan) soared

��7%, to ¥�.0 billion; while TJ-�� (Rikkunshito) jumped

��%, to ¥�.7 billion; and TJ-�00 (Daikenchuto) rose �8%,

to ¥�.7 billion. Based on these high growth rates, combined

sales of the three products amounted to ¥��.� billion in the

fiscal year under review, contributing ��.7% of the overall

sales of Tsumura’s ��9 prescription Kampo products.

Continuing our drug fostering and evolution programs for

these three prescription Kampo products, we are targeting

combined sales of ¥�0.0 billion in fiscal �0��.

We also are looking for new prescription Kampo products

for our drug fostering and evolution of Kampo program.

Specifically, we have singled out TJ-�07 (Goshajinkigan)

and TJ-�� (Hangeshashinto), prescription Kampo products

that have the potential to alleviate disorders associated with

chemotherapy, as new candidates for the drug fostering and

evolution of Kampo program. New anticancer drugs are being

developed one after the other in the field of oncology—and

through the use of Kampo medicine we seek to alleviate the

disorders that patients experience during chemotherapy with-

out reducing the efficacy of these advanced therapies. Our

goal is to contribute to making those therapies the best they

can be for patients.

Internationalizing Kampo

In our efforts to internationalize Kampo, we are planning

and conducting clinical trials aimed at receiving approval

to launch Kampo medicines as prescription drugs in the

United States. Currently, our efforts are concentrated on

TU-�00 (Daikenchuto), which is in Phase II clinical trials as

a treatment for postoperative ileus. Tolerance clinical trials

have already been completed, confirming that there are no

problems with safety or dosage in using TU-�00 (Daikenchuto)

to treat postoperative patients. We are now conducting clinical

“ We also are looking for new prescription Kampo products for our drug fostering and evolution of Kampo program. ”

TJ-14 (HANGESHASHINTO)

Main Region Affected

Acute or chronic

gastrointestinal catarrh,

fermentative diarrhea,

dyspepsia, gastroptosis,

nervous gastritis,

gastrasthenia, hang-over,

belching, heartburn,

stomatitis, and neurosis

NEW CANDIDATES FOR THE DRUG FOSTERING AND EVOLUTION OF KAMPO PROGRAM

TJ-107 (GOSHAJINKIGAN)

Main Region Affected

Leg pain, low back pain,

numbness, blurred vision in

old patients, pruritus,

dysuria, frequent urination

and edema

��

pharmacological trials at the clinical facilities of the Mayo

Clinic in the United States. Following the completion of those

trials, we plan to start exploratory trials within the Phase II

clinical trial process.

To achieve greater efficiency in our development efforts,

we also are endeavoring to build a system that allows us to

utilize the basic and clinical research data from our drug fos-

tering and evolution of Kampo program in Japan in our U.S.

clinical trials. Accordingly, in June �008 we conducted an

organizational reorganization, transferring the International

Pharmaceutical Development Department to the Sales &

Marketing Division. We took this action to enable the exchange

of information between Japanese physicians engaged in

basic and clinical research of TU-�00 (Daikenchuto) and U.S.

physicians conducting clinical trials. By enhancing informa-

tion exchange between the foremost authorities in the field

in Japan and the United States, we are establishing a more

efficient development system. We will continue to take steps

to internationalize Kampo.

Increasing Production Capacity and Enhancing the

Quality Control System

Until now the action plan objective for our production system

under the previous medium-term management plan was

“developing production systems.” However, under the new

plan we are addressing the issue in greater detail, hence the

new objective of “increasing production capacity and enhanc-

ing the quality control system.”

Considering the growth in demand for prescription Kampo

products, expanding production capacity is a pressing issue.

Under the new plan, we are continuing to expand our pro-

duction capacity. As previously mentioned, we plan to make

separate additions to our spray-drying facilities for manufac-

turing extract powder, the process used for making and

packaging granular Kampo products, and other processes

at each of our three plants in Ibaraki, Shizuoka, and Shang-

hai. In addition, we are going to add several granular Kampo

product manufacturing and packaging lines and improve the

automation of our manufacturing facilities. We will also pro-

ceed with efficient staffing of production facilities to meet

the growing demand for prescription Kampo products.

To enhance the quality control system, in October �008, we

established the new Analytical Technology Center, equipped

with the latest testing equipment. By concentrating core test-

ing for residual pesticides, biological organisms, and heavy

metals at this new facility, we are aiming to integrate and

improve the efficiency of testing to ensure the quality of our


CAPITAL INVESTMENT PLAN (FY 2010–2012)

¥ in millions

FY 2010 FY 2011 FY 2012 Total

New production facilities (Ibaraki, Shizuoka, and Shanghai) ¥�,�00 ¥�,�00 ¥�,�00 ¥11,000

Warehouses for storing medical herbs (Yubari) �00 �,000 – 1,500

Warehouses for storing medical herbs (Shenzhen and other places) �,�00 �,000 �,�00 4,300

Plant maintenance costs and other research equipment �,�00 �,�00 �,�00 9,200

Total capital investment 6,900 9,500 9,600 26,000

Depreciation �,�00 �,�00 �,000 10,900

“ We continue to seek ways to boost our guarantee of the safety and quality of our botanical raw materials. ”

��

botanical raw materials. We also plan to expand our testing

capabilities for residual pesticides, increasing the number of

testable agricultural chemicals in Japan and China from the

current 7� to approximately �00 in fiscal �0�0. Since our

prescription Kampo products must pass our own original

quality tests in addition to meeting standards for ethical

drugs set by the Pharmaceuticals Affairs Law and by industry

associations, it can be said that we are constantly ensuring

that they are safe. From the point of view of making our prod-

ucts ones that patients can be even more confident in using,

however, we continue to seek ways to boost our guarantee of

the safety and quality of our botanical raw materials.

Secure the Stable Supply of Safer Botanical Raw Materials

In the previous medium-term management plan, our action

plan objective was “establishing a botanical raw materials

traceability system,” which we implemented measures to

realize. A traceability system is a framework that enables the

tracing and confirmation of information about botanical raw

materials from the botanical raw material cultivation stage

by clarifying the production history, logistics route, and other

facts. Currently, our system allows us to confirm historical

data on all products regarding their production process (from

the botanical raw material processing plant to the prescription

Kampo product plant) and logistics routes (from the distribu-

tion centers through the sales agents to final delivery to

hospitals and clinics).

Moreover, we are working on introducing a system that

collects and stores detailed information on botanical raw

materials, such as the cultivation method, drying and

preparation methods, and logistics and storage processes,

at all stages of its cultivation and its original delivery to

processing plants. The system will enable us to trace and

confirm the conditions of the botanical raw materials from the

cultivation region to their delivery to the processing plant.

Based on this system, it will be possible not only to confirm

the production process and logistics route, but also to trace

and confirm the botanical raw materials used in a product

from the end user medical institution right back to the region

in which they were grown.

Under the new plan, we are endeavoring to enhance our

traceability system in this way and to unify our botanical raw

material cultivation methods and management both domesti-

cally and overseas. From a broader perspective, we plan to

continue our efforts to secure stable supplies of botanical raw

materials that are safe and reliable.

To secure stable supplies of botanical raw materials, we

are expanding cultivation regions and total area under culti-

vation in China, the country that is our main procurement

source. In addition, we are striving to increase productivity by

forming cultivation agreements with farmers to promote the

use of modern agricultural methods under our guidance. We

also are taking steps to further expand the total area under

cultivation in Japan. In April �009, we announced our plan to

establish a cultivation, processing, and storage base in Yubari

in Hokkaido. We will continue to expand our cultivation of

botanical raw materials in Japan, primarily in Hokkaido.

Among other measures taken to develop new cultivation

areas, we have been conducting cultivation trials of botanical

raw materials in Laos since �00� and plan to establish a

local subsidiary in that country in fiscal �0�0.

“ We are striving to increase productivity by forming cultivation agreements with farmers to promote the use of modern agricultural methods under our guidance. ”

��

Creating an Open Company

Our goal in creating an open company is to build a

management system that aims to create and increase

corporate value in a transparent way. We conduct business

activities within a network of relationships with many

different stakeholders. Consequently, Tsumura has the

obligation as a good corporate citizen to build a relationship

of trust with its stakeholders by taking responsibility not only

for legal compliance and contributing to profits, but also by

being responsible about a variety of social considerations,

including environmental activities. For that reason, our first

priority is to promote communications with our stakeholders.

We proactively endeavor to publicly disclose, in a transparent

and open manner, information on our management structure

and business content through such measures as further

enhancing our investor relations (IR) activities. We believe

that implementing a robust corporate governance system and

being an open company both internally and externally has

advantages. It will contribute to ensuring the satisfaction and

trust of patients and customers and provide the foundation of

a robust corporate structure. Tsumura will continue its efforts

to achieve greater transparency in and to enhance its corporate

management. Endeavoring to reinforce our internal control

system and improve the efficiency of operations, we will seek

to attain higher quality management.

Promoting environmental protection activities will be

another of our priorities going forward. Our business cannot

exist unless we presume a healthy natural environment. In

other words, in an environment where the medicinal plants

Tsumura uses as raw materials could not thrive, we could not

manufacture Kampo medicine. Therefore, we are proactively

promoting environmental protection activities. Furthermore, in

recent years, the business risks that companies are exposed

to have become complex, requiring broad-ranging risk man-

agement and appropriate subsequent responses. To that end,

we have established the CSR Promotion Office. With the CSR

Promotion Office taking the lead, we are addressing all of

these IR, environmental protection, and business risk issues

from a variety of angles.

TSUMURA CORPORATE PHILOSOPHY

CORPORATE PHILOSOPHY

The Best of Nature and Science

BASIC DIRECTION

To become a people-friendly company that

contributes to society and humanity

GOALS AND ACTION PLAN

Contribute to the availability of medicines of

unprecedented quality by combining Kampo

and Western medicine

Establish Kampo medicine Promote drug fostering

and evolution of kampo

Internationalize kampo

Increase production capacity and enhance

the quality control system

Secure the stable supply of safer botanical raw materials

Create an open company

Establish Kampo medicine Promote drug

fostering and theevolution of Kampo

InternationalizeKampo

Increase production capacity and enhance

the quality control system

Secure the stable supply of safer botanical raw materials

Create an open company


��

APPROACH TO DRUG PRICE REVISIONS

As an enterprise related to life itself, Tsumura has to seriously

consider the issue of drug price reduction covered under the

NHI plan in providing stable supplies of its products. In par-

ticular, because the raw materials for Kampo products are

produced in the natural raw materials, we have to take into

account such factors as rising costs for cultivation research

and quality control to ensure stable quality of the botanical

raw materials and rising commodity prices within China.

Therefore, Tsumura and other Kampo medicines manufac-

turers have some apprehensions that the continued decline

in the prices of drugs could create a obstacle to the stable

supply of Kampo products, since even if the software

(Kampo medicine) remains, the hardware (Kampo products)

will have disappeared.

Based on this special feature of Kampo products, the

Japan Kampo Medicines Manufacturers Association, of

which Tsumura is a member, is requesting that the Japanese

government’s drug price system be revised to ensure an

appropriate price for Kampo products.

In its “New Vision for the Pharmaceutical Industry,”

formulated in August �007, the Ministry of Health, Labour and

Welfare created the new category of “Basic Drug Pharma” as

the direction it intends for pharmaceutical companies. Notably,

the ministry identified “traditional medicines, such as Kampo

products and botanical raw materials” as a member of this

category. The Japan Kampo Medicines Manufacturers Asso-

ciation understands this reference to be a breakthrough event

in which the ministry formally recognized the importance of

Kampo medicine and Kampo products within the pharma-

ceutical industry of the future.

Going forward, Tsumura, as a member of the basic drug

pharma category, will continue to focus all of its corporate

efforts toward fulfilling its social responsibility in continuing

to provide a stable supply of products.

RETURNING PROFITS TO SHAREHOLDERS

Tsumura recognizes the return of profits to shareholders as

an important policy. The Company’s basic policy is to main-

tain stable dividends with a view to increasing them after

taking into overall consideration the need to expand internally

generated funds for business development, consolidated

business performance for the period, the dividend payout

ratio, and other factors. Our policy regarding internally gener-

ated funds is to invest in facilities and R&D that will

contribute to an increase in corporate value.

In consideration of these objectives, our current business

targets, and the continued strong performance of our core

business of prescription Kampo products, Tsumura has

decided to raise annual dividends by ¥�� per share, to ¥��

per share. For fiscal �0�0, we expect to increase annual

dividends by ¥� per share, to ¥�0 per share.

Tsumura aims to be a company that helps people through

its Kampo and botanicals business—a people-friendly com-

pany. We endeavor to contribute to the unparalleled medical

therapeutic power of the fusion of Kampo medicine and

Western medicine based on our corporate philosophy of “the

Best of Nature and Science.” Based on these contributions,

we will achieve sustainable growth. As we move forward

toward our many goals, we look forward to the continued

support of shareholders and investors.

August �009

Junichi YoshiiPresident, Representative Director

�7

FREQUENtlY ASKED QUEStiONS (FAQ)

What measures do you take to ensure the safety of the botanical raw

materials used in Kampo medicines?

In addition to meeting standards for ethical drugs set under the Pharmaceuticals

Affairs Law and industry associations, we put our prescription Kampo products

through our own original quality control tests. From the point of view of making our

products ones that patients can be even more confident in, we are endeavoring to

find ways to increase the guarantee of the safety and quality of the botanical raw

materials used.

In the procurement of botanical raw materials, we are establishing a traceability

system with the goal of ensuring stable supplies of safe and dependable botanical

raw materials centered on the Botanical Raw Materials Division and Analytical

Technology Center. Amid a steadily growing interest in food safety among the

public, Tsumura, as the leading Kampo medicines company, plays a necessary

leadership role in ensuring the safety of the Kampo products that people ingest into

their bodies.

Currently, in the manufacture of its prescription Kampo products, the Company

uses ��8 types of raw material, mainly consisting of botanicals of which approximately

80% are imported from China. All of these botanical raw materials collected locally

in China are first gathered at our subsidiary SHENZHEN TSUMURA MEDICINE CO.,

LTD., where they are tested for residual pesticides, biological organisms, heavy met-

als, and arsenic using the same strict standards and advanced analysis equipment

as in Japan. We also carry out a highly precise analysis of quality standards, includ-

ing DNA analysis, endeavoring to guarantee the quality and safety of our products.

We have introduced a global lot traceability system to ensure the thorough

management of raw material information. This system allows us to confirm the

production region, supplier, quality testing results, and logistics history of botanical

raw materials in real time. Already, the system is in operation in Japan and China.

In addition, we are working on standardizing the process used in botanical raw

material production. We implement cultivation or process management initiatives

at each step in the production process, and by creating a database for botanical

raw materials that pass our quality standards, we believe that Tsumura can achieve

even higher safety levels for its botanical raw materials.

In addition to the appropriate, fair, and highly transparent disclosure of information to our shareholders and investors, the rapid feedback of opinions through two-way communications and the reflection of their content in our businesses are essential to building trust in Tsumura. This FAQ section provides answers to the most commonly asked questions from shareholders and investors received as part of our investor relations (IR) activities.

Setting up a traceability system, we established the Botanical Raw Materials Division in October 2006 and the Analytical technology center in October 2008 to be responsible for quality control for the purpose of ensuring a stable supply of high-quality and uniform prescription Kampo products.

�8

It is said to be extremely difficult to enter the business of manufacturing

and selling prescription Kampo extract products. What are the reasons for

the difficulty of market entry?

The methodology for Kampo products has been common knowledge for more than

�,800 years. There are no patents, and anyone can freely manufacture Kampo

products. However, companies must first comply with pharmaceutical regulations.

In addition, special capabilities and know-how are necessary to managing such

aspects as the procurement of raw materials and the operation of suitable manufac-

turing facilities. Therefore, in practical terms, Kampo products cannot be

manufactured and sold by just any company.

For example, when manufacturing a generic prescription Kampo product,

it is necessary to prove that the product has the same biological properties as the

original. However, prescription Kampo products are made of multiple ingredients

and the active substances are not exhaustively defined; therefore, it is difficult to

prove the same properties exist between generic and original prescription Kampo

products. Because of the complexity of Kampo medicines compared with Western

drugs, which are composed of a single active substance, it is difficult to launch

generic prescription Kampo products, and no generic prescription Kampo product

have been approved. On the other hand, to develop new prescription Kampo

products, companies must move through the same development and approval

process as with Western medicines, such as conducting basic research and clini-

cal trials. Risks are involved in terms of capital investment and investment return.

As a result, there have not been any cases of newly submitted prescription Kampo

products since �987.

The stable procurement of safe and reliable botanical raw materials is also an

important aspect in the ability to offer stable product supplies. Raw materials must

be stored in specific amounts under particular conditions, requiring large storage

facilities. Moreover, subtle differences exist in the active substances of the medicinal

plants used as raw materials for Kampo products, depending on the climate and

conditions of the region in which they are harvested and the harvesting timing. To

achieve the standard quality and efficacy demanded of a pharmaceutical product

using natural raw materials requires advanced manufacturing technology and facili-

ties. In addition, the manufacturing process is much more extensive than that used

for synthesized drugs and requires a larger plant. The process also demands sophis-

ticated manufacturing and quality control to secure batch-to-batch consistency and

the safety of finished products. Furthermore, all these processes must comply with

Good Manufacturing Practices (GMP) standards for drugs and Kampo products and

be approved by the Ministry of Health, Labour and Welfare. Taken in concert, all

these conditions create a significant barrier to market entry.

tsumura carries out comprehensive quality assessments using cytogenetic and physical and chemical testing to select its botanical raw materials and uses scientific analysis to test for residual pesticides and for heavy metals in botanical raw materials.

�9

Why are Tsumura’s R&D costs lower than those of other

pharmaceutical companies?

The R&D costs of pharmaceutical companies producing Western medicines are

ballooning, raising the ratio of R&D costs to sales year after year. In contrast, we

are not developing new drugs; we are focusing only on the popularization of the

��9 Kampo products that have been approved as prescription Kampo products.

Since these ��9 prescription Kampo products cover a wide range of diseases and

symptoms, it makes more sense in terms of investment return to concentrate on

promoting the market penetration of these products rather than invest in R&D

to develop new drugs. To this end, we are not running drug discovery programs and

are instead specializing in Kampo and botanicals research. Specifically, we have

selected three Kampo products to promote and collect evidence of their efficacy

through basic and clinical research, carried out development aimed at launching

Kampo products as pharmaceutical products in the U.S. market, and promoted

research on the cultivation of raw materials. Moreover, our continued investments

in establishing Kampo medicine as a modern method of medical treatment and

its popularization have yielded steady progress. Therefore, one of the features of

Tsumura is a lower R&D expenses to net sales ratio compared with major pharma-

ceutical companies. The ratio of R&D expenses to net sales of Tsumura was �.�%

in the fiscal year under review.

Tsumura imports approximately 80% of its botanical raw materials from

China. What is the Company’s perspective on exchange rate risk?

In preparation for the possible rise of the RMB, Tsumura has already switched its

settlement of all trade with China to U.S. dollars. In addition, we use forward ex-

change contracts to hedge the risk of changes in the RMB–U.S. dollar exchange

rate one year ahead. Should there be a substantial change in the RMB rate in the

short term, we would have to set up new measures, but Tsumura currently has

approximately a two-year supply of botanical raw materials in Japan. Therefore,

we believe that over the next � to � years, any appreciation of the RMB against

the U.S. dollar will have only a minimal impact on our performance.

Furthermore, our risk measures go beyond just the RMB issue. As a fundamental

measure for the geopolitical risk regarding the production of Kampo products, we

are also working on developing new procurement routes for botanical raw materials.

Our goal here is to diversify our stable source of botanical raw materials and at the

same time avoid the risks arising from limiting our procurement source to one region.

FREQUENtlY ASKED QUEStiONS (FAQ)

�0

PRESCRIPTION MEDICINES

At A glANcE

Tsumura’s core business is the manufacture and sale of

prescription Kampo products that have been approved by

the Ministry of Health, Labour and Welfare. Today,

Tsumura supplies ��9 of the ��8 prescription Kampo

products that are covered under the Japanese NHI

plan. In addition, the Company carries two medicinal

herb products used as drug dispensing agents and

three modern medicines (As of February ��, �009,

Tsumura sold the production and sales rights for its

external-use anti-fungal drug for ethical use ASTAT

to Maruho Co., Ltd). Tsumura’s prescription Kampo

products are highly effective in treating patients with

ailments from lifestyle, old age, and other disorders,

and are highly praised by health care professionals

and patients alike.

OTC MEDICINES AND OTHERS

Tsumura offers a broad array of OTC medicines for a

wide range of consumer needs that can be purchased

at drug stores without a doctor’s prescription. Among

Kampo products, the Company boasts a wide product

lineup based on �� Kampo products used as cold

medicines, as digestives, and in the treatment of many

other ailments. Tsumura also offers the Wanten P∂

line of revitalizers and the Chujoto line of remedies

for women’s disorders. Through this varied product

lineup, the results of Tsumura’s Kampo medicines and

botanicals research have become familiar additions

to consumers’ daily lives.

With the August �9, �008 sale of all the shares of former consolidated subsidiary Tsumura Lifescience Co., Ltd., which operated the household products business, Tsumura is now solely

a pharmaceutical company.

Tsumura’s principal business is the manufacture and sale of pharmaceutical products, including primarily prescription Kampo products covered under the National Health Insurance (NHI) plan as well as OTC Kampo formulation. As the leading company in the Kampo product market, we are endeavoring to increase people’s understanding and recognition of Kampo medicines.

��

90.0

0

50

100

87.2PrescriptionMedicines


05 06 07 08 09

OPERAtiNg PROFit/OPERAtiNg PROFit MARgiN¥ Billion/%

NEt SAlES¥ Billion

NET SALES

¥90.0billion OPERATING PROFIT

¥16.5billion

0

10

20

0

10

20

18.3%

16.5

05 06 07 08 09

TSUMURA’S MARKET SHAREJapan’s prescription Kampo product market has grown for

five consecutive years. Totaling ¥88.� billion in the fiscal

year ended March �00�, the market expanded to ¥�0�.9

billion at the end of March �009, up �0.8%. During the

same period, Tsumura’s prescription Kampo product sales

grew �8.7%, far outstripping overall market growth. More-

over, Tsumura’s market share increased to 8�.�% from

77.9%, reflecting its overwhelming dominance of the market.

Unit sales of Tsumura’s prescription Kampo products

have expanded for �0 consecutive years. Compared with

unit sales of �.�9 million for the fiscal year ended March

�999, unit sales in the fiscal year ended March �009

amounted to ��.�8 million. The Japanese government’s

policy of revising drug prices covered under the NHI plan at

a pace of once every two years has put downward pressure

on the Company’s prescription Kampo product sales. How-

ever, the remarkable growth in unit sales has allowed

Tsumura to continue to record a steady sales expansion.

�/�998 �/�000 �/�00� �/�00� �/�00� �/�008

All pharmaceuticals –9.7 –7.0 –�.� –�.� –�.7 –�.�

All Kampo medicines –8.8 –�.� –�.� –�.8 –�.7 –�.�

Tsumura Kampo medicines –8.6 –3.4 –3.6 –2.8 –4.2 –3.3

PRicE REViSiONS OF tHE NHi DRUg PRicE liSt%

0

30

60

90

120106.9

60

70

80

90

100

83.1%

010099 02 03 04 05 06 07 08 09

SiZE OF JAPAN’S PREScRiPtiON KAMPO PRODUct MARKEt AND tSUMURA’S MARKEt SHARE¥ Billion/%

Quantity Sales

SAlES AND QUANtitY OF tSUMURA PREScRiPtiON KAMPO FORMUlAtiONS*Ten Thousand of Units/¥ Billion

60

90

120

88.8

600

1,100

1,600

1,238

020199 00 03 04 05 06 07 08 09

Kampo education availableat all 80 medical schools

Government issued model corecurriculum—Explaining outlineof Kampo medicine

* Actual sales and quantity: Represent sales and quantity from pharmaceutical distributors to

medical institutions

Operating Profit Margin

Tsumura’s Market Share

870102

タイプライターテキスト

Copyright 2009 IMS Japan. All rights reserved. Source: JPM 1999-2009 March MAT Reprinted with permission.

870102


870102


870102


870102


870102


870102


870102


��

MARKET POSITION

Of the ��8 Kampo products eligible for reimbursement under

the NHI plan, Tsumura handles ��9 products, making it the

leading company in Japan’s Kampo medicines industry. Over

the years, the Company has maintained a tight grip on the top

spot in the prescription Kampo product market, with a market

share of more than 80%. Since the next largest competitor in

the market handles less than half of the NHI-approved Kampo

products that Tsumura does and has a market share of only

approximately �0%, it can be said that Tsumura has devel-

oped an overwhelming brand presence in the market.

ESTABLISHING KAMPO MEDICINE AND PROMOTING

DRUG FOSTERING AND EVOLUTION OF KAMPO

As the market leader, Tsumura’s role is to drive the growth

of the prescription Kampo product market. Recognizing that

as the market grows, so will Tsumura, the Company is proac-

tively working to support market growth.

Awareness alone of Kampo medicine is insufficient not

only in overseas markets, but also in Japan. To develop the

Kampo product market, it will therefore be necessary to

heighten that awareness. To achieve that goal, we are taking

steps from the perspective of both “software” and “hard-

ware,” by establishing Kampo medicine and promoting drug

fostering and evolution of Kampo.

Establishing Kampo Medicine

Spreading the use of Kampo medicine is one of our most

important activities. In establishing Kampo medicine, we are

aiming to establish a medical treatment environment where

physicians have the same level of knowledge and skill in

Kampo medicine as they do for Western medicine. And

where physicians can choose to use either Western or Kampo

medicine in their treatment or both. To that end, we are con-

ducting a variety of support activities suitable for the separate

needs, knowledge, and skills of medical schools, medical

school hospitals, designated postgraduate education hospitals,

general hospitals, and medical clinics.

Since �997, we have been providing educational support

to medical schools in Japan for their Kampo medicine educa-

In the fiscal year ended March 2009, although affected by pressure on its business from the reduction in the listed price of pharmaceuticals under the National Health Insurance (NHI) plan, Tsumura continued to pursue its activities to establish Kampo medicine as a modern method of medical treatment as well as initiatives associated with drug fostering and the evolution of Kampo.

REViEW OF OPERAtiONS

Ginseng Radix

��

tion programs as well as carrying out such support activities

as providing seminars to train Kampo medicine lecturers. In

the past, our support activities for Kampo medicine educa-

tion at all 80 medical schools in Japan have been focused on

the establishment of at least eight Kampo medicine courses

for medical students as the minimum level necessary for

learning the rudiments of Kampo medicine. Since this goal

was reached in fiscal �007, we revised our goal to making it

compulsory for medical students to take at least eight Kampo

medicine courses. At March ��, �009, 7� medical schools

had set this requirement. Moreover, we have also been aim-

ing to get all 80 medical schools in Japan to start faculty

development (FD) programs to develop medical lecturers to

teach Kampo medicine. Our total for this goal at this point

also stands at 7� medical schools.

Along with our support for Kampo medicine education at

medical schools, we provide information and make proposals

aimed at introducing or upgrading medical school hospital

outpatient clinics. Our goal has been to open postgraduate

education Kampo outpatient clinics at all 80 medical schools

throughout Japan. At March ��, �009, the number of medical

school hospitals with Kampo outpatient clinics had reached �9.

In other areas, we promote training in Kampo medicine at

designated postgraduate education hospitals where students

are trained in clinical fields following graduation. Our promo-

tional activities include Kampo medicine seminars and

conferences for medical instructors. We also provide Kampo

medicine-related information to medical interns. Moreover,

we conduct both beginner and advanced seminars for prac-

ticing physicians at general hospitals and medical clinics. We

also create opportunities for physicians at medical schools

and those engaged in clinical research that do not come in

contact with Kampo products to learn about it and Kampo

medicine, supporting the establishment of an environment

that widely encourages the prescription of Kampo products.

BUSINESS STRATEGIESExpanding the Kampo Formulation Market leads to Expanding tsumura’s Earnings

• Western medicine is sufficient• Kampo lacks scientific evidence• No time or chance to study Kampo medicine

PROBLEMS TO OVERCOME

• Big discrepancy in Kampo medicine awareness• Kampo facts are little known• Kampo not perceived as a prescription drug• Kampo not associated with specific conditions • little motivation to use Kampo medicines

• clinical trials• legal approval• challenge to health insurance coverage• Big discrepancy in Kampo medicine awareness• general questions about Kampo

medicines efficacy

TARGETS FOR EDUCATION AND DEVELOPMENT

Physicians and medical and pharmacy students

general public and mass media

United States

��

Promoting Drug Fostering and Evolution of Kampo

To persuade physicians to prescribe Kampo medicines, it

is important to offer them a body of scientific evidence of its

efficacy. Through our drive to promote drug fostering and

evolution of Kampo, we are collecting scientific evidence

of its efficacy with the goal of expanding use of Kampo

products by presenting that evidence to physicians. Within

these efforts, we have designated TJ-�� (Yokukansan),

TJ-�� (Rikkunshito), and TJ-�00 (Daikenchuto) as the three

main products to promote through our drug fostering and

evolution of Kampo campaign, and are carrying out clinical

and basic research on these three products. Based on the

scientific evidence of the efficacy of these three products

gathered through our research, we are promoting their use

to physicians that do not currently prescribe Kampo medi-

cine. Furthermore, we have created specialist MRs for

medical school hospitals and designated postgraduate

education hospitals to boost our efforts to expand the use

of these three Kampo products. In fiscal �009, the three

products being specially promoted posted sales of ¥��.�

billion. Our goal is to reach sales of ¥�0.0 billion by the fiscal

year ending March �0��.

In addition, in the cancer field, we are proceeding with

research into two Kampo products as candidates for the

drug fostering and evolution of Kampo campaign. These

two products have the potential to be effective against the

side effects caused by chemotherapy. We believe that if

use of these products spreads, the number of physicians

actually experiencing cases where these Kampo products

were effective will increase. If physicians can see for them-

selves the efficacy of Kampo medicines in the treatment of

their own patients, obviously their interest in Kampo medi-

cines will heighten. After that, if these physicians with an

interest in Kampo medicines begin to participate in our

Kampo medicine seminars, their understanding and knowl-

edge of Kampo medicines will deepen, and it is possible

that they will start prescribing Kampo products other than

the three products we are promoting. In this manner,

promoting drug fostering and evolution of Kampo will lead

to popularizing Kampo medicine.

KAMPO EDUcAtiON iN JAPANESE MEDicAl ScHOOlSSchools

0

100

80

6971

05 06 07 08 09

STRATEGY ACTION PLANPromotion of Kampo Based on the Results of Drug Fostering and Evolution of Kampo

implement drug fostering and evolution of Kampo medicines initiatives based on three Kampo medicines to accumulate and grow scientific evidence of their efficacy

target doctors who have never prescribed Kampo medicines with recommendations to use these three medicines supported by evidence of their efficacy to increase usage among non-prescribing doctors

Encourage doctors to prescribe these three Kampo medicines to experience firsthand the efficacy of Kampo medicines to arouse greater interest among targeted doctors

DRUG FOSTERING AND EVOLUTION OF KAMPO

PROMOTION OF KAMPO

invite interested doctors to attend Kampo medicine seminars to increase knowledge about the efficacy and usage of Kampo medicines

Promote Kampo medicines—other than these three medicines—to increase awareness about the broad range of available Kampo medicines and encourage doctors to use Kampo medicines to treat their patients

Number of medical schools offering FD programs Number of medical schools offering at least eight Kampo medicine courses

Number of Kampo clinics for outpatients at medical school hospitals

At March 31, 2009, the number of medical school hospitals with Kampo outpatient clinics had reached 69.

��

MARKET TRENDS

In the fiscal year under review, the Japanese pharmaceuticals

market continued to face a difficult business environment

under a continued trend toward curtailing medical expenses.

In April �008, the Japanese government implemented an

average reduction of �.�% in the listed prices of pharmaceu-

ticals under the NHI plan. The average reduction in the listed

prices of prescription Kampo products under the NHI plan

was �.�%. However, because of the substantial expansion

in unit sales of prescription Kampo products, the overall pre-

scription Kampo products market continued to grow,

advancing �.8%, to ¥�0�.9 million. Since total sales of the

prescription drug market in Japan in the fiscal year ended

March �009 were ¥8.� trillion, sales of prescription Kampo

products in Japan during the same period accounted for

�.�%, edging up 0.� percentage point from a year earlier.

On an NHI-listed price basis, the scale of the market for

prescription Kampo products in Japan has continued to ex-

pand since hitting a low in the fiscal year ended March �00�.

That growth can be attributed to progress in establishing

Kampo medicine. In a �007 survey of the usage of Kampo

medicines, the trade magazine Nikkei Medical noted that

most physicians used Kampo medicine, with 7�.�% of the

physicians polled saying they prescribed Kampo medicine.

Among their reasons for using Kampo medicine, ��.8% of the

physicians polled said that they felt there was a limit to what

they could achieve with just Western medicine. Other major

reasons given included the availability of scientific reports,

strong demand from patients, and the capability of Kampo

medicines to improve the patient’s quality of life with a holistic

approach to treatment. A �008 survey by the Japan Kampo

Medicines Manufacturers Association produced a similar

figure for the use of Kampo medicine by physicians, at

8�.�% of physicians polled. The results of these surveys

underscore the steady support growing for Kampo medicine

in the medical workplace, to which Tsumura’s establishing

Kampo medicine and promoting drug fostering and evolution

of Kampo campaigns and other activities are probably

contributing.

TJ-100 (DAIKENCHUTO)

+8.0%

¥6,717 million

TJ-43 (RIKKUNSHITO)

+16.5%

¥3,675 million

TJ-54 (YOKUKANSAN)

+80.8%

¥2,021 million

HIGHLIGHTS OF FINANCIAL REVIEW STRONG SALES GAINSthe prescription Kampo products promoted by tsumura under its drug fostering and evolution of Kampo program registered significant gains in sales.

QUANtitY AND SAlESTen Thousand of Units/¥ Billion

1,238



88.8

07 08 09

QUANTITY BASIS

+11.5%

STEADY GROWTH115 of tsumura’s 129 prescription Kampo prod-ucts recorded gains from the previous fiscal year. As a result, prescription Kampo product sales rose 6.9% on a price basis and 11.5% on a quantity basis.

PRICE BASIS

+6.9%

SAlES¥ Million

12,413

0

14000

3,675TJ-43(Rikkunshito)

6,717TJ-100(Daikenchuto)

2,021TJ-54(Yokukansan)

07 08 09

Quantity Sales

REViEW OF OPERAtiONS

��

FINANCIAL PERFORMANCE

In the prevailing business climate, we strengthened our

organizational framework for implementing our establish

Kampo medicine and promote drug fostering and evolution

of Kampo campaigns and proceeded with our activities. As a

result, we achieved an ��.�% increase in unit sales year on

year. Furthermore, despite the average �.�% drop in the list-

ed prices of our prescription Kampo products, �� of our ��9

products posted sales growth from a year earlier. On an NHI-

listed price basis, therefore, sales of Tsumura prescription

Kampo products amounted to ¥88.8 billion in the fiscal year

ended March �009, growing �.7% year on year, and rising for

the fifth consecutive fiscal year. Moreover, Tsumura’s share of

the prescription Kampo product market totaled 8�.�%, edg-

ing upward 0.7 percentage point and exceeding 80% for the

fourth year in a row—demonstrating the Company’s over-

whelming dominance of the market.

Sales of the three products featured in our drug fostering

and evolution of Kampo campaign—TJ-�� (Rikkunshito), TJ-

�� (Yokukansan), and TJ-�00 (Daikenchuto)—posted

substantial gains during the fiscal year under review along

with the steady accumulation of scientific evidence provided

by various ongoing clinical and basic research. Combined

sales of the three formulations advanced �8.�% year on year,

providing the driving force behind the growth in sales of

prescription Kampo products.

In particular, sales of TJ-�� (Yokukansan) surged 80.8%

year on year. TJ-�� (Yokukansan) is attracting attention as a

treatment for the behavioral and psychological symptoms of

dementia (BPSD). In total, the three products contributed

��.7% of the overall sales of Tsumura’s ��9 prescription

Kampo products.

The top three sellers for the fiscal year under review were

TJ-�00 (Daikenchuto) (¥�,7�7 million, up 8.0% year on

year), TJ-�� (Hochuekkito) (¥�,�� million, up �.9% year

on year), and TJ-�� (Rikkunshito) (¥�,�7� million, up ��.�%

year on year).

As indicated above, sales of prescription Kampo

products grew compared with the previous fiscal year.

However, overall sales declined �.0%, to ¥90,0�� million,

because of the loss of household product revenues resulting

from the sale of the shares of Tsumura Lifescience Co., Ltd.

and its exclusion from consolidation and efforts to improve

the efficiency of operations, and operating income rose

�.�%, to ¥��,�8� million.

PRODUCT NAME MAIN REGION AFFECTED

¥ in millions % change

2009 2008

� TJ-�00 (Daikenchuto) Abdominal pain and bloated feeling in postoperative ileus ¥6,717 ¥�,��9 8.0%

� TJ-�� (Hochuekkito) Postoperative build up of physical strength, anorexia, etc. 5,661 �,�� .9

� TJ-�� (Rikkunshito) Gastroenteritis, anorexia, functional gastrointestinal disorders 3,675 �,�� .�

� TJ-�� (Saireito) Disorders accompanying edema, acute gastroenteritis 3,453 �,�� –�.�

� TJ-�� (Kamishoyosan) Various symptoms related to menopause 3,330 �,�� .�

� TJ-�07 (Goshajinkigan) Frequent urination, low back pain, numbness (diabetes-related nerve damage) 3,243 �,�0� �.�

7 TJ-�9 (Bakumondoto) Coughing, common cold, bronchitis, etc. 3,055 �,9�7 �.0

8 TJ-�8 (Shakuyakukanzoto) Pain accompanying muscle spasms (cramps), etc. 2,815 �,��7 �0.�

9 TJ-�9 (Shoseiryuto) Allergic rhinitis. bronchitis 2,570 �,��9 �0.�

�0 TJ-� (Kakkonto) Common cold, stiff shoulders 2,144 �,00� 7.�

tSUMURA tOP 10 PRODUctS iN SAlES AMOUNtYears ended March ��

�7

PROCURING BOTANICAL RAW MATERIALS

In producing prescription drugs from raw materials, the

ingredients and quality of the botanical raw materials need

to be uniform. To achieve these goals, Tsumura not only has

established standards for the cultivation methods and fertil-

izers used, but includes these standards in the commissioned

cultivation agreements with farmers in addition to establishing

a cultivation guidance system for the commissioned farmers.

Furthermore, the Company works to procure high-quality

botanical raw materials by setting its own quality standards,

which are even stricter than those prescribed by the Pharma-

ceuticals Affairs Law and industry associations.

Secure Supplies of Botanical Raw Materials

Approximately 80% of the botanical raw materials that

constitute the main ingredients of Tsumura’s Kampo products

are imported from China. To procure botanical raw materials

from regions in China with peace of mind, we choose specific

cultivation regions and carry out thorough quality control

measures in each region. Moreover, with the aim of improving

productivity, we work to unify cultivation methods and control.

Through joint companies in each region, we provide cultivation

guidance to farmers and purchase botanical raw materials

from them.

These botanical raw materials are gathered at our subsidiary

SHENZHEN TSUMURA MEDICINE CO., LTD., where they are

sorted by hand to remove such contaminants as extraneous

materials and fungus. Next, they are tested for quality in

terms of the amount of ingredients or residual pesticides. Only

the botanical raw materials that pass our strict standards are

sent on to be used in the production of Kampo products.

In order to ensure stable supplies of botanical raw

materials, it is also necessary to source a certain amount

of those supplies in Japan. Currently, we use five cultivation

areas in Japan in addition to those in China. We are taking

steps to further expand our cultivation areas in Japan and to

build a close-knit cooperative network with farmers. In April

�009, we established a cultivation, processing, and storage

base in Yubari in Hokkaido, announcing that we were going

to expand our cultivation of botanical raw materials in

Hokkaido. Among other measures taken to develop new

cultivation areas, we have been conducting cultivation trials

of botanical raw materials in Laos since �00� and plan to

establish a local subsidiary in that country in fiscal �0�0. In

addition, we also keep a sufficient reserve of botanical raw

materials for use during periods when supplies cannot be

obtained because of inclement weather or other eventualities.

Establishing a traceability System

In addition to meeting standards for ethical drugs set under

the Pharmaceuticals Affairs Law and industry associations,

we put our prescription Kampo products through our own

original quality control tests. From the point of view of making

our products ones that patients can be even more confident

in, we are endeavoring to find ways to increase the guarantee

of the safety and quality of the botanical raw materials used.

For the procurement of botanical raw materials, we are

establishing a traceability system with the goal of ensuring

stable supplies of safe and dependable botanical raw materi-

als. Under our traceability system, the production history,

logistics route, and other facts are clearly recorded from the

botanical raw material cultivation stage, thereby allowing us to

trace and confirm that information. We introduced the system

in April �007, and developed it such that today we can con-

firm historical data on all products regarding their production

process (from the botanical raw material processing plant to

Tsumura has established a comprehensive system that enables it to be uncompro-mising in its supply of high-quality Kampo products. The Company manages quality in all processes based on strict standards, including the collection and storage of botanical raw materials, establishing appropriate manufacturing methods and facilities for the Kampo extract products, and subsequently shipping them.

PRODUctiON SYStEM

�8

the prescription Kampo product plant) and logistics routes

(from the distribution centers through the sales agents to final

delivery to hospitals and clinics).

Moreover, today, we are steadily introducing a system that

collects and stores information on botanical raw materials,

such as the cultivation method, drying and preparation meth-

ods, logistics, and storage, at all stages of its cultivation and

original processing. The system enables us to trace and con-

firm the conditions of the botanical raw materials from the

cultivation region to their delivery to the botanical raw material

processing plant. Based on this system, it is possible not only

to confirm the production process and logistics route, but to

also trace and confirm the botanical raw materials used in a

product from the end user medical institution right back to the

region in which they were grown. Our goal is to complete phase

one of the system’s introduction by March �0�0, after which

we plan to further refine the system and expand its scope.

MANUFACTURING KAMPO PRODUCTS

Our Kampo product processing plant network is built around

three plants: our Shizuoka and Ibaraki plants as well as the

Shanghai plant of SHANGHAI TSUMURA PHARMACEUTI-

CALS CO., LTD., our joint venture in China. We are working

to increase our production capacity for prescription Kampo

products as demand expands and also to further enhance our

quality control systems.

three Plant System

As a Kampo product plant, the Ibaraki plant boasts world-

class scale and production capacity. The plant is an

advanced smart factory with a research center combining

leading-edge technology in pharmacology, pharmaceutical

production, and information science. The site also contains

the Tsumura Kampo Museum and a medicinal herb garden.

Among the many advantages of this arrangement, having the

research and production facilities together enables the rapid

feedback of research data to the technology and production

facilities. Production data can also be quickly computerized

and used to ensure stable supplies to customers.

Tsumura is also proud of its Shizuoka plant, which similar

to the Ibaraki plant utilizes state-of-the-art technology in its

production facilities and equipment. Besides its Kampo prod-

uct facilities, the Shizuoka plant also has conventional OTC

drug production facilities.

The Shizuoka plant produces about 70% of the ��9

prescription Kampo products of the Company, while the

Ibaraki plant produces the remaining �0%. The two plants

specialize in different types of production, with the Shizuoka

JAPAN

CHINA

Shanghai

Shenzhen

Cultivation regions in China

Four subsidiariesand affiliates*

CULTIVATIONBotanical raw materials, chosen from

specific cultivation regions

PROCUREMENT and QUALITY CONTROLSHENZHEN tSUMURA MEDiciNE cO. ltD.

PRODUCTION

in Japan, Shizuoka and ibaraki plants

DISTRIBUTION

in china, SHANgHAi tSUMURA

PHARMAcEUticAlS cO., ltD. (Production of extract powder)

ROlES OF tHE tWO cHiNESE BASES iN tHE PRODUctiON SYStEM

Flow of botanicals Flow of extract powder

* Subsidiaries and affiliates established in Jilin,

Anhui, Hubei, and Sichuan provinces

�9

plant focusing on multiple products (small lot production)

and the Ibaraki plant concentrating on mass production.

In �00�, in consideration of the globalization of the use of

Kampo products, Tsumura established SHANGHAI TSUMURA

PHARMACEUTICALS, establishing a China-based production

plant and beginning operations in the Chinese market. Since

beginning full-fledged production in �00�, the Shanghai plant

has expanded production annually and plans to further increase

the number of products produced, which total �0 currently.

Strengthening the Production System

Demand for prescription Kampo products has grown annually

in Japan. In response, Tsumura is taking steps to increase

production capacity. We plan to expand our spray-drying fa-

cilities for manufacturing extract powder, the process for

making and packaging granular kampo products, and other

processes at each of our three plants in Ibaraki, Shizuoka,

and Shanghai. The expansion will be conducted over six

years, from fiscal �0�0 to fiscal �0��, at a total capital invest-

ment cost of approximately ¥��.0 billion. Compared with

building a new plant, this method will enable us to flexibly

expand in line with growth in demand for prescription Kampo

products. Moreover, diversifying our capital investments also

has the advantage of reducing the depreciation burden.

More concretely, construction of an additional spray-drying

process station will begin at the Ibaraki plant in fiscal �0�0.

We aim to bring the station onstream within two fiscal years.

During the six-year construction period, we will also build

granulated extract formation and packaging process facilities

and medicinal plant storage facilities at the Ibaraki and

Shizuoka plants. In China, we plan to build one spray-drying

process station at our Shanghai plant commencing in the

fiscal year ending March �0��, with the goal of going on-

stream by the end of the construction plan.

We are also implementing measures to reinforce our

quality control system. In October �008, we established

the Analytical Technology Center, which integrates the quality

control functions at our Shizuoka and Ibaraki plants with the

clinical development function of our research department.

This brings together the two quality control systems operating

separately at each of our plants. Moreover, we have high

expectations that combining the quality control and R&D

functions will enable a close exchange of information that

will lead to enhancement in our quality control capabilities.

Storing Medicinal Plants

Medicinal Plants

BoxedPlants

Cutting

Chopped Plants

Cutting

Weighingand Mixing

MixedPlants

Weighing and Mixing

Extracting

Extraction and Separation

Spray-drying

PowderedExtract

Drying

Powdered Extract

To Automated Warehouse

Mixing

PowderedExtract

Compactingand Crushing

Granulation

Tablets

Crushing

Granules


Granulated Extract

Hopper

Packaging

Filling and Packaging


Products

Computerized Monitoring

tYPicAl PRODUctiON FlOW FOR KAMPO PRODUctS

PRODUctiON SYStEM

�0

FUNDAMENTAL R&D POLICY

Tsumura’s R&D activities place the greatest emphasis and

concentrate its resources on research of Kampo medicines

and botanical raw materials. Tsumura’s key research themes

are drug fostering and evolution of Kampo, cultivating a sys-

tem to secure stable supplies of botanical raw materials and

improving the quality of botanical raw materials, advancing

quality control and production technologies for Kampo prod-

ucts, and internationalizing Kampo medicine. Against the

backdrop of several thousand years of Kampo medicine

history, we are elucidating the mechanisms of these medicines

using the latest science and technology. Tsumura is actively

carrying out its R&D activities with the goal of enabling

Kampo medicine to contribute to modern medical treatment.

USING R&D TO PROMOTE DRUG FOSTERING AND

EVOLUTION OF KAMPO

Promoting drug fostering and evolution of Kampo is one way

of using a Western-based scientific approach to prove the

efficacy of Kampo products. We begin by examining the re-

cent structure of disease in Japan and select a field where

medical treatment needs are high and prescription Kampo

products demonstrate special efficacy for disorders that are

difficult to treat with Western drugs. We then focus continu-

ing research on these disorders to collect clinical and basic

research data to build a body of scientific evidence. Our goal

is not to expand the scope of potency or efficacy

of our Kampo products, but to promote the increased use

of those Kampo products by offering proof of their efficacy

within the already approved scope. Demonstrating a body

of scientific evidence collaborating efficacy is an extremely

effective way of getting physicians unfamiliar with Kampo

medicines to prescribe Kampo products. To ensure the

success of our drug fostering and evolution of Kampo cam-

paign, we have commissioned the clinical and basic research

of research facilities and doctors specializing in this field.

Distilling their results into medical papers, it will then be

necessary to announce those results to various medical

associations or in medical journals.

In April �00�, we selected TJ-�� (Yokukansan), TJ-��

(Rikkunshito), and TJ-�00 (Daikenchuto) to be the focus of

our ongoing drug fostering and evolution of Kampo efforts.

Tsumura has been gathering clinical research data through

the research facilities of medical school hospitals that are

influential in the academic community. At the same time, the

Tsumura Research Laboratories and medical school research

facilities have been gathering non-clinical research data to

supplement the clinical data on efficacy, aiming to establish

RESEARcH AND DEVElOPMENt

We are promoting the increased use of Kampo products by offering proof of their efficacy within the already approved scope. Our basic R&D policy is to concentrate our efforts on fields in which Kampo medicine has demonstrated specific efficacy.

��

a body of scientific evidence based on high-quality research

data. In addition to the extremely interesting clinical and

basic research data being collected on the efficacy of these

three Kampo products, they have also been the subject

of several already published medical papers and medical

conferences in Japan and overseas—drawing strong atten-

tion to breakthrough mechanisms and efficacy not seen in

Western medicine.

We also are considering expanding the scope of our drug

fostering and evolution of Kampo medicines efforts. As two

new possible candidates for this program, we are looking

at TJ-�07 (Goshajinkigan) and TJ-�� (Hangeshashinto) as

Kampo products with the potential to alleviate disorders a

ssociated with chemotherapy.

tJ-43 (Rikkunshito)

This Kampo product has indications for upper abdominal

indefinite complaints arising from familial dysautonomia (FD),

gastroesophageal reflux disease (GERD), and non-erosive

reflux disease (NERD). Basing our drug fostering and

evolution of Kampo research for TJ-�� (Rikkunshito) on

the concept of “making appetite a science,” the appetite-

stimulating hormone ghrelin that is attracting attention

worldwide has also caught our eye.

Some of the reasons for the occurrence of GERD include

weakened esophageal motility, the relaxation of the lower

esophageal sphincter, and deterioration in the stomach-

emptying function. These conditions cause stomach acid

to reflux into the esophagus. Western drugs treat this condi-

tion by using drugs to prevent the secretion of stomach acid,

but there are no drugs to improve the function of the upper

digestive tract. Unlike Western drugs, TJ-�� (Rikkunshito)

demonstrates multiple mechanisms, making the Kampo

product an effective treatment for the complex disorders

caused by the dysfunction of the upper digestive tract. TJ-��

(Rikkunshito) improves the esophagus’ clearance of refluxed

stomach acid back into the stomach, the retention of stomach

contents, and the emptying of the stomach while promoting

the secretion of ghrelin, an appetite-stimulating hormone.

A research group at Hokkaido University first elucidated

the mechanism by which TJ-�� (Rikkunshito) stimulates

secretion of ghrelin. It reported that a high concentration of

activated ghrelin was a contributing factor in the improvement

mechanism and that by blocking the serotonin �B and �C

receptors, TJ-�� (Rikkunshito) curtails the lowering of ghrelin

levels in the blood.

Because of this effect of TJ-�� (Rikkunshito), it is highly

expected to contribute to improving the loss of appetite

experienced by cancer patients during chemotherapy, and

clinical research is ongoing in this area. At the �00� Ameri-

can College of Gastroenterology Conference it was reported

that when patients with GERD and NERD, who did not dem-

onstrate any improvement from treatment with commonly

used proton pump inhibitors (PPI), were simultaneously

treated with TJ-�� (Rikkunshito), they showed clear improve-

ment. TJ-�� (Rikkunshito) was also a topic of several

presentations at the �007, �008, and �009 conferences as

well as other conferences in Japan and in Europe, continuing

to draw attention from around the world. In July �008,

research results regarding the efficacy of TJ-�� (Rikkunshito)

on improving appetite were reported in an article in the

world’s foremost authority in the gastroenterology field,

the magazine Gastroenterology.

tJ-54 (Yokukansan)

This Kampo product is indicated for patients with

behavioral and psychological symptoms of dementia (BPSD).

Our drug fostering and evolution of Kampo research concept

for TJ-�� (Yokukansan) is to elucidate the transporter function

of glutamine acid. While medical experts already recognize

TJ-�� (Yokukansan) as an effective treatment for BPSD

clinically, its mechanism is still in the process of being deter-

mined. Until recently, basic research has observed that

TJ-�� (Yokukansan) pharmacologically controls through a

variety of mechanisms the excessive stimulation of nerves by

Zizyphi Fructus

��

the brain-nerve-cell-stimulant glutamine acid—excessive

excitement of these nerves causes nervous disorders, such

as irritability or insomnia, as well as convulsions. This type of

research has begun to uncover some of the clinical efficacies

of TJ-�� (Yokukansan) for BPSD. The mechanism is not seen

in Western drugs and could be one of the pharmacologic

properties underpinning its clinical efficacy.

Clinical trials with 7�� patients are being conducted at �9

medical institutions, including �� medical school hospitals,

throughout Japan. Started in �00�, five of the clinical trial

blocks have been completed. Trials proceeded under the

guidance of top doctors and authorities in their fields, collect-

ing a variety of clinical data on the efficacy and safety of

TJ-�� (Yokukansan). In April �008, we began new research

using single photon emission computed tomography (SPECT)

that measures blood flow in the brain. Incorporating the latest

advanced technology, this is breakthrough research not be-

ing done anywhere else in the world.

tJ-100 (Daikenchuto)

Postoperative ileus, irritable bowel syndrome (IBS), and an

accompanying bloating feeling in the abdomen are the condi-

tions indicated for treatment with TJ-�00 (Daikenchuto).

Already, this Kampo product has been proven to stimulate

or regulate enterokinesis and increase intestinal blood flow

as well as has been reported at various medical conferences

and in trade journals. Currently, within our drug fostering

and evolution of Kampo program, we are also carrying out

research to elucidate the mechanisms of a new indication

of TJ-�00 (Daikenchuto) for increasing intestinal blood flow.

A large-scale basic and clinical research study is being carried

out on multiple cases. A group from the Gastroenterological

Surgery Department at Asahikawa Medical College first

reported on the mechanism of increasing intestinal blood

flow. According to their report, in the mechanism of TJ-�00

(Daikenchuto) for increasing blood flow, calcitonin gene-

related peptide (CGRP) has been found to be expressed

during vasodilation. In other words, it has been determined

that TJ-�00 (Daikenchuto) has the effect of increasing blood

flow by promoting the secretion of CGRP from nerve endings

and increasing RAMP� (a specific class of receptor activity-

modifying protein) that induces the CGRP� receptors.

Tsumura has set up the DKT Forum to disseminate

scientific evidence of the efficacy of TJ-�00 (Daikenchuto)

to the rest of the world. The DKT Forum comprises Japan’s

foremost authorities in the field of surgery and is a national

research organization encompassing gastrointestinal surgery

specialists and facilities throughout the country. The activities

of the organization center on a large-scale clinical research

group studying gastrointestinal functional disorders following

gastroesophagea, liver, and colon surgery and five comple-

mentary clinical and basic pharmacology groups. The forum

seeks to establish a more efficient development system by

effectively using the basic and clinical research data on

TJ-�00 (Daikenchuto) collected in Japan in clinical trials

in the United States.

BOTANICAL RAW MATERIALS R&D

To ensure a stable supply of botanical raw materials in both

quantitative and qualitative terms, Tsumura researches

methods of cultivating wild raw materials as well as cultivation

and processing technologies. In addition to its own indepen-

dent research, the Company collaborates with research

institutes in China and Japan in researching methods to

cultivate materials. Moreover, using agricultural machinery

and equipment, Tsumura undertakes large-scale cultivation

research projects in cooperation with medical schools and

Zingiberis Rhizoma

Cnidii Rhizoma

��

QUALITY CONTROL AND PRODUCTION TECHNOLOGY R&D

To improve the quality control of

botanical raw materials, Tsumura has

developed sophisticated analytical

technologies to test for residual

pesticides, heavy metals, and other

contaminants as part of its quality

control system. The Company is cur-

rently upgrading its testing capabilities

for residual pesticides, increasing the

number of testable agricultural chemi-

cals in Japan and China from the

current 7� to approximately �00 in

fiscal �0�0. In addition, Tsumura

constantly uses DNA analysis to

ensure that it is procuring botanical

raw materials of the correct type.

Among research being undertaken

on manufacturing processes for

Kampo products, the Company is

researching quality control and

assessment methods that include

testing for ingredients and biological

organisms at every stage as well as ways

to improve production technologies.

other bodies in Japan. To develop cultivation regions in

countries other than China, the Company has also been

carrying out raw material cultivation research in Laos since

�00�, verifying whether easy-to-raise medicinal plants meet

its quality standards. As a next step, Tsumura intends to ex-

pand the scale of its experimental cultivation to confirm the

stability of the amount of harvest and its quality.

R&D IN THE UNITED STATES

Our R&D activities in the U.S. are directed toward receiving

approval of Kampo products as prescription pharmaceuticals.

Our basic R&D policy is to focus our efforts on fields in which

disorders are difficult to treat with Western drugs and Kampo

medicine has demonstrated specific efficacy. Based on this

policy, we submitted an Investigational New Drug (IND)

Application of TU-�00 (Daikenchuto) for postoperative ileus

as its indication to the U.S. Food and Drug Administration

(FDA) in May �00�. We also completed a tolerance clinical

trial in patients of postoperative ileus in fiscal �008. This

study demonstrated that the current Japanese dosage can be

safely used in postoperative patients in the U.S. In June �009,

to promote a deeper understanding of the pharmacological

profile of TU-�00 (Daikenchuto) among U.S. physicians, we

began clinical pharmacological trials at the clinical facilities of

the Mayo Clinic. Following the completion of those trials, we

are planning to initiate exploratory trials on efficacy. In order

to ensure the smooth progress of clinical trials for TU-�00

(Daikenchuto) in the U.S., it would be useful to utilize the

basic and clinical research data from our drug fostering and

evolution of Kampo program in Japan; therefore, in June

�008, Tsumura conducted an organizational reorganization,

transferring the International Pharmaceutical Development

Department to become a branch of the Sales & Marketing

Division. This will enhance the exchange of information

between Japanese physicians engaged in basic and clinical

research of TU-�00 (Daikenchuto) and U.S. physicians con-

ducting clinical trials. Our new organization is developing new

strategies and plans in the U.S. that include the details of the

above clinical trials design based on the results of the most

recent research in Japan.

RESEARcH AND DEVElOPMENt

��

cORPORAtE gOVERNANcE

Tsumura recognizes that further strengthening its management

base, particularly its corporate governance system, is essential

to achieving sustained growth and development and fulfilling

its social responsibilities as a good corporate citizen. For this

reason, the Company has made creating an “open” company

based on strengthening its corporate governance as an im-

portant management issue, aiming to operate a fair and highly

transparent business that will be trusted by all stakeholders.

GOVERNANCE ORGANIzATION

Tsumura has adopted an audit system for its corporate

structure that gives ultimate decision-making power within

the corporate governance system to the general meeting of

shareholders. The other major bodies of the corporate gover-

nance system are the board of directors, which is the primary

decision-making body at the management level and includes

the board of managing directors, and the board of auditors,

which oversees and audits the execution of business operations.

The Company has introduced various systems as part of

the establishment of its corporate governance organization,

including a corporate officer system, fixed terms for directors

and corporate auditors, and the appointment of outside

directors and corporate auditors. In addition, the audit system

is functioning fully. The Company has chosen to have a

corporate auditor system based on the decision that such

a system would enable greater transparency, greater effec-

tiveness, and sound operations based on ongoing reform of

the board of directors under the present system.

Board of Directors

As management’s top decision-making body, the board of

directors makes decisions related to law, the articles of incor-

poration, and other important matters regarding Tsumura’s

business. Also, the board of directors provides oversight on

the management of business operations. As at March ��,

�009, the board of directors comprised eight members, in-

cluding President and Representative Director Junichi Yoshii,

who serves as chairman. The board of directors constitutes

a body that combines appropriate management decision

making and the execution of business duties. During the

fiscal year under review, the board of directors met a total

of �� times. The Company’s articles of incorporation stipulate

that there must be at least three directors.

The Company has also established the board of managing

directors under the board of directors. The board of manag-

ing directors discusses important issues to determine general

operational policies based on the fundamental policies set by

the board of directors. Also, the board of managing directors

exercises overall control of business operations.

To clarify the responsibilities of directors and to strengthen

the management structure, the Company changed the term of

office for directors from two years or less to one year or less

at its ordinary general meeting of shareholders held in June

�00�. At this point in time, the Company does not have any

outside directors, but is prepared to consider the appointment

of outside directors should appropriate candidates emerge.

corporate Officer System

Following a presentation to and subsequently receiving

approval from the board of directors of their business plans,

the corporate officers, who are responsible for executing

business operations, report to the board of directors regularly

regarding their progress and strive to manage business

operations efficiently. The efforts of the corporate officers to

carry out their assigned jobs properly and efficiently within

the scope of their job descriptions, authority, and responsi-

bilities are supported by Tsumura’s decision-making rules

based on its Organizational and Occupational Authority

Regulations. Moreover, in executing their duties, the corporate

officers also seek advice from outside legal counsel as nec-

essary or receive guidance from the independent auditors to

ensure the propriety of their overall business execution.

Auditors and Board of Auditors

Auditors monitor the decision-making processes of the board

of directors and the board of directors’ execution of business

operations by attending board of directors meetings and oth-

er important meetings, interviewing directors, and reviewing

documents related to important decisions.

The board of auditors, made up of four auditors, deter-

mines auditing policies based on the board of auditors’

regulations, pertinent laws, and Tsumura’s articles of

��

General Meeting of Shareholders

Elect/Dismiss

Elect/Dismiss

Elect/Dismiss

Board of Auditors,Auditors

Board of Directors, Directors

Corporate Officers

Supervise

Independent Auditors

Audit

Audit

Accounting Audit

Report Report

Submit Resolution/Report

Instruct/Supervise

Report

Report

Assessmentof Internal

Control SystemInternal

Audit

Report

Risk ComplianceCommittee

Board of Managing Directors

Internal AuditingDepartment

CSRPromotion Office

DisclosureCommittee

Business Units and Group Companies

incorporation. Also, the board of auditors forms its audit

opinion by integrating all auditor reports. During the fiscal

year under review, the board of auditors met �9 times.

Outside Auditors

Tsumura has appointed two outside auditors, Mr. Tomiji Yusa

and Ms. Seiko Noda. In his capacity as a certified public

accountant (CPA), Mr. Yusa provides valuable advice and

recommendations to the board of directors and the board of

auditors, while Ms. Noda does the same in her capacity as

an attorney.

During the fiscal year ended March ��, �009, Mr. Yusa

and Ms. Noda attended all �� board of director’s meetings

and all �9 board of auditor’s meetings, in their capacity pro-

viding valuable comments on the Company’s management.

Audit Office

Tsumura established the Audit Office under the board of

auditors. The Audit Office carries out regular operating audits

of each department of the Company based on the internal

audit plan and conducts extraordinary audits regarding items

deemed necessary by the board of directors.

independent Auditors

The Company has appointed Ernst & Young ShinNihon as

its independent audit firm. Three CPAs from the audit firm

are responsible for the accounting audit of the Company:

Mr. Mikio Komori, Mr. Teruyoshi Hashizume, and Mr. Fumio

Uemura. Since these CPAs have seven years or less con-

secutive years of service as auditors, other staff of the audit

firm who are assisting with Tsumura’s audit include three

additional CPAs and six trainees. The independent auditors

and the board of auditors meet regularly to exchange opinions

and ensure consistency with regard to the accounting issues

in their individual audits. Moreover, the independent auditors

and the board of auditors meet regularly with the Audit Office

to exchange information.

��

COMPENSATION FOR DIRECTORS AND AUDITORS

For the fiscal year ended March ��, �009, Tsumura offered

the nine directors a total of ¥��0 million in compensation,

while the four auditors received the sum of ¥�� million. The

compensation paid by the Company to the independent audit

firm under the Certified Public Accountant Law totaled ¥��

million, while the amount for services other than the audit

opinion stood at ¥� million.

REQUIREMENTS FOR ELECTING DIRECTORS

Directors must be elected by the approval of a resolution by

a majority of shareholders at a meeting participated by at

least one-third of the shareholders with voting rights. Accord-

ing to the articles of incorporation, directors may not be

elected by cumulative voting.

DECISIONS USUALLY REQUIRING A RESOLUTION OF

THE GENERAL MEETING OF SHAREHOLDERS THAT MAY

BE MADE BY THE BOARD OF DIRECTORS

The articles of incorporation provide that the board of directors

may decide on the acquisition of treasury shares. This provi-

sion has been made to enable the Company to flexibly carry

out capital strategies in response to changes in the business

environment.

Moreover, to facilitate stable payment of dividends to

shareholders, the articles of incorporation stipulate that

the board of directors may determine payment of a cash

dividend from retained earnings to shareholders of record

on September �0 on an annual basis.

REQUIREMENTS FOR SPECIAL RESOLUTIONS AT THE

GENERAL MEETING OF SHAREHOLDERS

Under the articles of incorporation, special resolutions must

be approved by two-thirds or more of the shareholders at a

meeting participated in by at least one-third of the sharehold-

ers with voting rights. This provision exists for the provision of

speedy decision making.

STATUS OF INTERNAL CONTROL SYSTEM

As part of its efforts to strengthen corporate governance, the

Company’s board of directors has determined fundamental

policies for the establishment of an internal control system

based on the Corporation Law to reinforce and expand its

compliance and risk management systems.

compliance and Risk Management Systems

To ensure responsible conduct based on domestic and

international laws and a sense of ethics, the Company has

strengthened its Tsumura Compliance Program, including the

Tsumura Code of Conduct. Based on this program, Tsumura is

carrying out continuous and systematic compliance activities,

including education. The director in charge of compliance

keeps track of Companywide efforts and regularly reports

on them to the board of directors. Also, the Company has

established the Risk Compliance Committee, which discusses

matters related to Group compliance, after which policies

are decided by the board of directors. Furthermore, the

Company has set up the Tsumura Hotline as the Group’s

point of contact for compliance-related enquiries to gather

information on compliance issues and make improvements.

In accordance with the law as well as with information

management regulations and document management rules

determined by Tsumura, the Company properly stores and

manages documents and other information regarding busi-

ness execution. To ensure proper business practices among

Group companies, Tsumura has created the Group Manage-

ment Rules to provide guidance and support. For its internal

audits of Group companies, Tsumura has determined the

Group Audit Standards, which set out procedures and methods

for internal audits. Based on these standards, the Company

carries out internal audits to assess whether companies are

conducting their businesses appropriately or not.

Tsumura also assesses its internal control system, which

ensures the correctness of its financial reporting. The assess-

ment of the effectiveness of the internal control system is

based on the Company’s fundamental policies and planning,

which are formed in compliance with the implementation

standards announced by the Business Accounting Council

of the Financial Services Agency (FSA).

�7

Board of Directors

President,

Representative Director

Junichi Yoshii

Managing Directors

Masashi Kushima

Yoshiki Mori

Yoshimasa Ichio

Directors

Kenji Ueda

Satoshi Arai

Norihiro Tanaka

Tooru Sugita

Board of Auditors

Standing Auditors

Tsutomu Murayama

Kouzou Kuwahara

Auditors

Tomiji Yusa

Seiko Noda

STANCE ON TAKEOVER PROTECTION

At this point in time, the Company believes the best protec-

tion against takeovers is to increase corporate value. To this

end, Tsumura is committed to achieving further performance

growth and enhanced business efficiency.

IR ACTIVITIES

Through our IR activities, we provide highly transparent infor-

mation in a fair and timely manner to shareholders and

investors as well as conducting two-way communications.

Specifically, we hold information sessions and other meetings

with investors and analysts in Japan regarding our business

results and conduct tours of our plants. For our foreign inves-

tors, our top management does presentations to overseas

investors in North America, Europe, Asia, and other coun-

tries. Among other activities, we hold small group meetings

and conference calls.

We also have established an IR web site for investors, on

which we disclose a variety of information. For example, we

were the first in the industry to disclose monthly sales trends

in a timely manner to enable our investors to examine sales

forecasts. In addition, we explain each business item in an

easy-to-understand manner using tables and graphs.

To ensure the timely disclosure of accurate and material

information about our Company to shareholders and inves-

tors, we have established an appropriate disclosure

organization based on the Tokyo Stock Exchange Disclosure

Standards.

E Tsumura’s IR web site:

http://www.tsumura.co.jp/english/ir/index.htm

cORPORAtE gOVERNANcE

�8

cORPORAtE SOciAl RESPONSiBilitY

ENVIRONMENTAL PROTECTION ACTIVITIES

Environmental Management Organization

Based on the Tsumura Environmental Principles and the

Tsumura Basic Environmental Policies, the Company has

established the CSR Promotion Office and the Tsumura

Environment Committee as its dedicated environmental

management organization, through which it carries out its

environmental activities. In �009, the Company also formu-

lated the Tsumura Environmental Management Regulations

to clarify the components of the environmental management

organization and their roles.

Tsumura’s domestic production bases, the Shizuoka and

Ibaraki plants, acquired ISO ��00� certification, the interna-

tional standard for environmental management, in �00�. In

addition, our head office, our branches, our sales offices,

the Ishioka Center, and the Fujieda Center have established

their own original environmental management systems and

continually work to improve them.

Moreover, based on its environmental principles and

policies, Tsumura continually implements environmental

education and awareness activities to ensure awareness of

environmental issues in the workplace.

global Warming Prevention Activities

As a company that uses naturally growing botanicals, Tsumura

recognizes that climate change represents a significant risk to

its business. Consequently, as medium-term environmental

goals, the Company is working to reduce greenhouse gas

emissions and protect the natural environment of the regions

where its botanicals are cultivated. In the fiscal year under

review, Tsumura’s production volume of medical extracted

granules increased by ��%. Nevertheless, by introducing

highly energy-efficient facilities, the Company was able to

hold the overall increase in the emission of greenhouse gases

to �%, while actually reducing energy consumed by �%.

As Tsumura continues to expand its production of Kampo

products, it will be impossible to avoid increasing its consump-

tion of energy. However, the Company is considering the

introduction of new technology and other effective measures,

taking steps Companywide to attain its previously mentioned

medium-term environmental goals.

Water Resource Preservation Activities

In addition to strictly complying with laws and regulations

concerning wastewater, Tsumura endeavors to reduce its use

of water and to recycle water as much as possible. Besides

recycling the concentrated cooling water (approximately �0%

recycling rate) used in the powdered extract production

process for Kampo products, the Company also recycles the

wastewater generated in the purified water manufacturing

process. In fiscal �009, we steadily implemented these

measures throughout our operations. We made concerted

efforts to manage water use and water recycling at our

Shizuoka plant, achieving a recovery rate of ��.7% (excluding

the spray-drying facilities renovation period).

Resource Recycling Activities

Aiming to promote a recycle-oriented society, Tsumura’s

“Zero Emission*” program aims to recycle �00% of its indus-

trial waste. When disposing of industrial waste is unavoidable,

the Company chooses an appropriate waste removal vendor

to ensure that the amount of final disposal waste is reduced

as much as possible. Tsumura has achieved zero emissions

for industrial waste at the Shizuoka plant since fiscal �008,

while the Ibaraki plant has attained the zero emissions target

since fiscal �007. In fiscal �009, the Ishioka Center joined

the two plants in the “zero emission club.” Tsumura’s overall

recycling rate for industrial waste and regular waste was

99.8% in fiscal �009.

Precisely because our Kampo business is built on the

blessings of nature, we are committed to establishing a sys-

tem that achieves the recycling environment necessary to

coexist with nature as well as to preserving the bountiful nat-

ural environment around us. In addition, botanical residues

resulting from the manufacture of Kampo products totaled

��,970 metric tons, up slightly from the previous fiscal year.

All botanical residues generated by Tsumura were recycled

by converting them into fertilizer. We also are considering

converting them into bio-ethanol as a new recycling method.* �00% effective utilization of generated industrial waste by using it in other applications

�9

Botanicals Resource Preservation Activities

Naturally grown botanicals comprise the primary material

for Tsumura’s core product, prescription Kampo products.

The amount of wild botanicals being harvested as medicinal

herbs around the world is on the decline, with many species

in danger of extinction. Of the �0� types of medicinal plants

used as botanicals by Tsumura in the manufacture of Kampo

products, 8� are cultivatable medicinal plants. The remaining

�� medicinal plants grow naturally in the wild. With the goal

of preserving these wild-growing medicinal plants, we are

working jointly with research facilities in China and Japan to

study cultivation methods for several types of these plants,

including Cimicifuga Rhizome and Uncaria Thorn. We are

proceeding with research on the collection and growing of

seeds and seedlings, medicinal plant surveys, and methods

of breeding medicinal plants.

Since �000, China has placed restrictions on export

volumes of Ephedra Herb and Glycyrrhiza Root to prevent

the desertification of grasslands. Tsumura has taken strategic

steps to contribute to a solution to this issue by concluding

contracts with a Chinese company to conduct research on

the cultivation of Ephedra Herb and Glycyrrhiza Root from

�00� to �0�0.

SOCIAL CONTRIBUTION ACTIVITIES

Participation in cooperative Project to grow Forests

The preservation of the natural environment in botanical

cultivation areas is essential to ensuring continuous procure-

ment of quality botanicals as raw materials for the production

of Kampo products. Based on this way of thinking, the Com-

pany began participating in the cooperative project to grow

forests hosted by the local government of Kochi Prefecture

in June �008.

By participating in this project, the Company is helping

forests to grow by planting and thinning trees and working to

preserve the natural environment with its important source of

water for botanical cultivation areas. Tsumura is also deepen-

ing its relationship with the people of the region.

contributing to Reconstruction Support Efforts in

Earthquake-Damaged Regions

In May �008, there was a major earthquake in Sichuan

Province in China. To support the reconstruction efforts,

Tsumura donated one million yuan to the Red Cross Society

of China and �00 thousand yuan to the Red Cross Society

of Sichuan Province. The Company’s Chinese subsidiaries,

SHANGHAI TSUMURA PHARMACEUTICALS CO., LTD. and

SHENZHEN TSUMURA MEDICINE CO., LTD., also donated

�00 thousand yuan each.

In addition, the directors, officers, and employees of the

Japanese and overseas Group companies contributed a total of

¥�.7 million as a charity donation. Most of the collected funds

were donated to the Red Cross Society of China, with a portion

given by the employees of SHENZHEN TSUMURA MEDICINE

directly to families whose homes had been damaged.

MEDIUM-TERM ENVIRONMENTAL GOALS: Global Warming Prevention Activities

Reduce average emissions of greenhouse gases during the period from fiscal 2010 to fiscal 2012 by 20% compared with fiscal 1991 (Restrict total emissions to 141,000 tons or less during the period from fiscal 2010 to fiscal 2012).

implement forest preservation initiatives in all botani-cal cultivation areas in Japan by fiscal 2012. contribute to global warming prevention by promoting reforestation activities to preserve the water resources in botanicals cultivation regions.

�0

cooperation with and Support for NPOs and NgOs

Tsumura has been supporting the World Wide Fund for

Nature Japan (WWF Japan) for more than �0 years as a cor-

porate member. In recognition of its efforts to protect plants

grown in the wild and other worldwide support activities for

the preservation of the natural environment, WWF Japan

awarded Tsumura a certificate of appreciation in �008.

Since the fiscal year ended March �00�, the Ibaraki plant

has participated in the Asaza Project of the Asaza Foundation,

a nonprofit organization (NPO). The project is conducted in

cooperation with the local government, corporations, and

private citizens with the goal of conserving the water quality

and biodiversity of Lake Kasumigaura.

To preserve the Ibaraki plant’s coexistence with Lake

Kasumigaura, the plant “asaza” (floating heart seedlings),

which acts to improve water quality and originally grew

naturally in the lake, is raised during May to August in a pond

on the Ibaraki plant site and subsequently transplanted into

Lake Kasumigaura in August. This process is carried out

entirely by the plant’s employees. In the fiscal year under

review, �0 employees participated in the project. The Ibaraki

plant is committed to continuing its participation in the project.

Among other projects, the head office and some of the

branches and sales offices participate in the Eco-Cap Cam-

paign. Organized through an NPO, this campaign provides

children in developing countries with polio vaccines and

other supplies by collecting and selling the caps of used

PET bottles. In fiscal �009, the participating Tsumura offices

collected approximately ��,000 PET bottle caps, equivalent

to polio vaccine for about �0 people.

cleanup Projects in Areas around Plants

In February �00�, Tsumura became the first corporate citizen

to register with the Fujieda City Beautification and Adoption

Campaign. During fiscal �009, a total of �� employees and

family members of the Shizuoka plant, the Fujieda Center,

and the Tsumura Lifescience Shizuoka plant participated in

the program, which cleans up and beautifies local parks and

areas around plant sites.

charity Funds and Donation Activities

Tsumura participates in the “What a Waste” Drive, an

environmental protection action begun in March �007 by

Fujieda City. The action is aimed at simple things individuals

can do to protect the environment, based on the key phrase,

“What a Waste.” As the first corporation to join the drive,

the Shizuoka plant began by installing automated vending

machines at the plant, from which a portion of sales is donated

to the drive. Anyone who makes a purchase from the vending

machines, therefore, automatically becomes a participant

in the drive. The donations collected support the individual

programs of the “What a Waste” Drive by contributing to the

expenses for such activities as making cloth shopping bags

to reduce the number of plastic bags used for shopping.

Establishing cultivation, Processing, and Storage Operations for Botanicals in Yubari, HokkaidoTsumura has decided to establish a cultivation, processing, and storage base for botanicals in Yubari, Hokkaido. The town’s location is an advantage geographically because its year-round cool climate will save on energy costs for the controlled low-temperature warehousing, assisting with the prevention of climate change. In addition, there are expectations that the operations will contribute in some small way economically to the town of Yubari, which collapsed financially in �007. The Company is also consider-ing making the processing plant in Yubari barrier free and adding other features to make it an easy environment for the elderly and people with disabilities to work. Moreover, we are thinking of proactively moving forward with further increases in the number of disabled people Tsumura employs throughout the Company.

Spotlight on Kampo Formulation that Alleviates Discomfort of cancer Patients We are considering adding TJ-�07 (Goshajinkigan) and TJ-�� (Hangeshashinto) to our drug fostering and evolution of Kampo program as prescription Kampo products that alleviate discomfort associated with chemotherapy. We have high expectations that these prescription Kampo products can alleviate the disorders that patients experience during chemotherapy without reducing the efficacy of these advanced therapies using new anticancer drugs that are being developed one after the other in the field of oncol-ogy. We believe that it is Tsumura’s social responsibility to make it possible in this way to provide patients with the very best therapies available. In future, we will continue to explore the potential of Kampo medicine and contribute to improving the quality of life of patients.

44Management’s Discussion and Analysis

42Eleven-Year Selected Financial Data (Unaudited)

57Consolidated Statements of Cash Flows

55Consolidated Statements of Changes in Net Assets

54Consolidated Statements of Income

52Consolidated Balance Sheets

72Report of Independent Auditors

58Notes to the Consolidated Financial Statements

FINANCIAL SECTION

42 43

ELEvEN-yEAr SELECTEd FINANCIAL dATA (UNAUdITEd)TSUMURA & Co. AND SUBSIDIARIES

YEARS ENDED MARCh 31

¥ in millions, except per share data and financial ratios ¥ in millions, except per share data and financial ratios

2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

FORTHEYEAR

Net sales ¥90,016 ¥94,799 ¥91,227 ¥90,419 ¥84,837 ¥82,155 ¥81,411 ¥74,934 ¥ 73,825 ¥71,932 ¥ 85,491

Cost of sales1 29,028 31,609 29,438 28,000 26,522 25,635 25,529 24,462 25,786 24,585 32,274

Gross profit 60,987 63,190 61,788 62,419 58,314 56,520 55,882 50,472 47,499 47,347 53,217

Selling, general and administrative expenses 44,504 47,369 46,282 45,951 46,351 45,298 44,239 41,345 39,530 40,233 49,920

operating profit 16,483 15,820 15,505 16,467 11,962 11,221 11,642 9,126 8,508 7,113 3,296

Income (loss) before income taxes and minority interests 17,940 14,605 21,261 14,726 8,548 9,132 7,485 4,590 (25,265) (1,518) (18,226)

Net income (loss) 10,777 9,139 13,152 12,380 10,401 8,479 8,035 3,477 (19,467) (2,503) (18,416)

ATYEAR-END

Inventories ¥19,810 ¥ 19,651 ¥ 17,073 ¥ 16,468 ¥ 15,655 ¥ 15,842 ¥ 15,278 ¥ 15,897 ¥ 17,844 ¥ 20,450 ¥ 25,247

Property, plant and equipment, net 38,754 40,251 41,289 48,497 47,702 49,219 48,778 45,962 46,883 59,508 67,511

Long-term liabilities 8,970 14,440 21,400 26,287 32,354 39,836 41,972 42,773 47,842 28,784 34,341

Total liabilities 52,855 62,734 73,760 79,482 83,040 94,129 99,066 114,686 122,803 119,918 131,290

Total net assets2 73,968 72,411 69,618 54,625 38,824 28,933 15,994 11,256 7,510 27,302 33,317

Total assets 126,824 135,146 143,378 135,158 122,674 124,011 116,101 126,541 130,504 147,441 164,840

OTHERSELECTEDDATA

Capital expenditures for property, plant and equipment ¥5,479 ¥3,124 ¥ 3,906 ¥ 4,090 ¥2,441 ¥3,631 ¥ 6,131 ¥ 1,316 ¥ 1,033 ¥ 1,903 ¥4,595

R&D expenses 3,958 4,368 4,829 4,856 5,372 5,423 5,315 4,466 4,596 4,548 6,241

Depreciation 3,298 3,396 2,777 2,761 2,782 2,517 2,868 3,138 3,653 4,446 4,806

Free cash flow 7,293 1,309 23,521 12,145 3,311 7,931 (11,006) 18,987 12,674 14,989 –

PERSHAREDATA(YEN)

Net income (loss) ¥152.80 ¥ 129.57 ¥186.43 ¥173.62 ¥145.81 ¥118.97 ¥113.61 ¥ 49.14 ¥(277.06) ¥ (35.42) ¥(260.74)

Dividends 34.00 23.00 17.00 14.00 12.00 13.00 – – – – –

Net assets2 1,037.76 1,015.46 970.50 772.34 548.39 408.54 226.38 159.08 107.35 386.34 471.50

FINANCIALRATIOS(%)

As a percentage of net sales:

Gross profit 67.8% 66.7% 67.7% 69.0% 68.7% 68.8% 68.6% 67.3% 65.0% 65.8% 62.1%

Selling, general and administrative expenses 49.4 50.0 50.7 50.8 54.6 55.1 54.3 55.2 53.5 55.9 58.4

operating profit 18.3 16.7 17.0 18.2 14.1 13.7 14.3 12.2 11.5 9.9 3.9

Income (loss) before income taxes and minority interests 19.9 15.4 23.3 16.3 10.1 11.1 9.2 6.1 –34.2 –2.1 –21.3

Net income (loss) 12.0 9.6 14.4 13.7 12.3 10.3 9.9 4.6 –26.4 –3.5 –21.5

Return on assets (RoA) 12.6 11.4 11.1 12.8 9.7 9.4 9.6 7.1 6.1 4.6 1.9

Return on equity (RoE) 14.9 13.1 21.3 26.5 30.7 37.8 59.0 37.1 –111.8 –8.3 –42.9

Current ratio 157.2 142.3 133.7 107.7 106.9 99.1 91.5 89.5 80.4 65.3 67.01 Including credit (debit) for allowance for sales returns. 2 Due to a change in accounting standards, figures for the fiscal year ended March 2006 and prior years are net shareholders’ equity.

42 43

ELEvEN-yEAr SELECTEd FINANCIAL dATA (UNAUdITEd)TSUMURA & Co. AND SUBSIDIARIES

YEARS ENDED MARCh 31

¥ in millions, except per share data and financial ratios ¥ in millions, except per share data and financial ratios

2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999

FORTHEYEAR

Net sales ¥90,016 ¥94,799 ¥91,227 ¥90,419 ¥84,837 ¥82,155 ¥81,411 ¥74,934 ¥ 73,825 ¥71,932 ¥ 85,491

Cost of sales1 29,028 31,609 29,438 28,000 26,522 25,635 25,529 24,462 25,786 24,585 32,274

Gross profit 60,987 63,190 61,788 62,419 58,314 56,520 55,882 50,472 47,499 47,347 53,217

Selling, general and administrative expenses 44,504 47,369 46,282 45,951 46,351 45,298 44,239 41,345 39,530 40,233 49,920

operating profit 16,483 15,820 15,505 16,467 11,962 11,221 11,642 9,126 8,508 7,113 3,296

Income (loss) before income taxes and minority interests 17,940 14,605 21,261 14,726 8,548 9,132 7,485 4,590 (25,265) (1,518) (18,226)

Net income (loss) 10,777 9,139 13,152 12,380 10,401 8,479 8,035 3,477 (19,467) (2,503) (18,416)

ATYEAR-END

Inventories ¥19,810 ¥ 19,651 ¥ 17,073 ¥ 16,468 ¥ 15,655 ¥ 15,842 ¥ 15,278 ¥ 15,897 ¥ 17,844 ¥ 20,450 ¥ 25,247

Property, plant and equipment, net 38,754 40,251 41,289 48,497 47,702 49,219 48,778 45,962 46,883 59,508 67,511

Long-term liabilities 8,970 14,440 21,400 26,287 32,354 39,836 41,972 42,773 47,842 28,784 34,341

Total liabilities 52,855 62,734 73,760 79,482 83,040 94,129 99,066 114,686 122,803 119,918 131,290

Total net assets2 73,968 72,411 69,618 54,625 38,824 28,933 15,994 11,256 7,510 27,302 33,317

Total assets 126,824 135,146 143,378 135,158 122,674 124,011 116,101 126,541 130,504 147,441 164,840

OTHERSELECTEDDATA

Capital expenditures for property, plant and equipment ¥5,479 ¥3,124 ¥ 3,906 ¥ 4,090 ¥2,441 ¥3,631 ¥ 6,131 ¥ 1,316 ¥ 1,033 ¥ 1,903 ¥4,595

R&D expenses 3,958 4,368 4,829 4,856 5,372 5,423 5,315 4,466 4,596 4,548 6,241

Depreciation 3,298 3,396 2,777 2,761 2,782 2,517 2,868 3,138 3,653 4,446 4,806

Free cash flow 7,293 1,309 23,521 12,145 3,311 7,931 (11,006) 18,987 12,674 14,989 –

PERSHAREDATA(YEN)

Net income (loss) ¥152.80 ¥ 129.57 ¥186.43 ¥173.62 ¥145.81 ¥118.97 ¥113.61 ¥ 49.14 ¥(277.06) ¥ (35.42) ¥(260.74)

Dividends 34.00 23.00 17.00 14.00 12.00 13.00 – – – – –

Net assets2 1,037.76 1,015.46 970.50 772.34 548.39 408.54 226.38 159.08 107.35 386.34 471.50

FINANCIALRATIOS(%)

As a percentage of net sales:

Gross profit 67.8% 66.7% 67.7% 69.0% 68.7% 68.8% 68.6% 67.3% 65.0% 65.8% 62.1%

Selling, general and administrative expenses 49.4 50.0 50.7 50.8 54.6 55.1 54.3 55.2 53.5 55.9 58.4

operating profit 18.3 16.7 17.0 18.2 14.1 13.7 14.3 12.2 11.5 9.9 3.9

Income (loss) before income taxes and minority interests 19.9 15.4 23.3 16.3 10.1 11.1 9.2 6.1 –34.2 –2.1 –21.3

Net income (loss) 12.0 9.6 14.4 13.7 12.3 10.3 9.9 4.6 –26.4 –3.5 –21.5

Return on assets (RoA) 12.6 11.4 11.1 12.8 9.7 9.4 9.6 7.1 6.1 4.6 1.9

Return on equity (RoE) 14.9 13.1 21.3 26.5 30.7 37.8 59.0 37.1 –111.8 –8.3 –42.9

Current ratio 157.2 142.3 133.7 107.7 106.9 99.1 91.5 89.5 80.4 65.3 67.01 Including credit (debit) for allowance for sales returns. 2 Due to a change in accounting standards, figures for the fiscal year ended March 2006 and prior years are net shareholders’ equity.

44 45

TSumuRA’SBuSINESSour principal business is the manufacture and sale of

pharmaceutical products, including primarily prescription

Kampo formulations covered under the NhI plan as well

as oTC Kampo formulation. We also used to manufacture and

market quasi drugs—mainly as bath additives and hair-growth

agents—that incorporated the results of our research on

Kampo medicines and medicinal plants as well as other

household products, such as cosmetics, sundries, and others.

however, with the sale of all of the shares of Tsumura

Lifescience Co., Ltd., on August 29, 2008, we now focus only

on pharmaceutical products.

OvErvIEw OF rESULTS

¥ in millions, except ratios and dividends per share 2009 2008 2007

Net sales ¥90,016 ¥94,799 ¥91,227Gross profit 60,987 63,190 61,788 Gross profit margin 67.8% 66.7% 67.7%operating profit ¥16,483 ¥15,820 ¥15,505 operating profit margin 18.3% 16.7% 17.0%Net income ¥10,777 ¥ 9,139 ¥13,152RoE 14.9% 13.1% 21.3%Dividends per share ¥34.0 ¥ 23.0 ¥ 17.0Interest-bearing debt 25,412 29,723 35,705

INCOmESTATEmENTNet Sales

In April 2008, the Japanese government implemented an

average reduction of 5.2% in the standard prices of pharma-

ceuticals under the NhI plan. With the continued trend toward

curtailing medical expenses, the business environment

remained difficult.

Under these circumstances, the Tsumura continued

activities to strengthen its organization for the purpose of

establishing Kampo medicine and promoting drug fostering

and the evolution of Kampo. As a result, despite the impact of

the average reduction of 3.3% in the prices of Tsumura’s

products under the NhI plan, sales of prescription Kampo

products exceeded those of the previous fiscal year, resulting

in year-on-year growth in pharmaceutical sales.

Nevertheless, due to the sale of all of shares in household

products subsidiary Tsumura Lifescience on August 29, 2008,

it is no longer a consolidated subsidiary, resulting in the loss of

its contribution to revenues. Consequently, combined sales by

the pharmaceutical products and household products seg-

ments fell 5.0% from a year earlier, to ¥90,016 million.

TSumuRA’SFINANCIALHISTORYTsumura’s Kampo product sales were only ¥1.87 billion

in 1976 but grew steadily after approval under the National

health Insurance (NhI) plan that same year of 33 of Tsumura’s

prescription Kampo products. In the following three years,

Tsumura’s Kampo product sales surged to ¥10 billion. By 1987,

the Company had a total of 129 prescription Kampo products

approved under the NhI plan. Later, clinical data was

announced demonstrating the efficacy of TJ-9 (Shosaikoto), a

Kampo medicine for colds, in treating chronic hepatitis. This

news helped drive Tsumura’s sales of prescription Kampo

products to approximately ¥100 billion in 1991. of this amount,

about one-third was sales of TJ-9 (Shosaikoto).

Unfortunately, during this period, news of an unexpected

side effect from treatment with TJ-9 (Shosaikoto) emerged.

Although the frequency of occurrence of interstitial pneumonia

caused by treatment with TJ-9 (Shosaikoto) was low compared

with Western drugs, the public’s confidence was shaken

because it was commonly believed that Kampo medicines did

not have any side effects. This news had a negative impact on

the public’s image of Kampo medicines and consequently

sales slumped.

As a result, Tsumura changed its business policy drastically,

switching to one specializing in the development of the Kampo

medicines business. Under the revised business policy, the

Company focused its efforts on patiently promoting the popu-

larization of Kampo through actions aimed at disseminating a

proper understanding and awareness of Kampo medicine

among students at medical schools, clinical physicians, and

consumers. Specifically, the Company promoted the spread of

Kampo medicine education at medical schools, implemented

Kampo medicine seminars for clinical physicians, and held

public lectures on Kampo medicine for consumers. As a result

of these efforts, sales bottomed out in the fiscal year ended

March 2000 and have continued to rebound since then—as

has Tsumura’s financial position.

MANAgEMENT’S dISCUSSION ANd ANALySIS

106.9

0

80

160

0

50

100

83.1%

05 06 07 08 09

jApANESE MArkET SIzE FOr prESCrIpTION kAMpO FOrMULATIONS* ¥ Billion/%

Tsumura’s Share

90.0

0

60

120

05 06 07 08 09

NET SALES¥ Billion

TOTAL LIABILITIES/EQUITy rATIO¥ Billion/%

NET SALES/OpErATINg prOFIT MArgIN¥ Billion/%

100 30

200 60

0 090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 08 0907

80 10

160 20

0 090 91A 92B 93 94 95C 96 97D,E 98F 99 00 01 02G 03 04 05H,I 06 08 09

90

18.3%

53

57.7%

07

Start of movement to establish Kampo medicine

A First reports of interstitial pneumonia as a possible side effect of TJ-9 (Shosaikoto)

B Interferon receives indication for hepatitis C; warning issued on use of TJ-9 (Shosaikoto)

C Contraindication on combined use of Shosaikoto and Interferon

D Extensive media coverage of possible side effects of TJ-9 (Shosaikoto)

E First reported TJ-9 (Shosaikoto) -related deaths

F Junichi Yoshii becomes director of pharmaceuticals division

G Education ministry introduces model core curriculum—outline of Kampo drugs approved

h Junichi Yoshii becomes president I Kampo education available at all 80

Japanese medical schools*NhI listed price

Equity ratio

operating profit margin

44 45

TSumuRA’SBuSINESSour principal business is the manufacture and sale of

pharmaceutical products, including primarily prescription

Kampo formulations covered under the NhI plan as well

as oTC Kampo formulation. We also used to manufacture and

market quasi drugs—mainly as bath additives and hair-growth

agents—that incorporated the results of our research on

Kampo medicines and medicinal plants as well as other

household products, such as cosmetics, sundries, and others.

however, with the sale of all of the shares of Tsumura

Lifescience Co., Ltd., on August 29, 2008, we now focus only

on pharmaceutical products.

OvErvIEw OF rESULTS

¥ in millions, except ratios and dividends per share 2009 2008 2007

Net sales ¥90,016 ¥94,799 ¥91,227Gross profit 60,987 63,190 61,788 Gross profit margin 67.8% 66.7% 67.7%operating profit ¥16,483 ¥15,820 ¥15,505 operating profit margin 18.3% 16.7% 17.0%Net income ¥10,777 ¥ 9,139 ¥13,152RoE 14.9% 13.1% 21.3%Dividends per share ¥34.0 ¥ 23.0 ¥ 17.0Interest-bearing debt 25,412 29,723 35,705

INCOmESTATEmENTNet Sales

In April 2008, the Japanese government implemented an

average reduction of 5.2% in the standard prices of pharma-

ceuticals under the NhI plan. With the continued trend toward

curtailing medical expenses, the business environment

remained difficult.

Under these circumstances, the Tsumura continued

activities to strengthen its organization for the purpose of

establishing Kampo medicine and promoting drug fostering

and the evolution of Kampo. As a result, despite the impact of

the average reduction of 3.3% in the prices of Tsumura’s

products under the NhI plan, sales of prescription Kampo

products exceeded those of the previous fiscal year, resulting

in year-on-year growth in pharmaceutical sales.

Nevertheless, due to the sale of all of shares in household

products subsidiary Tsumura Lifescience on August 29, 2008,

it is no longer a consolidated subsidiary, resulting in the loss of

its contribution to revenues. Consequently, combined sales by

the pharmaceutical products and household products seg-

ments fell 5.0% from a year earlier, to ¥90,016 million.

TSumuRA’SFINANCIALHISTORYTsumura’s Kampo product sales were only ¥1.87 billion

in 1976 but grew steadily after approval under the National

health Insurance (NhI) plan that same year of 33 of Tsumura’s

prescription Kampo products. In the following three years,

Tsumura’s Kampo product sales surged to ¥10 billion. By 1987,

the Company had a total of 129 prescription Kampo products

approved under the NhI plan. Later, clinical data was

announced demonstrating the efficacy of TJ-9 (Shosaikoto), a

Kampo medicine for colds, in treating chronic hepatitis. This

news helped drive Tsumura’s sales of prescription Kampo

products to approximately ¥100 billion in 1991. of this amount,

about one-third was sales of TJ-9 (Shosaikoto).

Unfortunately, during this period, news of an unexpected

side effect from treatment with TJ-9 (Shosaikoto) emerged.

Although the frequency of occurrence of interstitial pneumonia

caused by treatment with TJ-9 (Shosaikoto) was low compared

with Western drugs, the public’s confidence was shaken

because it was commonly believed that Kampo medicines did

not have any side effects. This news had a negative impact on

the public’s image of Kampo medicines and consequently

sales slumped.

As a result, Tsumura changed its business policy drastically,

switching to one specializing in the development of the Kampo

medicines business. Under the revised business policy, the

Company focused its efforts on patiently promoting the popu-

larization of Kampo through actions aimed at disseminating a

proper understanding and awareness of Kampo medicine

among students at medical schools, clinical physicians, and

consumers. Specifically, the Company promoted the spread of

Kampo medicine education at medical schools, implemented

Kampo medicine seminars for clinical physicians, and held

public lectures on Kampo medicine for consumers. As a result

of these efforts, sales bottomed out in the fiscal year ended

March 2000 and have continued to rebound since then—as

has Tsumura’s financial position.


106.9

0

80

160

0

50

100

83.1%

05 06 07 08 09

jApANESE MArkET SIzE FOr prESCrIpTION kAMpO FOrMULATIONS* ¥ Billion/%

Tsumura’s Share

90.0

0

60

120

05 06 07 08 09

NET SALES¥ Billion

TOTAL LIABILITIES/EQUITy rATIO¥ Billion/%

NET SALES/OpErATINg prOFIT MArgIN¥ Billion/%

100 30

200 60

0 090 91 92 93 94 95 96 97 98 99 00 01 02 03 04 05 06 08 0907

80 10

160 20

0 090 91A 92B 93 94 95C 96 97D,E 98F 99 00 01 02G 03 04 05H,I 06 08 09

90

18.3%

53

57.7%

07

Start of movement to establish Kampo medicine

A First reports of interstitial pneumonia as a possible side effect of TJ-9 (Shosaikoto)

B Interferon receives indication for hepatitis C; warning issued on use of TJ-9 (Shosaikoto)

C Contraindication on combined use of Shosaikoto and Interferon

D Extensive media coverage of possible side effects of TJ-9 (Shosaikoto)

E First reported TJ-9 (Shosaikoto) -related deaths

F Junichi Yoshii becomes director of pharmaceuticals division

G Education ministry introduces model core curriculum—outline of Kampo drugs approved

h Junichi Yoshii becomes president I Kampo education available at all 80

Japanese medical schools*NhI listed price

Equity ratio

operating profit margin

46 47

SEgmENTINFORmATIONpharmaceutical products

Supported by such initiatives as our drives to establish Kampo

medicine and to promote drug fostering and the evolution of

Kampo, sales of Tsumura’s core products, prescription Kampo

products, rose year on year. A total of 115 of Tsumura’s

129 prescription Kampo products posted gains in

sales from a year earlier. In particular, TJ-43 (Rikkunshito),

TJ-54 (Yokukansan), and TJ-100 (Daikenchuto), the prescrip-

tion Kampo products Tsumura is promoting under its drug fos-

tering and evolution of Kampo program, performed well. Along

with progress achieved in a variety of clinical trials

and basic research programs as well as the accumulation of

scientific evidence of efficacy, sales of the three prescription

Kampo products climbed 18.3% from the previous fiscal year,

driving growth in overall Kampo medicines sales.

As a result, sales of pharmaceutical products increased

7.9% from the previous year, to ¥87,249 million. operating

income increased 9.0%, to ¥16,481 million, and operating

profit margin improved 0.2 percentage point, to 18.9%.

Household products

household products subsidiary Tsumura Lifescience is no

longer a consolidated subsidiary following Tsumura’s sale of all

of its shares in the subsidiary on August 29, 2008. Conse-

quently, sales of household products fell 80.1% year on year,

to ¥2,766 million. operating income amounted to ¥1 million.

SEgMENT rESULTS

¥ in millions 2009 2008 2007

Net sales: Pharmaceutical products ¥87,249 ¥80,874 ¥76,182 household products 2,766 13,925 15,044operating income: Pharmaceutical products 16,481 15,118 14,550 household products 1 702 954


Cost of Sales

Among the factors behind the increase in the cost of sales was

a more than 10% increase in the production of prescription

Kampo products on a unit basis. however, there were also

factors that reduced the cost of sales. The removal of Tsumura

Lifescience from consolidation lowered cost of sales. Cost of

sales was also lower due to the shift of approximately ¥700

million of expenses from our logistics subsidiary LoGITEM

TSUMURA Co., LTD., which had previously been recognized

in cost of sales as selling, general and administrative expenses.

As a result, cost of sales declined 8.1%, to ¥29,040 million.

Gross profit fell 3.5%, to ¥60,987 million.

Due to higher factory operating rates to keep up with the

increased sales volume of prescription Kampo products

and Groupwide efforts to improve operating efficiency, the

cost of sales ratio declined 1.1 percentage points year on

year, to 32.3%.

Selling, general and Administrative (Sg&A) Expenses

Selling, general and administrative (SG&A) expenses declined

6.0%, to ¥44,504 million. The SG&A expenses margin

declined 0.6 percentage point, to 49.4%, based on the

Company’s efforts to make more efficient use of operating

expenses.

Sales promotion expenses declined 24.0%, to ¥4,356

million, while advertising cost decreased 42.8%, to ¥1,495

million, and salaries and allowances dropped 4.8%, to

¥15,806 million. Research and development expenses

declined 9.4% year on year, to ¥3,958 million. on the other

hand, sales growth pushed sales rebate expenses up 4.0%,

to ¥6,224 million.

MAjOr Sg&A ExpENSES

¥ in millions 2009 2008 2007

Personnel expenses ¥24,667 ¥25,125 ¥24,318Sales promotion expenses 4,356 5,731 5,574Advertising cost 1,495 2,612 2,605R&D expenses 3,958 4,368 4,829

Operating profit

operating profit grew 4.2%, to ¥16,483 million. on the other

hand, the operating profit margin increased 1.6 percentage

points, to 18.3%.

Net Income

Consolidated net income for the fiscal year rose 17.9% from

the previous year, to ¥10,777 million. The primary reason

for this increase was the extraordinary gain of ¥1,350 million

realized on the sale of all shares of Tsumura Lifescience and

of ¥1,738 million realized on the sale of the production and

sales rights for its external-use anti-fungal drug for ethical use

ASTAT to Maruho Co., Ltd. Net income per share increased to

¥152.80 per share, compared with ¥129.57 per share in the

previous fiscal year.

16.5

0

10

20

05 06 07 08 09

OpErATINg prOFIT¥ Billion

10.8

0

8

16

0

100

200

152.8

05 06 07 08 09

NET INCOME/NET INCOME pEr SHArE¥ Billion/¥

29.0

0

20

40

0

20

40

32.3%

05 06 07 08 09

COST OF SALES/COST OF SALES rATIO¥ Billion/%

44.5

0

30

60

0

30

60

49.4%

05 06 07 08 09

Sg&A ExpENSES/ Sg&A ExpENSES MArgIN¥ Billion/%

4.0

0

5

10

05 06 07 08 09

r&d ExpENSES¥ Billion

SG&A Expenses Margin Cost of Sales Ratio Net Income per Share

46 47

SEgmENTINFORmATIONpharmaceutical products

Supported by such initiatives as our drives to establish Kampo

medicine and to promote drug fostering and the evolution of

Kampo, sales of Tsumura’s core products, prescription Kampo

products, rose year on year. A total of 115 of Tsumura’s

129 prescription Kampo products posted gains in

sales from a year earlier. In particular, TJ-43 (Rikkunshito),

TJ-54 (Yokukansan), and TJ-100 (Daikenchuto), the prescrip-

tion Kampo products Tsumura is promoting under its drug fos-

tering and evolution of Kampo program, performed well. Along

with progress achieved in a variety of clinical trials

and basic research programs as well as the accumulation of

scientific evidence of efficacy, sales of the three prescription

Kampo products climbed 18.3% from the previous fiscal year,

driving growth in overall Kampo medicines sales.

As a result, sales of pharmaceutical products increased

7.9% from the previous year, to ¥87,249 million. operating

income increased 9.0%, to ¥16,481 million, and operating

profit margin improved 0.2 percentage point, to 18.9%.

Household products

household products subsidiary Tsumura Lifescience is no

longer a consolidated subsidiary following Tsumura’s sale of all

of its shares in the subsidiary on August 29, 2008. Conse-

quently, sales of household products fell 80.1% year on year,

to ¥2,766 million. operating income amounted to ¥1 million.

SEgMENT rESULTS

¥ in millions 2009 2008 2007

Net sales: Pharmaceutical products ¥87,249 ¥80,874 ¥76,182 household products 2,766 13,925 15,044operating income: Pharmaceutical products 16,481 15,118 14,550 household products 1 702 954


Cost of Sales

Among the factors behind the increase in the cost of sales was

a more than 10% increase in the production of prescription

Kampo products on a unit basis. however, there were also

factors that reduced the cost of sales. The removal of Tsumura

Lifescience from consolidation lowered cost of sales. Cost of

sales was also lower due to the shift of approximately ¥700

million of expenses from our logistics subsidiary LoGITEM

TSUMURA Co., LTD., which had previously been recognized

in cost of sales as selling, general and administrative expenses.

As a result, cost of sales declined 8.1%, to ¥29,040 million.

Gross profit fell 3.5%, to ¥60,987 million.

Due to higher factory operating rates to keep up with the

increased sales volume of prescription Kampo products

and Groupwide efforts to improve operating efficiency, the

cost of sales ratio declined 1.1 percentage points year on

year, to 32.3%.

Selling, general and Administrative (Sg&A) Expenses

Selling, general and administrative (SG&A) expenses declined

6.0%, to ¥44,504 million. The SG&A expenses margin

declined 0.6 percentage point, to 49.4%, based on the

Company’s efforts to make more efficient use of operating

expenses.

Sales promotion expenses declined 24.0%, to ¥4,356

million, while advertising cost decreased 42.8%, to ¥1,495

million, and salaries and allowances dropped 4.8%, to

¥15,806 million. Research and development expenses

declined 9.4% year on year, to ¥3,958 million. on the other

hand, sales growth pushed sales rebate expenses up 4.0%,

to ¥6,224 million.

MAjOr Sg&A ExpENSES

¥ in millions 2009 2008 2007

Personnel expenses ¥24,667 ¥25,125 ¥24,318Sales promotion expenses 4,356 5,731 5,574Advertising cost 1,495 2,612 2,605R&D expenses 3,958 4,368 4,829

Operating profit

operating profit grew 4.2%, to ¥16,483 million. on the other

hand, the operating profit margin increased 1.6 percentage

points, to 18.3%.

Net Income

Consolidated net income for the fiscal year rose 17.9% from

the previous year, to ¥10,777 million. The primary reason

for this increase was the extraordinary gain of ¥1,350 million

realized on the sale of all shares of Tsumura Lifescience and

of ¥1,738 million realized on the sale of the production and

sales rights for its external-use anti-fungal drug for ethical use

ASTAT to Maruho Co., Ltd. Net income per share increased to

¥152.80 per share, compared with ¥129.57 per share in the

previous fiscal year.

16.5

0

10

20

05 06 07 08 09

OpErATINg prOFIT¥ Billion

10.8

0

8

16

0

100

200

152.8

05 06 07 08 09

NET INCOME/NET INCOME pEr SHArE¥ Billion/¥

29.0

0

20

40

0

20

40

32.3%

05 06 07 08 09

COST OF SALES/COST OF SALES rATIO¥ Billion/%

44.5

0

30

60

0

30

60

49.4%

05 06 07 08 09

Sg&A ExpENSES/ Sg&A ExpENSES MArgIN¥ Billion/%

4.0

0

5

10

05 06 07 08 09

r&d ExpENSES¥ Billion

SG&A Expenses Margin Cost of Sales Ratio Net Income per Share

48 49

LIquIDITYANDCAPITALRESOuRCESCash Flows

Net cash provided by operating activities amounted to ¥10,634

million during the fiscal year, expanding ¥5,276 million year on

year. Although trade notes and accounts receivable increased

and trade payables decreased due to greater sales growth,

income before income taxes and minority interests expanded

and income taxes paid declined.

Net cash used in investing activities amounted to ¥3,341

million, falling ¥708 million from the previous year. Among the

factors contributing to the decline were an increase in cash

outflow due to deposits of time deposits and purchases of

property, plant and equipment. Cash inflow declined because

of the sale and redemption of investment securities, but the

gain on sale of the shares of Tsumura Lifescience resulted in

an overall cash inflow.

Net cash used in financing activities amounted to ¥6,354

million, declining ¥1,065 million from a year earlier. While cash

inflows from short-term borrowings decreased and payment of

dividends increased, repayment of bank loans and repayment

of long-term debt declined.

As a result of the above activities, the balance of cash and

cash equivalents at the end of the fiscal year was ¥14,596

million, an increase of ¥878 million from the beginning of the

fiscal year.

BALANCESHEETBALANCE SHEET dATA

¥ in millions, except ratio and book value per share 2009 2008 2007

Total assets ¥126,824 ¥135,146 ¥143,378Net assets 73,968 72,411 69,618Current ratio (%) 157.2% 142.3% 133.7%Debt-to-equity ratio (times) 0.35 0.41 0.52Equity ratio (%) 57.7% 53.0% 47.7%Book value per share (¥) ¥1,037.76 ¥1,015.46 ¥970.50

Assets

Compared with the end of the previous fiscal year, total current

assets expanded ¥278 million, to ¥69,003 million.

As a result of the decline in assets resulting from the

exclusion of Tsumura Lifescience from consolidation and in

investment securities resulting from the drop in stock prices,

fixed assets decreased ¥8,601 million, to ¥57,821 million.

Consequently, total assets amounted to ¥126,824 million,

contracting ¥8,322 million from a year earlier.

Liabilities

As a result of the exclusion of Tsumura Lifescience from

consolidation and the redemption of interest-bearing debt,

total current liabilities decreased ¥4,409 million year on year,

to ¥43,885 million. Long-term liabilities fell ¥5,470 million, to

¥8,970 million. Interest-bearing debt declined ¥4,311 million,

to ¥25,412 million.

Consequently, total liabilities at the end of the fiscal year

contracted ¥9,879 million from the prior year, to ¥52,855

million.

Net Assets

At fiscal year-end, net assets amounted to ¥73,968 million,

rising ¥1,557 million from a year earlier. Despite decreases in

the unrealized holding gain on other securities due to declines

in stock prices, net of taxes, and in translation adjustments,

growth in retained earnings supported an overall increase in

net assets. The equity ratio improved 4.7 percentage points,

to 57.7%.

FINANCIALPOLICYSeeking to improve capital efficiency and further enhance

profitability, Tsumura’s management has positioned RoA as

an important performance indicator. During the fiscal year

under review, RoA improved 1.2 percentage points, to 12.6%,

because of an increase in operating profit and a decrease in

total assets. Tsumura’s management will continue its efforts to

improve RoA.

To increase profitability, the Company is working to build

free cash flow and optimize its capital structure. Efforts to

reduce interest-bearing debt during the fiscal year resulted

in the equity ratio improving 4.7 percentage points, to 57.7%,

the debt-to-equity ratio declining to 0.35 times from 0.41

times last year.

Tsumura is committed to continuing its efforts to implement

thoroughly efficient operations and strengthen its financial

structure.

DIvIDENDPOLICYTsumura places great importance on returning profits to share-

holders. The Company’s basic dividend policy is to maintain

dividend payouts after taking fully into consideration the build-

ing of internally generated funds for business expansion, con-

solidated performance for the fiscal year, and the dividend

payout ratio. The Company is expanding internally generated

funds to invest in facilities and R&D that will contribute to an

increase in corporate value.

For the fiscal year under review, Tsumura increased total

annual dividends by ¥11.0 per share, to ¥34.0 per share,

resulting in the dividend payout ratio advancing 4.5 percentage

points, to 22.3%.


74.0

0

50

100

0

30

60

57.7%

05 06 07 08 09

NET ASSETS/EQUITy rATIO¥ Billion/%

10.6

0

8

16

05 06 07 08 09

NET CASH prOvIdEd By OpErATINg ACTIvITIES¥ Billion

126.8

0

80

160

0

10

20

12.6%

05 06 07 08 09

TOTAL ASSETS/rOA¥ Billion/%

25.4

0

30

60

05 06 07 08 09

INTErEST-BEArINg dEBT¥ Billion

RoA Equity Ratio

48 49

LIquIDITYANDCAPITALRESOuRCESCash Flows

Net cash provided by operating activities amounted to ¥10,634

million during the fiscal year, expanding ¥5,276 million year on

year. Although trade notes and accounts receivable increased

and trade payables decreased due to greater sales growth,

income before income taxes and minority interests expanded

and income taxes paid declined.

Net cash used in investing activities amounted to ¥3,341

million, falling ¥708 million from the previous year. Among the

factors contributing to the decline were an increase in cash

outflow due to deposits of time deposits and purchases of

property, plant and equipment. Cash inflow declined because

of the sale and redemption of investment securities, but the

gain on sale of the shares of Tsumura Lifescience resulted in

an overall cash inflow.

Net cash used in financing activities amounted to ¥6,354

million, declining ¥1,065 million from a year earlier. While cash

inflows from short-term borrowings decreased and payment of

dividends increased, repayment of bank loans and repayment

of long-term debt declined.

As a result of the above activities, the balance of cash and

cash equivalents at the end of the fiscal year was ¥14,596

million, an increase of ¥878 million from the beginning of the

fiscal year.

BALANCESHEETBALANCE SHEET dATA

¥ in millions, except ratio and book value per share 2009 2008 2007

Total assets ¥126,824 ¥135,146 ¥143,378Net assets 73,968 72,411 69,618Current ratio (%) 157.2% 142.3% 133.7%Debt-to-equity ratio (times) 0.35 0.41 0.52Equity ratio (%) 57.7% 53.0% 47.7%Book value per share (¥) ¥1,037.76 ¥1,015.46 ¥970.50

Assets

Compared with the end of the previous fiscal year, total current

assets expanded ¥278 million, to ¥69,003 million.

As a result of the decline in assets resulting from the

exclusion of Tsumura Lifescience from consolidation and in

investment securities resulting from the drop in stock prices,

fixed assets decreased ¥8,601 million, to ¥57,821 million.

Consequently, total assets amounted to ¥126,824 million,

contracting ¥8,322 million from a year earlier.

Liabilities

As a result of the exclusion of Tsumura Lifescience from

consolidation and the redemption of interest-bearing debt,

total current liabilities decreased ¥4,409 million year on year,

to ¥43,885 million. Long-term liabilities fell ¥5,470 million, to

¥8,970 million. Interest-bearing debt declined ¥4,311 million,

to ¥25,412 million.

Consequently, total liabilities at the end of the fiscal year

contracted ¥9,879 million from the prior year, to ¥52,855

million.

Net Assets

At fiscal year-end, net assets amounted to ¥73,968 million,

rising ¥1,557 million from a year earlier. Despite decreases in

the unrealized holding gain on other securities due to declines

in stock prices, net of taxes, and in translation adjustments,

growth in retained earnings supported an overall increase in

net assets. The equity ratio improved 4.7 percentage points,

to 57.7%.

FINANCIALPOLICYSeeking to improve capital efficiency and further enhance

profitability, Tsumura’s management has positioned RoA as

an important performance indicator. During the fiscal year

under review, RoA improved 1.2 percentage points, to 12.6%,

because of an increase in operating profit and a decrease in

total assets. Tsumura’s management will continue its efforts to

improve RoA.

To increase profitability, the Company is working to build

free cash flow and optimize its capital structure. Efforts to

reduce interest-bearing debt during the fiscal year resulted

in the equity ratio improving 4.7 percentage points, to 57.7%,

the debt-to-equity ratio declining to 0.35 times from 0.41

times last year.

Tsumura is committed to continuing its efforts to implement

thoroughly efficient operations and strengthen its financial

structure.

DIvIDENDPOLICYTsumura places great importance on returning profits to share-

holders. The Company’s basic dividend policy is to maintain

dividend payouts after taking fully into consideration the build-

ing of internally generated funds for business expansion, con-

solidated performance for the fiscal year, and the dividend

payout ratio. The Company is expanding internally generated

funds to invest in facilities and R&D that will contribute to an

increase in corporate value.

For the fiscal year under review, Tsumura increased total

annual dividends by ¥11.0 per share, to ¥34.0 per share,

resulting in the dividend payout ratio advancing 4.5 percentage

points, to 22.3%.


74.0

0

50

100

0

30

60

57.7%

05 06 07 08 09

NET ASSETS/EQUITy rATIO¥ Billion/%

10.6

0

8

16

05 06 07 08 09

NET CASH prOvIdEd By OpErATINg ACTIvITIES¥ Billion

126.8

0

80

160

0

10

20

12.6%

05 06 07 08 09

TOTAL ASSETS/rOA¥ Billion/%

25.4

0

30

60

05 06 07 08 09

INTErEST-BEArINg dEBT¥ Billion

RoA Equity Ratio

50 51

RISkFACTORSIn the following discussion of risk factors, major risks related

to the Group’s businesses that may exert a significant influence

on investors’ judgment are outlined. From the standpoint of

proactive information disclosure, we have included references

to matters that do not necessarily constitute risk factors but we

believe are important for investors to consider. The Tsumura

Group will strive to avoid the materialization of such risks; how-

ever, should such risks materialize, we will endeavor to mini-

mize their impact.

This discussion includes issues that are not yet pertinent

to the Group’s performance. however, they have been included

as management has deemed them important as of the date of

publication of this annual report.

(1) Medical system

In the pharmaceutical industry, changes to medical care

systems exert a major influence on the market environment.

Depending on the direction of change, a negative effect on the

industry as a whole and on the Tsumura Group could result.

(2) Competition

In Japan, we have long maintained a dominant position in

the field of prescription Kampo products, which is the

mainstay of the Group. however, if a major domestic or foreign

pharmaceuticals company entered the Kampo medicines

market, competition would intensify further, and the Group’s

performance could suffer.

(3) Product supply

Approximately 80% of the medicinal plants that constitute the

main ingredients of the Tsumura’s Kampo formulations are

imported from China, and some processes in the production of

Kampo products are commissioned to subsidiaries situated in

China. Because most of the medicinal plants grow wild, we are

researching the cultivation of major medicinal plants for the

future. however, in the event of unforeseeable changes in legal

regulations or political or economic conditions, it could become

difficult to secure or import sufficient quantities. In addition,

bad weather, natural disasters, or wars could destabilize social

conditions, creating instability in the circulation of demand of

the raw materials and supply of them procured domestically

and internationally for the manufacture of products, which could

have a negative impact on the supply of products due to hikes

in the market prices of the raw materials or

scarcity of their supply. Likewise, while we have incorporated

earthquake-resistant features in construction and conduct

regular inspections of equipment and facilities within Japan,

we cannot completely guarantee that the functioning of our

facilities will not be hampered or lost in the event of a massive

earthquake, fire, power outage, or other disaster. The Group’s

social standing or performance could be negatively affected

should the supply of products be interrupted or delayed due

to the above.

(4) Product safety and side effects

In the manufacturing of the Group’s products, we strictly

adhere to the quality control standards of the countries in

which we operate. however, we cannot completely guarantee

that there will not be a defect or safety problem, including

undetected pesticide residue on a medicinal plant used in a

Kampo product. In addition, should consumers experience

unexpected side effects from a pharmaceutical product

marketed by the Tsumura Group, the existing methods of use

may be restricted, and a loss of confidence in the Group and

its pharmaceutical products may result in a drop in the dispen-

sation of our medicines or in patients’ refusal to take them. The

Tsumura Group’s performance may suffer if a situation such as

the above results in a decline in sales volume, demands for

large amounts of damage compensation, or a large-scale

recall, among other possibilities.

(5) R&D

In the interest of future growth and better corporate perfor-

mance, the Tsumura Group conducts R&D activities related to

new products and new technologies both in Japan and abroad.

however, we cannot guarantee that all of these activities will be

successful. The Group’s performance could suffer if for some

reason R&D activities were canceled or delayed or if costs

increased significantly.

(6) International business

The Tsumura Group engages in the manufacture and sale

of pharmaceuticals in China, Southeast Asian nations, the

United States, and other foreign countries. Because of this

involvement in international business, it is possible for the

Group to be negatively affected by unforeseeable changes in

legal regulations or in political, economic, or other conditions.

(7) Financial condition

The Group’s performance could be negatively affected by

such conditions as sharp increases in declining share prices or

increased retirement liabilities arising from a drop in the

discount rate.

(8) Intellectual property

We cannot guarantee the full protection of the intellectual

property owned by the Group in relation to Kampo products,

and others. The Group’s performance may be negatively

affected if there were leakage of such information, leading to a

decline in competitiveness.

(9) Exchange rate fluctuations

The Group imports from China most of the medicinal plants

used in the Kampo products that it markets. Therefore,

a sharp upswing in the value of the Chinese Renminbi (RMB)

relative to the U.S. dollar could increase medicinal plant prices,

raise the cost of Kampo products, and impact negatively on the

Group’s performance.


50 51

RISkFACTORSIn the following discussion of risk factors, major risks related

to the Group’s businesses that may exert a significant influence

on investors’ judgment are outlined. From the standpoint of

proactive information disclosure, we have included references

to matters that do not necessarily constitute risk factors but we

believe are important for investors to consider. The Tsumura

Group will strive to avoid the materialization of such risks; how-

ever, should such risks materialize, we will endeavor to mini-

mize their impact.

This discussion includes issues that are not yet pertinent

to the Group’s performance. however, they have been included

as management has deemed them important as of the date of

publication of this annual report.

(1) Medical system

In the pharmaceutical industry, changes to medical care

systems exert a major influence on the market environment.

Depending on the direction of change, a negative effect on the

industry as a whole and on the Tsumura Group could result.

(2) Competition

In Japan, we have long maintained a dominant position in

the field of prescription Kampo products, which is the

mainstay of the Group. however, if a major domestic or foreign

pharmaceuticals company entered the Kampo medicines

market, competition would intensify further, and the Group’s

performance could suffer.

(3) Product supply

Approximately 80% of the medicinal plants that constitute the

main ingredients of the Tsumura’s Kampo formulations are

imported from China, and some processes in the production of

Kampo products are commissioned to subsidiaries situated in

China. Because most of the medicinal plants grow wild, we are

researching the cultivation of major medicinal plants for the

future. however, in the event of unforeseeable changes in legal

regulations or political or economic conditions, it could become

difficult to secure or import sufficient quantities. In addition,

bad weather, natural disasters, or wars could destabilize social

conditions, creating instability in the circulation of demand of

the raw materials and supply of them procured domestically

and internationally for the manufacture of products, which could

have a negative impact on the supply of products due to hikes

in the market prices of the raw materials or

scarcity of their supply. Likewise, while we have incorporated

earthquake-resistant features in construction and conduct

regular inspections of equipment and facilities within Japan,

we cannot completely guarantee that the functioning of our

facilities will not be hampered or lost in the event of a massive

earthquake, fire, power outage, or other disaster. The Group’s

social standing or performance could be negatively affected

should the supply of products be interrupted or delayed due

to the above.

(4) Product safety and side effects

In the manufacturing of the Group’s products, we strictly

adhere to the quality control standards of the countries in

which we operate. however, we cannot completely guarantee

that there will not be a defect or safety problem, including

undetected pesticide residue on a medicinal plant used in a

Kampo product. In addition, should consumers experience

unexpected side effects from a pharmaceutical product

marketed by the Tsumura Group, the existing methods of use

may be restricted, and a loss of confidence in the Group and

its pharmaceutical products may result in a drop in the dispen-

sation of our medicines or in patients’ refusal to take them. The

Tsumura Group’s performance may suffer if a situation such as

the above results in a decline in sales volume, demands for

large amounts of damage compensation, or a large-scale

recall, among other possibilities.

(5) R&D

In the interest of future growth and better corporate perfor-

mance, the Tsumura Group conducts R&D activities related to

new products and new technologies both in Japan and abroad.

however, we cannot guarantee that all of these activities will be

successful. The Group’s performance could suffer if for some

reason R&D activities were canceled or delayed or if costs

increased significantly.

(6) International business

The Tsumura Group engages in the manufacture and sale

of pharmaceuticals in China, Southeast Asian nations, the

United States, and other foreign countries. Because of this

involvement in international business, it is possible for the

Group to be negatively affected by unforeseeable changes in

legal regulations or in political, economic, or other conditions.

(7) Financial condition

The Group’s performance could be negatively affected by

such conditions as sharp increases in declining share prices or

increased retirement liabilities arising from a drop in the

discount rate.

(8) Intellectual property

We cannot guarantee the full protection of the intellectual

property owned by the Group in relation to Kampo products,

and others. The Group’s performance may be negatively

affected if there were leakage of such information, leading to a

decline in competitiveness.

(9) Exchange rate fluctuations

The Group imports from China most of the medicinal plants

used in the Kampo products that it markets. Therefore,

a sharp upswing in the value of the Chinese Renminbi (RMB)

relative to the U.S. dollar could increase medicinal plant prices,

raise the cost of Kampo products, and impact negatively on the

Group’s performance.


52 53

CONSOLIdATEd BALANCE SHEETSTSUMURA & Co. AND SUBSIDIARIES

MARCh 31, 2009 AND 2008

US$ in thousands ¥ in millions (Note 2)

ASSETS 2009 2008 2009

Current assets

Cash and time deposits (Note 13) ¥14,603 ¥ 13,833 $148,666

Trade notes and accounts receivable 31,156 30,383 317,181

Less allowance for doubtful receivables (6) (14) (70)

Securities (Note 4) – 109 –

Inventories (Note 5) 19,810 19,651 201,671

Deferred tax assets (Note 8) 1,536 2,379 15,639

other current assets 1,903 2,382 19,381

Total current assets 69,003 68,724 702,469

Investments and other assets

Investments in non-consolidated subsidiaries and affiliates 736 837 7,492

Investment securities (Note 4) 13,851 21,633 141,010

Long-term loans 15 28 158

Deffered tax assets (Note 8) 1,395 64 14,206

other assets 2,689 2,384 27,375

Less allowance for doubtful accounts (28) (70) (285)

Total investments and other assets 18,659 24,879 189,957

property, plant and equipment, at cost (Note 7)

Land (Note 6) 9,211 10,426 93,778

Buildings and structures 43,736 46,716 445,249

Machinery and equipment 27,050 29,883 275,383

Tools, furniture and fixtures 5,815 7,234 59,205

Construction in progress 1,341 1,050 13,658

others 64 – 654

Less accumulated depreciation (48,466) (55,060) (493,399)

Property, plant and equipment, net 38,754 40,251 394,530

Intangible assets, net of accumulated amortization 406 1,290 4,140

deferred assets – 0 –

Total assets ¥126,824 ¥135,146 $1,291,098


LIABILITIESANDNETASSETS 2009 2008 2009

Current liabilities

Short-term bank loans (Note 7) ¥23,290 ¥ 23,738 $237,096

Current portion of long-term debt (Note 7) 2,056 3,765 20,935

Trade payables 2,354 3,467 23,967

Income taxes payable (Note 8) 3,888 3,516 39,582

Accounts payable—other 7,432 8,463 75,669

Allowance for sales returns 12 62 122

other current liabilities 4,851 5,280 49,389

Total current liabilities 43,885 48,294 446,761

Long-term liabilities

Long-term debt, less current portion (Note 7) 65 2,069 668

Deferred tax liabilities other than unrealized revaluation gain on land (Note 8) 0 2,202 0

Deferred tax liability—unrealized revaluation gain on land (Note 6) 1,773 2,048 18,056

Accrued employees’ retirement and severance benefits (Note 9) 1,395 1,526 14,204

Guaranty money received 5,651 5,998 57,531

other long-term liabilities 84 594 857

Total long-term liabilities 8,970 14,440 91,320

Contingent liabilities (Note 15)

Net assets (Note 10)

Shareholders’ equity

Common stock

Authorized—250,000,000 shares in 2009 and 2008;

Issued and outstanding—70,771,662 shares in 2009 and 2008 19,487 19,487 198,389

Capital surplus 1,940 1,940 19,756

Retained earnings 52,868 44,349 538,208

Treasury stock, at cost (379) (368) (3,858)

Total shareholders’ equity 73,917 65,409 752,495

valuation, translation adjustments and others

Unrealized holding gain (loss) on other securities, net of taxes (1,129) 4,680 (11,500)

Deferred profit (loss) on hedges, net of taxes (264) (685) (2,694)

Unrealized revaluation gain on land, net of taxes (Note 6) 1,775 2,041 18,072

Translation adjustments (1,106) 176 (11,267)

Total valuation, translation adjustments and others (725) 6,213 (7,390)

Minority interests in consolidated subsidiaries 777 788 7,911

Total net assets 73,968 72,411 753,016

Total liabilities and net assets ¥126,824 ¥135,146 $1,291,098See notes to consolidated financial statements.

52 53

CONSOLIdATEd BALANCE SHEETSTSUMURA & Co. AND SUBSIDIARIES

MARCh 31, 2009 AND 2008


ASSETS 2009 2008 2009

Current assets

Cash and time deposits (Note 13) ¥14,603 ¥ 13,833 $148,666

Trade notes and accounts receivable 31,156 30,383 317,181

Less allowance for doubtful receivables (6) (14) (70)

Securities (Note 4) – 109 –

Inventories (Note 5) 19,810 19,651 201,671

Deferred tax assets (Note 8) 1,536 2,379 15,639

other current assets 1,903 2,382 19,381

Total current assets 69,003 68,724 702,469

Investments and other assets

Investments in non-consolidated subsidiaries and affiliates 736 837 7,492

Investment securities (Note 4) 13,851 21,633 141,010

Long-term loans 15 28 158

Deffered tax assets (Note 8) 1,395 64 14,206

other assets 2,689 2,384 27,375

Less allowance for doubtful accounts (28) (70) (285)

Total investments and other assets 18,659 24,879 189,957

property, plant and equipment, at cost (Note 7)

Land (Note 6) 9,211 10,426 93,778

Buildings and structures 43,736 46,716 445,249

Machinery and equipment 27,050 29,883 275,383

Tools, furniture and fixtures 5,815 7,234 59,205

Construction in progress 1,341 1,050 13,658

others 64 – 654

Less accumulated depreciation (48,466) (55,060) (493,399)

Property, plant and equipment, net 38,754 40,251 394,530

Intangible assets, net of accumulated amortization 406 1,290 4,140

deferred assets – 0 –

Total assets ¥126,824 ¥135,146 $1,291,098


LIABILITIESANDNETASSETS 2009 2008 2009

Current liabilities

Short-term bank loans (Note 7) ¥23,290 ¥ 23,738 $237,096

Current portion of long-term debt (Note 7) 2,056 3,765 20,935

Trade payables 2,354 3,467 23,967

Income taxes payable (Note 8) 3,888 3,516 39,582

Accounts payable—other 7,432 8,463 75,669

Allowance for sales returns 12 62 122

other current liabilities 4,851 5,280 49,389

Total current liabilities 43,885 48,294 446,761

Long-term liabilities

Long-term debt, less current portion (Note 7) 65 2,069 668

Deferred tax liabilities other than unrealized revaluation gain on land (Note 8) 0 2,202 0

Deferred tax liability—unrealized revaluation gain on land (Note 6) 1,773 2,048 18,056

Accrued employees’ retirement and severance benefits (Note 9) 1,395 1,526 14,204

Guaranty money received 5,651 5,998 57,531

other long-term liabilities 84 594 857

Total long-term liabilities 8,970 14,440 91,320

Contingent liabilities (Note 15)

Net assets (Note 10)

Shareholders’ equity

Common stock

Authorized—250,000,000 shares in 2009 and 2008;

Issued and outstanding—70,771,662 shares in 2009 and 2008 19,487 19,487 198,389

Capital surplus 1,940 1,940 19,756

Retained earnings 52,868 44,349 538,208

Treasury stock, at cost (379) (368) (3,858)

Total shareholders’ equity 73,917 65,409 752,495

valuation, translation adjustments and others

Unrealized holding gain (loss) on other securities, net of taxes (1,129) 4,680 (11,500)

Deferred profit (loss) on hedges, net of taxes (264) (685) (2,694)

Unrealized revaluation gain on land, net of taxes (Note 6) 1,775 2,041 18,072

Translation adjustments (1,106) 176 (11,267)

Total valuation, translation adjustments and others (725) 6,213 (7,390)

Minority interests in consolidated subsidiaries 777 788 7,911

Total net assets 73,968 72,411 753,016

Total liabilities and net assets ¥126,824 ¥135,146 $1,291,098See notes to consolidated financial statements.

54 55


2009 2008 2007 2009

Net sales ¥90,016 ¥94,799 ¥91,227 $916,387

Cost of sales (Note 5) 29,040 31,614 29,463 295,634

gross profit before reversal of allowance for sales returns 60,976 63,184 61,763 620,753

Reversal of allowance for sales returns 11 5 25 115

gross profit 60,987 63,190 61,788 620,869

Selling, general and administrative expenses (Note 12) 44,504 47,369 46,282 453,065

Operating profit 16,483 15,820 15,505 167,803

Other income (expenses)

Interest and dividends received 432 399 326 4,402

Interest expenses (542) (702) (1,215) (5,519)

Equity in income (loss) of affiliates (6) 45 45 (66)

Loss on disposition of inventories – (117) (196) –

Loss on sales and disposition of property, plant and equipment (392) (210) (373) (3,998)

Impairment losses on fixed assets (Note 18) (653) (964) (897) (6,652)

Reversal of allowance for doubtful accounts – – 32 –

Gain on sales of property, plant and equipment 0 3 7,912 5

Gain on sales of investment securities 270 767 – 2,752

Gain (loss) on sale of investments in subsidiaries and affiliates 1,350 (171) – 13,746

Gain on sale of distribution rights 1,738 – – 17,696

Plant renovation expenses (772) – – (7,859)

Demolition expenses (222) – – (2,269)

other, net 254 (264) 123 2,591

Total other income (expenses) 1,456 (1,215) 5,756 14,830

Income before income taxes and minority interests 17,940 14,605 21,261 182,633

Income taxes (Note 8)

Current 6,316 5,874 8,294 64,307

Deferred 717 (433) (246) 7,300

Subtotal 7,034 5,441 8,048 71,607

Minority interests (128) (24) (60) (1,311)

Net income ¥10,777 ¥ 9,139 ¥13,152 $109,713See notes to consolidated financial statements.

CONSOLIdATEd STATEMENTS OF CHANgES IN NET ASSETS TSUMURA & Co. AND SUBSIDIARIES

FoR ThE YEARS ENDED MARCh 31, 2009, 2008 AND 2007

Number of

¥ in millions

shares of Total common stock Common Capital Retained Treasury shareholders’ (Thousands) stock surplus earnings stock equity

Balance at March 31, 2008 70,771 ¥19,487 ¥1,940 ¥44,349 ¥(368) ¥65,409Cash dividends paid (2,115) (2,115)Net income 10,777 10,777 Reversal of unrealized revaluation gain on land (127) (127)Purchase of treasury stock (10) (10)other (15) (15)Net change during the year excluding shareholders’ equity

Balance at March 31, 2009 70,771 ¥19,487 ¥1,940 ¥52,868 ¥(379) ¥73,917 ¥ in millions

Unrealized Deferred Unrealized Total valuation, Minority holding gain (loss) profit (loss) revaluation gain translation interests in on other securities, on hedges, on land, net of Translation adjustments consolidated net of taxes net of taxes taxes (Note 6) adjustments and others subsidiaries Total net assets

Balance at March 31, 2008 ¥ 4,680 ¥ (685) ¥2,041 ¥ 176 ¥ 6,213 ¥788 ¥72,411Cash dividends paid (2,115)Net income 10,777 Reversal of unrealized revaluation gain on land (127)Purchase of treasury stock (10)other (15)Net change during the year excluding shareholders’ equity (5,810) 420 (266) (1,283) (6,939) (11) (6,951)

Balance at March 31, 2009 ¥(1,129) ¥ (264) ¥1,775 ¥(1,106) ¥ (725) ¥777 ¥73,968

Number of

US$ in thousands (Note 2)


Balance at March 31, 2008 70,771 $198,389 $19,756 $451,484 $(3,749) $ 665,880 Cash dividends paid (21,540) (21,540)Net income 109,713 109,713 Reversal of unrealized revaluation gain on land (1,294) (1,294)Purchase of treasury stock (109) (109)other (154) (154)Net change during the year excluding shareholders’ equity

Balance at March 31, 2009 70,771 $198,389 $19,756 $538,208 $(3,858) $752,495 US$ in thousands (Note 2)


Balance at March 31, 2008 $ 47,648 $(6,975) $20,780 $ 1,801 $ 63,255 $8,029 $ 737,165 Cash dividends paid (21,540)Net income 109,713 Reversal of unrealized revaluation gain on land (1,294)Purchase of treasury stock (109)other (154)Net change during the year excluding shareholders’ equity (59,149) 4,280 (2,708) (13,068) (70,646) (117) (70,763)

Balance at March 31, 2009 $(11,500) $(2,694) $18,072 $(11,267) $ (7,390) $7,911 $753,016

See notes to consolidated financial statements.

CONSOLIdATEd STATEMENTS OF INCOMETSUMURA & Co. AND SUBSIDIARIES


54 55


2009 2008 2007 2009

Net sales ¥90,016 ¥94,799 ¥91,227 $916,387

Cost of sales (Note 5) 29,040 31,614 29,463 295,634

gross profit before reversal of allowance for sales returns 60,976 63,184 61,763 620,753

Reversal of allowance for sales returns 11 5 25 115

gross profit 60,987 63,190 61,788 620,869

Selling, general and administrative expenses (Note 12) 44,504 47,369 46,282 453,065

Operating profit 16,483 15,820 15,505 167,803

Other income (expenses)

Interest and dividends received 432 399 326 4,402

Interest expenses (542) (702) (1,215) (5,519)

Equity in income (loss) of affiliates (6) 45 45 (66)

Loss on disposition of inventories – (117) (196) –

Loss on sales and disposition of property, plant and equipment (392) (210) (373) (3,998)

Impairment losses on fixed assets (Note 18) (653) (964) (897) (6,652)

Reversal of allowance for doubtful accounts – – 32 –

Gain on sales of property, plant and equipment 0 3 7,912 5

Gain on sales of investment securities 270 767 – 2,752

Gain (loss) on sale of investments in subsidiaries and affiliates 1,350 (171) – 13,746

Gain on sale of distribution rights 1,738 – – 17,696

Plant renovation expenses (772) – – (7,859)

Demolition expenses (222) – – (2,269)

other, net 254 (264) 123 2,591

Total other income (expenses) 1,456 (1,215) 5,756 14,830

Income before income taxes and minority interests 17,940 14,605 21,261 182,633

Income taxes (Note 8)

Current 6,316 5,874 8,294 64,307

Deferred 717 (433) (246) 7,300

Subtotal 7,034 5,441 8,048 71,607

Minority interests (128) (24) (60) (1,311)

Net income ¥10,777 ¥ 9,139 ¥13,152 $109,713See notes to consolidated financial statements.

CONSOLIdATEd STATEMENTS OF CHANgES IN NET ASSETS TSUMURA & Co. AND SUBSIDIARIES


Number of

¥ in millions


Balance at March 31, 2008 70,771 ¥19,487 ¥1,940 ¥44,349 ¥(368) ¥65,409Cash dividends paid (2,115) (2,115)Net income 10,777 10,777 Reversal of unrealized revaluation gain on land (127) (127)Purchase of treasury stock (10) (10)other (15) (15)Net change during the year excluding shareholders’ equity



Balance at March 31, 2008 ¥ 4,680 ¥ (685) ¥2,041 ¥ 176 ¥ 6,213 ¥788 ¥72,411Cash dividends paid (2,115)Net income 10,777 Reversal of unrealized revaluation gain on land (127)Purchase of treasury stock (10)other (15)Net change during the year excluding shareholders’ equity (5,810) 420 (266) (1,283) (6,939) (11) (6,951)

Balance at March 31, 2009 ¥(1,129) ¥ (264) ¥1,775 ¥(1,106) ¥ (725) ¥777 ¥73,968

Number of

US$ in thousands (Note 2)


Balance at March 31, 2008 70,771 $198,389 $19,756 $451,484 $(3,749) $ 665,880 Cash dividends paid (21,540) (21,540)Net income 109,713 109,713 Reversal of unrealized revaluation gain on land (1,294) (1,294)Purchase of treasury stock (109) (109)other (154) (154)Net change during the year excluding shareholders’ equity

Balance at March 31, 2009 70,771 $198,389 $19,756 $538,208 $(3,858) $752,495 US$ in thousands (Note 2)


Balance at March 31, 2008 $ 47,648 $(6,975) $20,780 $ 1,801 $ 63,255 $8,029 $ 737,165 Cash dividends paid (21,540)Net income 109,713 Reversal of unrealized revaluation gain on land (1,294)Purchase of treasury stock (109)other (154)Net change during the year excluding shareholders’ equity (59,149) 4,280 (2,708) (13,068) (70,646) (117) (70,763)

Balance at March 31, 2009 $(11,500) $(2,694) $18,072 $(11,267) $ (7,390) $7,911 $753,016


CONSOLIdATEd STATEMENTS OF INCOMETSUMURA & Co. AND SUBSIDIARIES


56 57

Number of

¥ in millions


Balance at March 31, 2007 70,771 ¥19,487 ¥1,940 ¥37,631 ¥ (360) ¥58,699Cash dividends paid (1,410) (1,410)Net income 9,139 9,139Reversal of unrealized revaluation gain on land (1,010) (1,010)Purchase of treasury stock (7) (7)Net change during the year excluding shareholders’ equity

Balance at March 31, 2008 70,771 ¥19,487 ¥1,940 ¥44,349 ¥ (368) ¥65,409 ¥ in millions


Balance at March 31, 2007 ¥ 8,827 ¥ 14 ¥1,030 ¥(117) ¥ 9,755 ¥1,163 ¥69,618Cash dividends paid (1,410)Net income 9,139Reversal of unrealized revaluation gain on land (1,010)Purchase of treasury stock (7)Net change during the year excluding shareholders’ equity (4,147) (699) 1,010 294 (3,542) (374) (3,916)

Balance at March 31, 2008 ¥ 4,680 ¥(685) ¥2,041 ¥ 176 ¥ 6,213 ¥ 788 ¥72,411

Number of

¥ in millions


Balance at March 31, 2006 70,771 ¥19,487 ¥1,940 ¥26,013 ¥(278) ¥47,162Cash dividends paid by distribution of net profit (564) (564)Cash dividends paid (493) (493)Bonuses to directors and corporate auditors by distribution of net profit (120) (120)Net income 13,152 13,152Effect of exclusion of consolidated subsidiaries 5 5Unrealized revaluation gain on land (361) (361)Purchase of treasury stock (81) (81)Net change during the year excluding shareholders’ equity



Balance at March 31, 2006 ¥7,125 ¥ – ¥ 669 ¥(332) ¥7,462 ¥1,051 ¥55,676Cash dividends paid by distribution of net profit (564)Cash dividends paid (493)Bonuses to directors and corporate auditors by distribution of net profit (120)Net income 13,152Effect of exclusion of consolidated subsidiaries 5Unrealized revaluation gain on land (361)Purchase of treasury stock (81)Net change during the year excluding shareholders’ equity 1,702 14 361 215 2,293 111 2,405

Balance at March 31, 2007 ¥8,827 ¥14 ¥1,030 ¥(117) ¥9,755 ¥1,163 ¥69,618


CONSOLIdATEd STATEMENTS OF CASH FLOwS TSUMURA & Co. AND SUBSIDIARIES


¥ in millions US$ in thousands (Note 2)

2009 2008 2007 2009

Cash flows from operating activities: Income before income taxes and minority interests ¥17,940 ¥14,605 ¥21,261 $182,633Adjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities: Depreciation 3,298 3,396 2,777 33,582Impairment losses on fixed assets 653 964 897 6,652Increase (decrease) in allowance for doubtful receivables (44) 8 (144) (447)Interest and dividends received (432) (399) (326) (4,402)Interest expenses 542 702 1,215 5,519Equity in income (loss) of affiliates 6 (45) (45) 66Loss (gain) on sales and disposition of property, plant and equipment 369 137 (7,539) 3,763Gain on sales of investment securities (269) (767) – (2,745)Loss (gain) on sale of investments in subsidiaries and affiliates (1,350) 171 – (13,746)(Increase) in receivables (2,374) (894) (1,769) (24,173)(Increase) in inventories (1,689) (2,679) (538) (17,197)Increase (decrease) in payables and accrued expenses (763) 912 (343) (7,772)Increase (decrease) in accrued employees’ retirement and severance benefits 3 (146) (186) 34 others, net 771 87 (781) 7,852 Subtotal 16,661 16,053 14,479 169,617 Interest and dividends received 453 405 334 4,613Interest paid (579) (705) (1,253) (5,901)Income taxes paid (5,900) (10,394) (873) (60,072) Net cash provided by operating activities 10,634 5,358 12,687 108,257 Cash flows from investing activities: Purchase of property, plant and equipment (4,472) (2,865) (3,258) (45,528)Proceeds from sale of property, plant and equipment 493 14 14,276 5,027Purchase of intangible assets (90) (88) (136) (924)Purchase of investment securities (2,018) (2,312) (12) (20,549)Proceeds from sale and redemption of investment securities 613 1,763 – 6,242Purchase of investments in subsidiaries – (535) – –Payments for sale of investments in subsidiaries resulting in change in scope of consolidation – (106) – –Proceeds from sale of investments in subsidiaries resulting in change in scope of consolidation (Note 13) 4,511 – – 45,924Increase in loans (7) (9) (13) (79)Collection of loans 17 24 129 180Deposits of time deposits (more than three months) (2,512) (47) (78) (25,572)Refunds of time deposits (more than three months) 120 12 57 1,221Purchases of other investments (320) (208) (802) (3,258)Proceeds from sale and collection of other investments 324 309 673 3,305 Net cash provided by (used in) investing activities (3,341) (4,049) 10,834 (34,012)Cash flows from financing activities: Increase in bank loans 1,671 2,603 1,912 17,020 Repayments of bank loans (1,999) (2,722) (6,767) (20,350)Repayments of long-term debt (3,760) (5,885) (7,174) (38,281)Acquisition of treasury stock (10) (7) (81) (109)Proceeds from capital increase in subsidiaries subscribed by minority shareholders – – 5 –Cash dividends (2,114) (1,408) (1,055) (21,530)other (141) – 90 (1,440) Net cash used in financing activities (6,354) (7,419) (13,071) (64,693)Effect of exchange rate changes on cash and cash equivalents (59) 16 36 (610)Net increase (decrease) in cash and cash equivalents 878 (6,094) 10,486 8,941Cash and cash equivalents at beginning of year 13,718 19,812 9,326 139,653Cash and cash equivalents at end of year (Note 13) ¥14,596 ¥13,718 ¥19,812 $148,595


56 57

Number of

¥ in millions


Balance at March 31, 2007 70,771 ¥19,487 ¥1,940 ¥37,631 ¥ (360) ¥58,699Cash dividends paid (1,410) (1,410)Net income 9,139 9,139Reversal of unrealized revaluation gain on land (1,010) (1,010)Purchase of treasury stock (7) (7)Net change during the year excluding shareholders’ equity

Balance at March 31, 2008 70,771 ¥19,487 ¥1,940 ¥44,349 ¥ (368) ¥65,409 ¥ in millions


Balance at March 31, 2007 ¥ 8,827 ¥ 14 ¥1,030 ¥(117) ¥ 9,755 ¥1,163 ¥69,618Cash dividends paid (1,410)Net income 9,139Reversal of unrealized revaluation gain on land (1,010)Purchase of treasury stock (7)Net change during the year excluding shareholders’ equity (4,147) (699) 1,010 294 (3,542) (374) (3,916)

Balance at March 31, 2008 ¥ 4,680 ¥(685) ¥2,041 ¥ 176 ¥ 6,213 ¥ 788 ¥72,411

Number of

¥ in millions


Balance at March 31, 2006 70,771 ¥19,487 ¥1,940 ¥26,013 ¥(278) ¥47,162Cash dividends paid by distribution of net profit (564) (564)Cash dividends paid (493) (493)Bonuses to directors and corporate auditors by distribution of net profit (120) (120)Net income 13,152 13,152Effect of exclusion of consolidated subsidiaries 5 5Unrealized revaluation gain on land (361) (361)Purchase of treasury stock (81) (81)Net change during the year excluding shareholders’ equity



Balance at March 31, 2006 ¥7,125 ¥ – ¥ 669 ¥(332) ¥7,462 ¥1,051 ¥55,676Cash dividends paid by distribution of net profit (564)Cash dividends paid (493)Bonuses to directors and corporate auditors by distribution of net profit (120)Net income 13,152Effect of exclusion of consolidated subsidiaries 5Unrealized revaluation gain on land (361)Purchase of treasury stock (81)Net change during the year excluding shareholders’ equity 1,702 14 361 215 2,293 111 2,405

Balance at March 31, 2007 ¥8,827 ¥14 ¥1,030 ¥(117) ¥9,755 ¥1,163 ¥69,618


CONSOLIdATEd STATEMENTS OF CASH FLOwS TSUMURA & Co. AND SUBSIDIARIES


¥ in millions US$ in thousands (Note 2)

2009 2008 2007 2009

Cash flows from operating activities: Income before income taxes and minority interests ¥17,940 ¥14,605 ¥21,261 $182,633Adjustments to reconcile income before income taxes and minority interests to net cash provided by operating activities: Depreciation 3,298 3,396 2,777 33,582Impairment losses on fixed assets 653 964 897 6,652Increase (decrease) in allowance for doubtful receivables (44) 8 (144) (447)Interest and dividends received (432) (399) (326) (4,402)Interest expenses 542 702 1,215 5,519Equity in income (loss) of affiliates 6 (45) (45) 66Loss (gain) on sales and disposition of property, plant and equipment 369 137 (7,539) 3,763Gain on sales of investment securities (269) (767) – (2,745)Loss (gain) on sale of investments in subsidiaries and affiliates (1,350) 171 – (13,746)(Increase) in receivables (2,374) (894) (1,769) (24,173)(Increase) in inventories (1,689) (2,679) (538) (17,197)Increase (decrease) in payables and accrued expenses (763) 912 (343) (7,772)Increase (decrease) in accrued employees’ retirement and severance benefits 3 (146) (186) 34 others, net 771 87 (781) 7,852 Subtotal 16,661 16,053 14,479 169,617 Interest and dividends received 453 405 334 4,613Interest paid (579) (705) (1,253) (5,901)Income taxes paid (5,900) (10,394) (873) (60,072) Net cash provided by operating activities 10,634 5,358 12,687 108,257 Cash flows from investing activities: Purchase of property, plant and equipment (4,472) (2,865) (3,258) (45,528)Proceeds from sale of property, plant and equipment 493 14 14,276 5,027Purchase of intangible assets (90) (88) (136) (924)Purchase of investment securities (2,018) (2,312) (12) (20,549)Proceeds from sale and redemption of investment securities 613 1,763 – 6,242Purchase of investments in subsidiaries – (535) – –Payments for sale of investments in subsidiaries resulting in change in scope of consolidation – (106) – –Proceeds from sale of investments in subsidiaries resulting in change in scope of consolidation (Note 13) 4,511 – – 45,924Increase in loans (7) (9) (13) (79)Collection of loans 17 24 129 180Deposits of time deposits (more than three months) (2,512) (47) (78) (25,572)Refunds of time deposits (more than three months) 120 12 57 1,221Purchases of other investments (320) (208) (802) (3,258)Proceeds from sale and collection of other investments 324 309 673 3,305 Net cash provided by (used in) investing activities (3,341) (4,049) 10,834 (34,012)Cash flows from financing activities: Increase in bank loans 1,671 2,603 1,912 17,020 Repayments of bank loans (1,999) (2,722) (6,767) (20,350)Repayments of long-term debt (3,760) (5,885) (7,174) (38,281)Acquisition of treasury stock (10) (7) (81) (109)Proceeds from capital increase in subsidiaries subscribed by minority shareholders – – 5 –Cash dividends (2,114) (1,408) (1,055) (21,530)other (141) – 90 (1,440) Net cash used in financing activities (6,354) (7,419) (13,071) (64,693)Effect of exchange rate changes on cash and cash equivalents (59) 16 36 (610)Net increase (decrease) in cash and cash equivalents 878 (6,094) 10,486 8,941Cash and cash equivalents at beginning of year 13,718 19,812 9,326 139,653Cash and cash equivalents at end of year (Note 13) ¥14,596 ¥13,718 ¥19,812 $148,595


58 59

NOTES TO THE CONSOLIdATEd FINANCIAL STATEMENTS TSUMURA & Co. AND SUBSIDIARIES

FoR ThE YEAR ENDED MARCh 31, 2009

(a) Basis of presentation

The accompanying consolidated financial statements of Tsumura

& Co. (the “Company”) and consolidated subsidiaries are pre-

pared on the basis of accounting principles generally accepted

in Japan, which are different in certain respects as to the appli-

cation and disclosure requirements of International Financial

Reporting Standards, and are compiled from the consolidated

financial statements prepared by the Company as required by the

Financial Instruments and Exchange Law of Japan (the “FIEL”).

As permitted by the FIEL, amounts of less than one million

yen have been omitted. As a result, the totals shown in the

accompanying consolidated financial statements (both in yen

and in U.S. dollars) do not necessarily agree with the sums of

the individual amounts.

Certain amounts in the prior year’s financial statements have

been reclassified to conform to the current year’s presentation.

(b) Principles of consolidation and accounting for investments in

unconsolidated subsidiaries and affiliates

The consolidated financial statements include the accounts of

the Company and its five significant subsidiaries for the year

ended March 31, 2009, its six significant subsidiaries for the

year ended March 31, 2008 and seven significant subsidiaries

for the year ended 2007. All significant inter-company balances

and transactions have been eliminated in consolidation.

The equity method is applied to investments in significant

affiliates in accordance with the provisions of the Regulation for

Consolidated Financial Statements.

Investments in non-consolidated subsidiaries and other affili-

ates are stated at cost. If the equity method had been applied to

the investments in these companies, there would have been no

material effect in the accompanying consolidated financial

statements.

Assets and liabilities of consolidated subsidiaries acquired

before April 1, 1999, were valued at cost. It is the Company’s

policy to value the Company’s interests in subsidiaries acquired

on and after April 1, 1999, at their fair values at the date of

purchase.

The difference between the cost and the underlying net equity

in consolidated subsidiaries at the date of acquisition (“Goodwill”

or “Negative goodwill”) is amortized on a straight-line basis over

the estimated useful life, not exceeding 20 years. In case where

the difference is immaterial, it is expensed in the year incurred.

Tsumura Lifescience Co., Ltd. was excluded from the Company’s

consolidated subsidiaries from second quarter of the year ended

March 31, 2009, as a result of the sale of all of the shares to

PLUMERIA. Co., Ltd on August 29, 2008.

(Change in Accounting Policies)

Effective from the year ended March 31, 2009, the Company

has adopted the ASBJ Practical Issues Task Force (PITF) No.18

“Practical solution on Unification of Accounting Policies Applied

to Foreign Subsidiaries for the Consolidated Financial

Statements” issued by the ASBJ on May 17, 2006 and made

revisions required for consolidated accounting.

The effect of adopting the PITF on income for the year ended

March 31, 2009 is immaterial.

(c) Accounting period

The accounting period of the Company begins on April 1 and

ends on March 31 of the following year. The three overseas

consolidated subsidiaries have fiscal years ending on December

31. The necessary adjustments for significant transactions, if

any, during the intervening period are made on consolidation.

(d) Translation of foreign currencies

Monetary assets and liabilities denominated in foreign currencies

are translated into yen at the rates in effect at the balance sheet

date and the accounts of the overseas consolidated subsidiaries,

etc., except for the components of shareholders’ equity, which

are translated into yen at the rates of exchange in effect at the

balance sheet date. Foreign exchange gains and losses are cred-

ited or charged to operations and translation differences are

included in net assets.

(e) Cash and cash equivalents

Cash and cash equivalents in the cash flows statement consist

of cash on hand, demand deposits and liquid short-term invest-

ments with a maturity of three months or less from acquisition

date.

(f) Marketable securities and investment securities

Trading securities are carried at market value and held-to-

maturity securities are amortized or accumulated to face value.

Money in trust with a market value is carried at market value.

other securities with determinable market value are carried

at market value with any changes in unrealized holding gain or

loss in net assets. other securities without determinable market

value are stated at cost determined principally by the moving

average method. The cost of other securities sold is principally

computed based on the moving average method. During the

years ended March 31, 2009 and 2008, the Company and its

consolidated subsidiaries did not have any trading securities.

(g) Inventories

Inventories of the Company and its subsidiaries are mainly stated

at cost determined by the average cost method of reducing book

value when the contribution of inventories to profitability

declines.

(Accounting change—Measurement in inventories)


has adopted “Accounting Standards for Measurement of

Inventories” (Financial Accounting Standard No.9 issued by the

ASBJ on July 5, 2006).

As a result of this change, operating profit decreased by ¥145

million (U.S.$1,476 thousand) and income before income taxes

and minority interests decreased by ¥33 million (U.S.$341

thousand).

(h) Property, plant and equipment (except for leased assets)

Property, plant and equipment are stated at cost. Depreciation of

property, plant and equipment of the Ibaraki Plant and the labo-

ratory of the Company, the plant of Tsumura Lifescience, Inc.,

and property of domestic subsidiaries except for Tsumura

Lifescience Inc., is computed by the straight-line method.

Depreciation of other assets except for buildings (excluding

structures attached to the buildings) is computed by the declin-

ing balance method. Depreciation of buildings, excluding

structures, acquired on and after April 1, 1998, is computed by

the straight-line method.

The estimated useful lives of the major depreciable assets are

as follows:

Buildings and structures 3 to 65 years

Machinery and equipment 3 to 8 years

(Fiscal 2008)

(Additional Information)

Effective the year ended March 31, 2008, after having depreci-

ated property, plant and equipment acquired before March 31,

2007 up to 5% of the acquisition cost based on the prior corpo-

rate tax law, the Company and its certain domestic consolidated

subsidiaries have depreciated the difference between 5% of the

acquisition cost and the memorandum price, using a straight-line

method over 5 years and expensed as depreciation. Such

straight-line depreciation starts from the following year when the

book value of fixed assets acquired before March 31, 2007

reaches 5% of the acquisition cost. As a result, for the year

ended March 31, 2008, operating income and income before

income taxes and minority interests decreased ¥219 million

each. Also, net income decreased ¥130 million.

(Fiscal 2009)


The Company and its domestic consolidated subsidiaries have

reassessed the useful life of machinery and equipment, in accor-

dance with a revision of the Corporate Tax Law. As a result, gross

profit increased by ¥109 million (U.S.$1,118 thousand), operat-

ing profit and income before income taxes and minority interests

increased by ¥115 million (U.S.$1,179 thousand).

(i) Intangible assets (except for leased assets)

Intangible assets are amortized by the straight-line method.

Cost of software purchased for internal use is amortized by the

straight-line method over five years, the useful life applicable to

commercially available software.

(j) Allowance for doubtful receivables

The Company and its domestic subsidiaries provide allowances

for losses on bad debts at the amounts estimated specifically on

each doubtful receivable and the amounts calculated based on

past experience for receivables other than specific doubtful

receivables.

(k) Allowance for sales returns

Allowance for sales returns is provided for estimated losses on

sales returns subsequent to the balance sheet date.

(l) Employees’ retirement and severance benefits

Employees of the Company and domestic subsidiaries who

terminate their employment are entitled to lump-sum or retire-

ment pension or severance benefits based on length of service

and level of compensation at the time of termination of employment.

The Company maintains a combination plan of cash-balanced

plan, defined contribution plan and employees’ pension fund

plan (multiple employer plan).

The Company’s domestic subsidiaries maintain employees’

pension fund (multiple employer plan) and a tax qualified funded

pension plan.

Accrued retirement and severance benefits are provided

based on the estimated retirement and severance benefits

obligation and the pension fund assets.

Actuarial gains and losses and past service obligations are

amortized using the straight-line method over 10 years, which is

within the estimated average of remaining service years of

employees.

(m) directors’ retirement and severance benefits

At the Company’s shareholders’ meeting held on June 29, 2005,

the Company abolished providing retirement and severance ben-

efits to directors and corporate statutory auditors and accrued

the accumulated benefits to those eligible who had been in

office as of the date of resolution at the shareholders’ meeting.

The accrued benefits of ¥122 million were reclassfied as other

long-term liabilities for the year ended March 31, 2008.

NoTE 1:SummARYOFSIgNIFICANTACCOuNTINgPOLICIES

58 59

NOTES TO THE CONSOLIdATEd FINANCIAL STATEMENTS TSUMURA & Co. AND SUBSIDIARIES

FoR ThE YEAR ENDED MARCh 31, 2009

(a) Basis of presentation

The accompanying consolidated financial statements of Tsumura

& Co. (the “Company”) and consolidated subsidiaries are pre-

pared on the basis of accounting principles generally accepted

in Japan, which are different in certain respects as to the appli-

cation and disclosure requirements of International Financial

Reporting Standards, and are compiled from the consolidated

financial statements prepared by the Company as required by the

Financial Instruments and Exchange Law of Japan (the “FIEL”).

As permitted by the FIEL, amounts of less than one million

yen have been omitted. As a result, the totals shown in the

accompanying consolidated financial statements (both in yen

and in U.S. dollars) do not necessarily agree with the sums of

the individual amounts.

Certain amounts in the prior year’s financial statements have

been reclassified to conform to the current year’s presentation.

(b) Principles of consolidation and accounting for investments in

unconsolidated subsidiaries and affiliates

The consolidated financial statements include the accounts of

the Company and its five significant subsidiaries for the year

ended March 31, 2009, its six significant subsidiaries for the

year ended March 31, 2008 and seven significant subsidiaries

for the year ended 2007. All significant inter-company balances

and transactions have been eliminated in consolidation.

The equity method is applied to investments in significant

affiliates in accordance with the provisions of the Regulation for

Consolidated Financial Statements.

Investments in non-consolidated subsidiaries and other affili-

ates are stated at cost. If the equity method had been applied to

the investments in these companies, there would have been no

material effect in the accompanying consolidated financial

statements.

Assets and liabilities of consolidated subsidiaries acquired

before April 1, 1999, were valued at cost. It is the Company’s

policy to value the Company’s interests in subsidiaries acquired

on and after April 1, 1999, at their fair values at the date of

purchase.

The difference between the cost and the underlying net equity

in consolidated subsidiaries at the date of acquisition (“Goodwill”

or “Negative goodwill”) is amortized on a straight-line basis over

the estimated useful life, not exceeding 20 years. In case where

the difference is immaterial, it is expensed in the year incurred.

Tsumura Lifescience Co., Ltd. was excluded from the Company’s

consolidated subsidiaries from second quarter of the year ended

March 31, 2009, as a result of the sale of all of the shares to

PLUMERIA. Co., Ltd on August 29, 2008.

(Change in Accounting Policies)


has adopted the ASBJ Practical Issues Task Force (PITF) No.18

“Practical solution on Unification of Accounting Policies Applied

to Foreign Subsidiaries for the Consolidated Financial

Statements” issued by the ASBJ on May 17, 2006 and made

revisions required for consolidated accounting.

The effect of adopting the PITF on income for the year ended

March 31, 2009 is immaterial.

(c) Accounting period

The accounting period of the Company begins on April 1 and

ends on March 31 of the following year. The three overseas

consolidated subsidiaries have fiscal years ending on December

31. The necessary adjustments for significant transactions, if

any, during the intervening period are made on consolidation.

(d) Translation of foreign currencies

Monetary assets and liabilities denominated in foreign currencies

are translated into yen at the rates in effect at the balance sheet

date and the accounts of the overseas consolidated subsidiaries,

etc., except for the components of shareholders’ equity, which

are translated into yen at the rates of exchange in effect at the

balance sheet date. Foreign exchange gains and losses are cred-

ited or charged to operations and translation differences are

included in net assets.

(e) Cash and cash equivalents

Cash and cash equivalents in the cash flows statement consist

of cash on hand, demand deposits and liquid short-term invest-

ments with a maturity of three months or less from acquisition

date.

(f) Marketable securities and investment securities

Trading securities are carried at market value and held-to-

maturity securities are amortized or accumulated to face value.

Money in trust with a market value is carried at market value.

other securities with determinable market value are carried

at market value with any changes in unrealized holding gain or

loss in net assets. other securities without determinable market

value are stated at cost determined principally by the moving

average method. The cost of other securities sold is principally

computed based on the moving average method. During the

years ended March 31, 2009 and 2008, the Company and its

consolidated subsidiaries did not have any trading securities.

(g) Inventories

Inventories of the Company and its subsidiaries are mainly stated

at cost determined by the average cost method of reducing book

value when the contribution of inventories to profitability

declines.

(Accounting change—Measurement in inventories)


has adopted “Accounting Standards for Measurement of

Inventories” (Financial Accounting Standard No.9 issued by the

ASBJ on July 5, 2006).

As a result of this change, operating profit decreased by ¥145

million (U.S.$1,476 thousand) and income before income taxes

and minority interests decreased by ¥33 million (U.S.$341

thousand).

(h) Property, plant and equipment (except for leased assets)

Property, plant and equipment are stated at cost. Depreciation of

property, plant and equipment of the Ibaraki Plant and the labo-

ratory of the Company, the plant of Tsumura Lifescience, Inc.,

and property of domestic subsidiaries except for Tsumura

Lifescience Inc., is computed by the straight-line method.

Depreciation of other assets except for buildings (excluding

structures attached to the buildings) is computed by the declin-

ing balance method. Depreciation of buildings, excluding

structures, acquired on and after April 1, 1998, is computed by

the straight-line method.

The estimated useful lives of the major depreciable assets are

as follows:

Buildings and structures 3 to 65 years

Machinery and equipment 3 to 8 years

(Fiscal 2008)


Effective the year ended March 31, 2008, after having depreci-

ated property, plant and equipment acquired before March 31,

2007 up to 5% of the acquisition cost based on the prior corpo-

rate tax law, the Company and its certain domestic consolidated

subsidiaries have depreciated the difference between 5% of the

acquisition cost and the memorandum price, using a straight-line

method over 5 years and expensed as depreciation. Such

straight-line depreciation starts from the following year when the

book value of fixed assets acquired before March 31, 2007

reaches 5% of the acquisition cost. As a result, for the year

ended March 31, 2008, operating income and income before

income taxes and minority interests decreased ¥219 million

each. Also, net income decreased ¥130 million.

(Fiscal 2009)


The Company and its domestic consolidated subsidiaries have

reassessed the useful life of machinery and equipment, in accor-

dance with a revision of the Corporate Tax Law. As a result, gross

profit increased by ¥109 million (U.S.$1,118 thousand), operat-

ing profit and income before income taxes and minority interests

increased by ¥115 million (U.S.$1,179 thousand).

(i) Intangible assets (except for leased assets)

Intangible assets are amortized by the straight-line method.

Cost of software purchased for internal use is amortized by the

straight-line method over five years, the useful life applicable to

commercially available software.

(j) Allowance for doubtful receivables

The Company and its domestic subsidiaries provide allowances

for losses on bad debts at the amounts estimated specifically on

each doubtful receivable and the amounts calculated based on

past experience for receivables other than specific doubtful

receivables.

(k) Allowance for sales returns

Allowance for sales returns is provided for estimated losses on

sales returns subsequent to the balance sheet date.

(l) Employees’ retirement and severance benefits

Employees of the Company and domestic subsidiaries who

terminate their employment are entitled to lump-sum or retire-

ment pension or severance benefits based on length of service

and level of compensation at the time of termination of employment.

The Company maintains a combination plan of cash-balanced

plan, defined contribution plan and employees’ pension fund

plan (multiple employer plan).


pension fund (multiple employer plan) and a tax qualified funded

pension plan.

Accrued retirement and severance benefits are provided

based on the estimated retirement and severance benefits

obligation and the pension fund assets.

Actuarial gains and losses and past service obligations are

amortized using the straight-line method over 10 years, which is

within the estimated average of remaining service years of

employees.

(m) directors’ retirement and severance benefits

At the Company’s shareholders’ meeting held on June 29, 2005,

the Company abolished providing retirement and severance ben-

efits to directors and corporate statutory auditors and accrued

the accumulated benefits to those eligible who had been in

office as of the date of resolution at the shareholders’ meeting.

The accrued benefits of ¥122 million were reclassfied as other

long-term liabilities for the year ended March 31, 2008.

NoTE 1:SummARYOFSIgNIFICANTACCOuNTINgPOLICIES

60 61

NOTES TO THE CONSOLIdATEd FINANCIAL STATEMENTS

The consolidated financial statements presented herein are

expressed in yen and, solely for the convenience of the reader,

have been translated into U.S. dollars at ¥98.23=U.S.$1.00, the

approximate exchange rate prevailing on the Tokyo Foreign

Exchange Market on March 31, 2009. This translation should not

be construed as a representation that the amounts shown could

have been, or could in the future be, converted into U.S. dollars

at that or any other rate.

(Fiscal 2008)

(Accounting Standards for Depreciation)


and its domestic consolidated subsidiaries have changed their

depreciation method in terms of property, plant and equipment

acquired after April 1, 2007 in accordance with the corporation

tax law as amended. As a result, for the year ended March 31,

2008, operating profit and income before income taxes and

minority interests decreased ¥37 million each, compared with

the figures under the previous method. Also, net income

decreased ¥22 million.

The cost and related aggregate market values of securities, other than those held for trading and held-to-maturity purposes, with a

readily available market value at March 31, 2009 and 2008 are summarized as follows:

¥ in millions US$ in thousands

2009 2008 2009

Cost ¥15,382 ¥13,909 $156,599Market value 13,518 21,610 137,621Total unrealized gain 1,105 7,803 11,256Total unrealized loss (2,969) (101) (30,234)

Securities as of March 31, 2009 and 2008, which are excluded from the above tables are summarized at their book values as follows:


2009 2008 2009

Non-current assets: Unlisted stocks other than those on the over-the-counter market ¥332 ¥131 $3,388

Securities, other than those held for trading and held-to-maturity purposes which were sold during the years ended March 31,

2009, 2008 and 2007 are summarized as follows:


2009 2008 2007 2009

Proceeds received ¥533 ¥1,763 ¥ – $5,427Total profit 270 767 – 2,752Total loss 0 – – 6

The redemption schedule of securities, other than those held for trading and held-to-maturity purposes, with maturity dates at

March 31, 2009 and 2008 are summarized as follows:


2009 2008 2009

one year and less ¥– ¥109 $–More than one year and within five years – – –More than five years and within ten years 1,012 – 10,302

The Company recognized impairment losses on all securities whose market value had declined by 50% or more of book value and

on some securities whose market value had declined by 30% or more of book value. Impairment losses were, if any, recognized at the

amount of the difference between book value and market value. Impairment loss on securities for the year ended March 31, 2009 was

nil. Impairment losses on securities for the year ended March 31, 2008 and 2007 were nil and ¥0 million on securities that do not

have a market value, respectively.

NoTE 2:BASISOFTRANSLATION

NoTE 3:APPLICATIONOFNEwACCOuNTINgSTANDARDS

NoTE 4:mARkETABLESECuRITIES(n) Leased assets

Leased assets under finance lease transactions that do not

transfer ownership to the lessee are depreciated under the

straight line method over the lease term with no residual value.

Among finance lease transactions that do not transfer owner-

ship to the lessee, those lease transactions that commenced on

or before March 31,2008, are accounted for in the same manner

as operating lease transactions in accordance with generally

accepted accounting standards.

(Change in accounting policies)

The Company and domestic subsidiaries had previously

accounted for finance lease transactions that do not transfer

ownership in the same manner as ordinary operating lease trans-

actions. Effective from the consolidated year ended March 31,

2009, the Companies adopted the “Accounting Standards for

Lease Transactions” (ASBJ Statement No.13, revised on March

30, 2007) and “Implementation Guidance on Accounting

Standards for Lease Transactions” (ASBJ Guidance No.16,

revised on March 30, 2007).

Finance lease transactions that do not transfer ownership, and

that commenced before the initial year of the adoption of new

accounting standards are still accounted for in the same manner

as operating lease transactions.

This accounting treatment has no impact on income.

(o) Income taxes

Deferred tax assets and liabilities are determined based on the

differences between financial reporting and the tax bases of the

assets and liabilities and are measured using the enacted tax

rates and laws which will be in effect when the differences are

expected to reverse.

(p) Accounting for consumption taxes

Consumption taxes imposed on sales to customers of the

Company and its subsidiaries are withheld by the Company and

its subsidiaries at the time of sale and subsequently paid to the

government. Consumption taxes withheld upon sale are not

included in net sales in the accompanying statements of income

but are recorded as a liability, “consumption taxes payable”.

Consumption taxes which are paid by the Company and its sub-

sidiaries on the purchases of goods and services from outside

the Group are also not included in costs or expenses in the

accompanying statements of income but are offset against con-

sumption taxes payable. The net balance is reflected as

consumption taxes payable, which is included in other current

liabilities in the accompanying consolidated balance sheets at

March 31, 2009 and 2008.

(q) reclassifications

Certain prior year amounts have been reclassified to conform to

the 2009 presentation. These changes had no impact on previ-

ously reported results of operations or net assets.

Inventories at March 31, 2009 and 2008 consisted of the following:


2009 2008 2009

Merchandise and finished goods ¥3,775 ¥ 4,250 $38,439 Work in process 6,442 6,430 65,586Raw materials and supplies 9,591 8,970 97,645Total ¥19,810 ¥19,651 $201,671

Inventories at March 31, 2009 are stated at net selling value. Inventories valuation loss included in cost of sales is ¥145 million

(U.S.$1,476 thousand).

NoTE 5:INvENTORIES

60 61


The consolidated financial statements presented herein are

expressed in yen and, solely for the convenience of the reader,

have been translated into U.S. dollars at ¥98.23=U.S.$1.00, the

approximate exchange rate prevailing on the Tokyo Foreign

Exchange Market on March 31, 2009. This translation should not

be construed as a representation that the amounts shown could

have been, or could in the future be, converted into U.S. dollars

at that or any other rate.

(Fiscal 2008)

(Accounting Standards for Depreciation)


and its domestic consolidated subsidiaries have changed their

depreciation method in terms of property, plant and equipment

acquired after April 1, 2007 in accordance with the corporation

tax law as amended. As a result, for the year ended March 31,

2008, operating profit and income before income taxes and

minority interests decreased ¥37 million each, compared with

the figures under the previous method. Also, net income

decreased ¥22 million.

The cost and related aggregate market values of securities, other than those held for trading and held-to-maturity purposes, with a

readily available market value at March 31, 2009 and 2008 are summarized as follows:


2009 2008 2009

Cost ¥15,382 ¥13,909 $156,599Market value 13,518 21,610 137,621Total unrealized gain 1,105 7,803 11,256Total unrealized loss (2,969) (101) (30,234)

Securities as of March 31, 2009 and 2008, which are excluded from the above tables are summarized at their book values as follows:


2009 2008 2009

Non-current assets: Unlisted stocks other than those on the over-the-counter market ¥332 ¥131 $3,388

Securities, other than those held for trading and held-to-maturity purposes which were sold during the years ended March 31,

2009, 2008 and 2007 are summarized as follows:


2009 2008 2007 2009

Proceeds received ¥533 ¥1,763 ¥ – $5,427Total profit 270 767 – 2,752Total loss 0 – – 6

The redemption schedule of securities, other than those held for trading and held-to-maturity purposes, with maturity dates at

March 31, 2009 and 2008 are summarized as follows:


2009 2008 2009

one year and less ¥– ¥109 $–More than one year and within five years – – –More than five years and within ten years 1,012 – 10,302

The Company recognized impairment losses on all securities whose market value had declined by 50% or more of book value and

on some securities whose market value had declined by 30% or more of book value. Impairment losses were, if any, recognized at the

amount of the difference between book value and market value. Impairment loss on securities for the year ended March 31, 2009 was

nil. Impairment losses on securities for the year ended March 31, 2008 and 2007 were nil and ¥0 million on securities that do not

have a market value, respectively.

NoTE 2:BASISOFTRANSLATION

NoTE 3:APPLICATIONOFNEwACCOuNTINgSTANDARDS

NoTE 4:mARkETABLESECuRITIES(n) Leased assets

Leased assets under finance lease transactions that do not

transfer ownership to the lessee are depreciated under the

straight line method over the lease term with no residual value.

Among finance lease transactions that do not transfer owner-

ship to the lessee, those lease transactions that commenced on

or before March 31,2008, are accounted for in the same manner

as operating lease transactions in accordance with generally

accepted accounting standards.

(Change in accounting policies)

The Company and domestic subsidiaries had previously

accounted for finance lease transactions that do not transfer

ownership in the same manner as ordinary operating lease trans-

actions. Effective from the consolidated year ended March 31,

2009, the Companies adopted the “Accounting Standards for

Lease Transactions” (ASBJ Statement No.13, revised on March

30, 2007) and “Implementation Guidance on Accounting

Standards for Lease Transactions” (ASBJ Guidance No.16,

revised on March 30, 2007).

Finance lease transactions that do not transfer ownership, and

that commenced before the initial year of the adoption of new

accounting standards are still accounted for in the same manner

as operating lease transactions.

This accounting treatment has no impact on income.

(o) Income taxes

Deferred tax assets and liabilities are determined based on the

differences between financial reporting and the tax bases of the

assets and liabilities and are measured using the enacted tax

rates and laws which will be in effect when the differences are

expected to reverse.

(p) Accounting for consumption taxes

Consumption taxes imposed on sales to customers of the

Company and its subsidiaries are withheld by the Company and

its subsidiaries at the time of sale and subsequently paid to the

government. Consumption taxes withheld upon sale are not

included in net sales in the accompanying statements of income

but are recorded as a liability, “consumption taxes payable”.

Consumption taxes which are paid by the Company and its sub-

sidiaries on the purchases of goods and services from outside

the Group are also not included in costs or expenses in the

accompanying statements of income but are offset against con-

sumption taxes payable. The net balance is reflected as

consumption taxes payable, which is included in other current

liabilities in the accompanying consolidated balance sheets at

March 31, 2009 and 2008.

(q) reclassifications

Certain prior year amounts have been reclassified to conform to

the 2009 presentation. These changes had no impact on previ-

ously reported results of operations or net assets.

Inventories at March 31, 2009 and 2008 consisted of the following:


2009 2008 2009

Merchandise and finished goods ¥3,775 ¥ 4,250 $38,439 Work in process 6,442 6,430 65,586Raw materials and supplies 9,591 8,970 97,645Total ¥19,810 ¥19,651 $201,671

Inventories at March 31, 2009 are stated at net selling value. Inventories valuation loss included in cost of sales is ¥145 million

(U.S.$1,476 thousand).

NoTE 5:INvENTORIES

62 63


At March 31, 2009 and 2008, the significant components of deferred tax assets and liabilities are summarized as follows:


2009 2008 2009

Deferred tax assets:

Employees’ retirement and severance benefits ¥ 564 ¥ 613 $5,751Accrued bonuses 866 879 8,820Impairment losses, etc 36 799 372Accrued enterprise tax 328 292 3,347Unrealized holding loss on other securities, net of taxes 734 – 7,477Deferred loss on hedges 180 466 1,833Unrealized gain 67 43 691other 451 549 4,594 Total deferred tax assets 3,230 3,645 32,888Valuation allowance (298) (381) (3,043) Deferred tax assets recognized 2,931 3,264 29,845Deferred tax liabilities:

Unrealized holding gain on other securities – (3,021) –other (0) (0) (0) Total deferred tax liabilities (0) (3,021) (0) Net deferred tax assets (liabilities) ¥2,931 ¥ 242 $29,844

The Company and its subsidiaries are subject to a number of taxes based on income which, in the aggregate, resulted in statutory

tax rates of approximately 40.5% for the years ended March 31, 2009, 2008 and 2007. The statutory tax rates reflected in the accom-

panying consolidated statements of income for the years ended March 31, 2009, 2008 and 2007 differ from the effective tax rate for

the following reasons:

2009 2008 2007

Statutory tax rate 40.5% 40.5% 40.5%

Effect of:

Permanent differences such as entertainment and donation expenses 2.4 3.2 2.0

Inhabitants per capita taxes 0.5 0.7 0.5

Tax credit for research and development expense (1.9) (2.8) (3.7)

Decrease in valuation allowance (0.8) (0.4) (1.0)

Reversal of unrealized revaluation gain on land (0.3) (2.8) –

other (1.2) (1.1) (0.4)

Effective tax rates 39.2% 37.3% 37.9%

NoTE 8:INCOmETAxES

In accordance with the Land Revaluation Law (Proclamation

No.34, dated March 31, 1998), land used for business activities

was revalued at March 31, 2002. Unrealized revaluation gain on

land, net of related deferred taxes, has been presented as a

component of net assets.

The market value of the land as of March 31, 2009 and 2008

decreased ¥1,799 million (U.S.$18,322 thousand) and ¥1,923

million after the revaluation, respectively.

Short-term loans from banks at an average interest rate of 1.7% amounted to ¥23,290 million (U.S.$237,096 thousand) and ¥23,738

million at March 31, 2009 and 2008, respectively.

Long-term debt at March 31, 2009 and 2008, consisted of the following:


2009 2008 2009

Commercial bank loans, maturing in installments through 2011 with

an average interest rate of 3.5% for the year ended March 31, 2009 ¥2,069 ¥ 5,835 $ 21,070Lease obligations, maturing through 2016 52 – 533Less current portion (2,056) (3,765) (20,935) ¥ 65 ¥ 2,069 $ 668

The aggregate annual maturities of long-term debt subsequent to March 31, 2009 are summarized as follows:

Years ending March 31 ¥ in millions US$ in thousands

2010 ¥2,044 $20,817

2011 24 253

2012 and thereafter – –

Total ¥2,069 $21,070

The aggregate annual maturities of lease obligations subsequent to March 31, 2009 are summarized as follows:


2010 ¥11 $118

2011 11 118

2012 11 118

2013 11 118

2014 and thereafter 5 60

Total ¥52 $533

Assets pledged as collateral for long-term loans debt at March 31, 2009 and 2008, are presented below:


Years ending March 31 2009 2008 2009

Buildings and structures ¥– ¥11,083 $–Machinery and equipment – 4,431 –Tools, furniture and fixtures – 653 –Land – 8,009 –Total ¥– ¥24,178 $–

The Company had unused line-of-credit commitments with a bank for financing arrangements totaling nil and ¥547 million at March

31, 2009 and 2008.

NoTE 7:DEBT

NoTE 6:LANDREvALuATION

The Company maintains a combination plan of cash-balanced,

defined contribution plan and employees’ pension fund plan

(multi-employer plan).


pension fund (multi-employer plan) and a tax qualified funded

pension plan.

Under these plans, employees who terminate their employ-

ment are entitled to lump-sum or retirement pension or

severance benefits based on their length of service and level of

compensation at the time of the termination.

In addition, the Company and its domestic subsidiaries pay

meritorious service awards to employees in excess of the pre-

scribed formula which are charged to income as paid as it is not

practicable to compute the liability for such future payments

since the amounts vary depending on the circumstances.

NoTE 9:EmPLOYEES’RETIREmENTANDSEvERANCEBENEFITS

62 63


At March 31, 2009 and 2008, the significant components of deferred tax assets and liabilities are summarized as follows:


2009 2008 2009

Deferred tax assets:

Employees’ retirement and severance benefits ¥ 564 ¥ 613 $5,751Accrued bonuses 866 879 8,820Impairment losses, etc 36 799 372Accrued enterprise tax 328 292 3,347Unrealized holding loss on other securities, net of taxes 734 – 7,477Deferred loss on hedges 180 466 1,833Unrealized gain 67 43 691other 451 549 4,594 Total deferred tax assets 3,230 3,645 32,888Valuation allowance (298) (381) (3,043) Deferred tax assets recognized 2,931 3,264 29,845Deferred tax liabilities:

Unrealized holding gain on other securities – (3,021) –other (0) (0) (0) Total deferred tax liabilities (0) (3,021) (0) Net deferred tax assets (liabilities) ¥2,931 ¥ 242 $29,844

The Company and its subsidiaries are subject to a number of taxes based on income which, in the aggregate, resulted in statutory

tax rates of approximately 40.5% for the years ended March 31, 2009, 2008 and 2007. The statutory tax rates reflected in the accom-

panying consolidated statements of income for the years ended March 31, 2009, 2008 and 2007 differ from the effective tax rate for

the following reasons:

2009 2008 2007

Statutory tax rate 40.5% 40.5% 40.5%

Effect of:

Permanent differences such as entertainment and donation expenses 2.4 3.2 2.0

Inhabitants per capita taxes 0.5 0.7 0.5

Tax credit for research and development expense (1.9) (2.8) (3.7)

Decrease in valuation allowance (0.8) (0.4) (1.0)

Reversal of unrealized revaluation gain on land (0.3) (2.8) –

other (1.2) (1.1) (0.4)

Effective tax rates 39.2% 37.3% 37.9%

NoTE 8:INCOmETAxES

In accordance with the Land Revaluation Law (Proclamation

No.34, dated March 31, 1998), land used for business activities

was revalued at March 31, 2002. Unrealized revaluation gain on

land, net of related deferred taxes, has been presented as a

component of net assets.

The market value of the land as of March 31, 2009 and 2008

decreased ¥1,799 million (U.S.$18,322 thousand) and ¥1,923

million after the revaluation, respectively.

Short-term loans from banks at an average interest rate of 1.7% amounted to ¥23,290 million (U.S.$237,096 thousand) and ¥23,738

million at March 31, 2009 and 2008, respectively.

Long-term debt at March 31, 2009 and 2008, consisted of the following:


2009 2008 2009

Commercial bank loans, maturing in installments through 2011 with

an average interest rate of 3.5% for the year ended March 31, 2009 ¥2,069 ¥ 5,835 $ 21,070Lease obligations, maturing through 2016 52 – 533Less current portion (2,056) (3,765) (20,935) ¥ 65 ¥ 2,069 $ 668

The aggregate annual maturities of long-term debt subsequent to March 31, 2009 are summarized as follows:


2010 ¥2,044 $20,817

2011 24 253

2012 and thereafter – –

Total ¥2,069 $21,070

The aggregate annual maturities of lease obligations subsequent to March 31, 2009 are summarized as follows:


2010 ¥11 $118

2011 11 118

2012 11 118

2013 11 118

2014 and thereafter 5 60

Total ¥52 $533

Assets pledged as collateral for long-term loans debt at March 31, 2009 and 2008, are presented below:


Years ending March 31 2009 2008 2009

Buildings and structures ¥– ¥11,083 $–Machinery and equipment – 4,431 –Tools, furniture and fixtures – 653 –Land – 8,009 –Total ¥– ¥24,178 $–

The Company had unused line-of-credit commitments with a bank for financing arrangements totaling nil and ¥547 million at March

31, 2009 and 2008.

NoTE 7:DEBT

NoTE 6:LANDREvALuATION

The Company maintains a combination plan of cash-balanced,

defined contribution plan and employees’ pension fund plan

(multi-employer plan).


pension fund (multi-employer plan) and a tax qualified funded

pension plan.

Under these plans, employees who terminate their employ-

ment are entitled to lump-sum or retirement pension or

severance benefits based on their length of service and level of

compensation at the time of the termination.

In addition, the Company and its domestic subsidiaries pay

meritorious service awards to employees in excess of the pre-

scribed formula which are charged to income as paid as it is not

practicable to compute the liability for such future payments

since the amounts vary depending on the circumstances.

NoTE 9:EmPLOYEES’RETIREmENTANDSEvERANCEBENEFITS

64 65


The Corporation Law of Japan (the “Law”), which superseded

most of the provisions of the Commercial Code of Japan, went

into effect on May 1, 2006. The Law provides that an amount

equal to 10% of the amount to be disbursed as distributions of

capital surplus (other than the capital reserve) and retained

earnings (other than the legal reserve) be transferred to the

capital reserve and the legal reserve, respectively, until the sum

of the capital reserve and the legal reserve equals 25% of the

capital stock account. Such distributions can be made at any

time by resolution of the shareholders, or by the Board of

Directors if certain conditions are met. The legal reserve

amounted to ¥710 million (U.S.$7,228 thousand) and ¥498

million as of March 31, 2009 and 2008, respectively.

NoTE 10:NETASSETS

(Multi-employer plan)

Required contributions for the multi-employer plan as stated above are included in retirement benefit expenses.

(Fiscal 2008)

(1) overall funding status as of March 31, 2007 is as follows:

¥ in millions

Fair value of plan assets ¥461,860

Benefit obligation on the basis of pension financing 469,729

Difference ¥ (7,869)

(2) The Company and Tsumura Lifescience Co., Ltd. contribution

ratio is 3.66% of total pension plan contributions at March 31,

2008.

(3) Supplemental information

The difference amount described in (1) above was calculated by

subtracting the general reserve of ¥55,911 million (U.S.$558,059

thousand) from sum of balance of unamortized prior service

costs of ¥60,021 million (U.S.$599,074 thousand) and the

balance due of ¥3,759 million (U.S.$37,525 thousand), which is

to be covered by reversal of general reserve.

The balance of unamortized prior service costs represents the

present value of special premium income and is amortized using

the equal payment method with a 15.5% premium ratio burdened

by employer. The remaining amortization period is 11 years and

10 months as of March 31, 2007.

The ratio in (2) above is not equal to the actual share ratio.

(Fiscal 2009)

(1)overall funding status for the year ended March 31, 2008 is as follows: ¥ in millions US$ in thousands

Plan assets ¥ 415,832 $ 4,233,258

Benefit obligations, calculated based on assumptions for the entire plans (497,473) (5,064,370)

Difference ¥ (81,640) $ (831,111)

(2)Contributions ratio of the Company to the entire plans during

the year ended March 31, 2009 is 3.39%.

(3)Supplemental information

The difference described in (1) above was calculated by sub-

tracting the general reserve of ¥52,152 million (U.S.$530,919

thousand) from the sum of balance of the unamortized prior

service costs of ¥57,689 million (U.S.$587,288 thousand) and

the balance due of ¥76,103 million (U.S.$774,743 thousand),

which is to be covered by reversal of general reserve.




by the employer. The remaining amortization period is 10 years

and 10 months as of March 31, 2008.


The following table summarizes the components of the net retirement benefit expenses for the years ended March 31, 2009, 2008

and 2007:


2009 2008 2007 2009

Service cost ¥1,205 ¥ 619 ¥ 607 $12,269Interest cost on benefit obligation 261 261 242 2,660

Expected return on plan assets (315) (367) (338) (3,216)Amortization of unrecognized actuarial loss 241 82 84 2,456Amortization of unrecognized prior service cost (70) (82) (82) (718)other 395 363 360 4,021 Net retirement benefit expenses ¥1,716 ¥ 877 ¥ 875 $17,472

The assumptions used in determining pension benefit obligation are shown below: 2009 2008

Method of periodic allocation of estimated retirement benefits Straight-linemethod Straight-line method

Discount rate 2.3% 2.3%

Expected rate of return on assets 3.5% 3.5%

Amortization period of prior service cost 10years 10 years

Amortization period of actuarial gain and loss 10years 10 years

(Fiscal 2008)

(Additional information)

Effective from the year ended March 31, 2008, the Company adopted a new accounting standard, “Partial Amendments to Accounting

Standard for Retirement Benefits Part 2 (Statement No.14 issued by the Accounting Standard Board of Japan on May 15, 2007).

The following table summarizes the funding status and amounts recognized in the consolidated balance sheets at March 31, 2009

and 2008:


2009 2008 2009

Retirement and severance benefit obligations ¥(12,091) ¥(12,281) $(123,902)Plan assets 7,895 9,749 80,377Unfunded benefit obligation (4,195) (2,532) (42,714)Unrecognized actuarial loss 3,245 1,565 33,044

Unrecognized prior service cost (445) (558) (4,534)Accrued benefit obligation (1,395) (1,526) (14,204)

Net assets per share as of March 31, 2009 and 2008 were ¥1,037.76 (U.S.$10.56) and ¥1,015.46, respectively.

Net income per share for the years ended March 31, 2009, 2008 and 2007 were ¥152.80 (U.S.$1.55), ¥129.57 and ¥186.43, respectively.

The basis for calculation of basic total net assets per share as of March 31, 2009 and 2008 was as follows:


2009 2008 2009

Basic total net assets per share:

Total net assets ¥73,968 ¥72,411 $753,016 Deductions 777 788 7,911 Minority interests in consolidated subsidiaries 777 788 7,911 Amounts attributable to shareholders of common stock 73,191 71,623 745,104 Number of shares outstanding at the end of the periods (millions of shares) 70 70 70

NoTE 11:AmOuNTSPERSHARE

64 65


The Corporation Law of Japan (the “Law”), which superseded

most of the provisions of the Commercial Code of Japan, went

into effect on May 1, 2006. The Law provides that an amount

equal to 10% of the amount to be disbursed as distributions of

capital surplus (other than the capital reserve) and retained

earnings (other than the legal reserve) be transferred to the

capital reserve and the legal reserve, respectively, until the sum

of the capital reserve and the legal reserve equals 25% of the

capital stock account. Such distributions can be made at any

time by resolution of the shareholders, or by the Board of

Directors if certain conditions are met. The legal reserve

amounted to ¥710 million (U.S.$7,228 thousand) and ¥498

million as of March 31, 2009 and 2008, respectively.

NoTE 10:NETASSETS

(Multi-employer plan)

Required contributions for the multi-employer plan as stated above are included in retirement benefit expenses.

(Fiscal 2008)

(1) overall funding status as of March 31, 2007 is as follows:

¥ in millions

Fair value of plan assets ¥461,860

Benefit obligation on the basis of pension financing 469,729

Difference ¥ (7,869)

(2) The Company and Tsumura Lifescience Co., Ltd. contribution

ratio is 3.66% of total pension plan contributions at March 31,

2008.

(3) Supplemental information

The difference amount described in (1) above was calculated by

subtracting the general reserve of ¥55,911 million (U.S.$558,059

thousand) from sum of balance of unamortized prior service

costs of ¥60,021 million (U.S.$599,074 thousand) and the

balance due of ¥3,759 million (U.S.$37,525 thousand), which is

to be covered by reversal of general reserve.




by employer. The remaining amortization period is 11 years and

10 months as of March 31, 2007.


(Fiscal 2009)

(1)overall funding status for the year ended March 31, 2008 is as follows: ¥ in millions US$ in thousands

Plan assets ¥ 415,832 $ 4,233,258

Benefit obligations, calculated based on assumptions for the entire plans (497,473) (5,064,370)

Difference ¥ (81,640) $ (831,111)

(2)Contributions ratio of the Company to the entire plans during

the year ended March 31, 2009 is 3.39%.

(3)Supplemental information

The difference described in (1) above was calculated by sub-

tracting the general reserve of ¥52,152 million (U.S.$530,919

thousand) from the sum of balance of the unamortized prior

service costs of ¥57,689 million (U.S.$587,288 thousand) and

the balance due of ¥76,103 million (U.S.$774,743 thousand),

which is to be covered by reversal of general reserve.




by the employer. The remaining amortization period is 10 years

and 10 months as of March 31, 2008.


The following table summarizes the components of the net retirement benefit expenses for the years ended March 31, 2009, 2008

and 2007:


2009 2008 2007 2009

Service cost ¥1,205 ¥ 619 ¥ 607 $12,269Interest cost on benefit obligation 261 261 242 2,660

Expected return on plan assets (315) (367) (338) (3,216)Amortization of unrecognized actuarial loss 241 82 84 2,456Amortization of unrecognized prior service cost (70) (82) (82) (718)other 395 363 360 4,021 Net retirement benefit expenses ¥1,716 ¥ 877 ¥ 875 $17,472

The assumptions used in determining pension benefit obligation are shown below: 2009 2008

Method of periodic allocation of estimated retirement benefits Straight-linemethod Straight-line method

Discount rate 2.3% 2.3%

Expected rate of return on assets 3.5% 3.5%

Amortization period of prior service cost 10years 10 years

Amortization period of actuarial gain and loss 10years 10 years

(Fiscal 2008)

(Additional information)

Effective from the year ended March 31, 2008, the Company adopted a new accounting standard, “Partial Amendments to Accounting

Standard for Retirement Benefits Part 2 (Statement No.14 issued by the Accounting Standard Board of Japan on May 15, 2007).

The following table summarizes the funding status and amounts recognized in the consolidated balance sheets at March 31, 2009

and 2008:


2009 2008 2009

Retirement and severance benefit obligations ¥(12,091) ¥(12,281) $(123,902)Plan assets 7,895 9,749 80,377Unfunded benefit obligation (4,195) (2,532) (42,714)Unrecognized actuarial loss 3,245 1,565 33,044

Unrecognized prior service cost (445) (558) (4,534)Accrued benefit obligation (1,395) (1,526) (14,204)

Net assets per share as of March 31, 2009 and 2008 were ¥1,037.76 (U.S.$10.56) and ¥1,015.46, respectively.

Net income per share for the years ended March 31, 2009, 2008 and 2007 were ¥152.80 (U.S.$1.55), ¥129.57 and ¥186.43, respectively.

The basis for calculation of basic total net assets per share as of March 31, 2009 and 2008 was as follows:


2009 2008 2009

Basic total net assets per share:

Total net assets ¥73,968 ¥72,411 $753,016 Deductions 777 788 7,911 Minority interests in consolidated subsidiaries 777 788 7,911 Amounts attributable to shareholders of common stock 73,191 71,623 745,104 Number of shares outstanding at the end of the periods (millions of shares) 70 70 70

NoTE 11:AmOuNTSPERSHARE

66 67


Leased assets consisted of test facilities in the laboratory, etc.

Finance lease transactions that do not transfer ownership commenced on or before March 31, 2008 are still accounted for in the

same manner as operating lease transactions.

1) A summary of the pro-forma amounts (inclusive of interest) for acquisition cost, accumulated depreciation and net book value

relating primarily to tools, furniture and fixtures at March 31, 2009 and 2008 is as follows:


2009 2008 2009

Acquisition cost ¥1,554 ¥2,864 $15,827Accumulated depreciation 1,075 2,197 10,946 Net book value ¥ 479 ¥ 667 $ 4,880

2) Future minimum lease payments inclusive of the related interest at March 31, 2009 and 2008 are summarized as follows:


2009 2008 2009

Payments in one year or less ¥283 ¥432 $2,888 Payments after one year 257 553 2,623 Total ¥541 ¥985 $5,511

3) Lease payments, pro-forma depreciation charges and pro-forma interest expenses for the years ended March 31, 2009, 2008 and

2007 were analyzed as follows:


2009 2008 2007 2009

Lease payments ¥416 ¥585 ¥713 $4,240Pro-forma depreciation charges 360 425 556 3,673Pro-forma interest expenses 35 60 93 363

(a) A reconciliation of cash and cash equivalents at March 31, 2009, 2008 and 2007 to the accounts and amounts in the accompanying

balance sheets is summarized as follows:


2009 2008 2007 2009

Cash and time deposits ¥14,603 ¥13,833 ¥19,897 $148,666Time deposits with a maturity in excess of three months (7) (115) (84) (71) Cash and cash equivalents ¥14,596 ¥13,718 ¥19,812 $148,595

NoTE 13:CASHANDCASHEquIvALENTS

NoTE 14:LEASES

Major expenses included in selling, general and administrative expenses for the years ended March 31, 2009, 2008 and 2007 were

as follows:


2009 2008 2007 2009

Sales promotion expenses ¥4,356 ¥ 5,731 ¥ 5,574 $44,353Advertising cost 1,495 2,612 2,605 15,221Sales rebate 6,224 5,982 5,280 63,371Salaries and allowances 15,806 16,603 15,769 160,911Research and development expenses 3,958 4,368 4,829 40,295Provision for employees’ retirement and severance benefits 1,142 600 590 11,631Provision for doubtful accounts 0 8 3 4Provision for directors’ retirement and severance benefits – – 9 –

Research and development expenses included in general and administrative expenses and cost of sales for the years ended March

31, 2009, 2008 and 2007 amounted to ¥3,958 million (U.S.$40,295 thousand), ¥4,368 million and ¥4,829 million, respectively.

NoTE 12:mAjORExPENSES

Basic net income (loss) per share is computed based on the

net income (loss) and the weighted-average number of shares of

common stock outstanding during each year. Diluted net income

(loss) per share is computed based on the net income (loss) and

the weighted-average number of shares of common stock out-

standing during each year after giving effect to the dilutive

potential of shares of common stock to be issued. Diluted net

income (loss) per share for the years ended March 31, 2009 and

2008 has not been presented because there were no potentially

dilutive securities at March 31, 2009 and 2008 respectively.

Net assets per share are based on the number of shares of

common stock outstanding at each balance sheet date.

The consolidated subsidiaries and non-consolidated subsidiaries

and other affiliates to which the equity method had been applied

had 242,924, 239,169 and 235,759 shares of treasury stock at

March 31, 2009, 2008 and 2007, respectively.

The basis for calculation of basic net income per share for the years ended March 31, 2009, 2008 and 2007 was as follows:


2009 2008 2007 2009

Basic net income per share: net income ¥10,777 ¥9,139 ¥13,152 $109,713 Amounts not attributable to shareholders of common stock – – – –Amounts attributable to shareholders of common stock 10,777 9,139 13,152 109,713Weighted-average number of shares outstanding

(millions of shares) 70 70 70 70

(b) Assets and liabilities of Tsumura Lifescience Co., Ltd. which was excluded from consolidated subsidiaries due to the divestiture

during the year ended March 31, 2009 was as follows:


2009

Current assets ¥5,357 $54,544Non-current assets 1,690 17,204Total assets 7,047 71,749Current liabilities 2,764 28,139Long-term liabilities 563 5,732Total liabilities 3,327 33,871Selling price of the divestiture 4,550 46,319Cash and cash equivalent of the subsidiary 38 394Proceeds from sale of investments in subsidiaries resulting in change in scope of consolidation ¥4,511 $45,924

There was no significant non-cash transaction for the years ended March 31, 2009, 2008 and 2007.

4) Depreciation and interest allocation policy

The pro-forma effects of depreciation charges of the

Company’s Ibaraki plant and laboratory, Tsumura Lifescience

Co., Ltd.’s plant and the property of subsidiaries except

Tsumura Lifescience Co., Ltd. are computed using the

straight-line method over lease terms assuming no residual

value. The pro-forma effects of depreciation of other assets

represent ten-ninths of the amounts computed using the

declining balance method over lease terms.

The pro-forma effects of interest expenses are differences

between total lease payments and pro-forma acquisition cost

of leased property and are allocated to each accounting

period based on the interest method.

66 67


Leased assets consisted of test facilities in the laboratory, etc.

Finance lease transactions that do not transfer ownership commenced on or before March 31, 2008 are still accounted for in the

same manner as operating lease transactions.

1) A summary of the pro-forma amounts (inclusive of interest) for acquisition cost, accumulated depreciation and net book value

relating primarily to tools, furniture and fixtures at March 31, 2009 and 2008 is as follows:


2009 2008 2009

Acquisition cost ¥1,554 ¥2,864 $15,827Accumulated depreciation 1,075 2,197 10,946 Net book value ¥ 479 ¥ 667 $ 4,880

2) Future minimum lease payments inclusive of the related interest at March 31, 2009 and 2008 are summarized as follows:


2009 2008 2009

Payments in one year or less ¥283 ¥432 $2,888 Payments after one year 257 553 2,623 Total ¥541 ¥985 $5,511

3) Lease payments, pro-forma depreciation charges and pro-forma interest expenses for the years ended March 31, 2009, 2008 and

2007 were analyzed as follows:


2009 2008 2007 2009

Lease payments ¥416 ¥585 ¥713 $4,240Pro-forma depreciation charges 360 425 556 3,673Pro-forma interest expenses 35 60 93 363

(a) A reconciliation of cash and cash equivalents at March 31, 2009, 2008 and 2007 to the accounts and amounts in the accompanying

balance sheets is summarized as follows:


2009 2008 2007 2009

Cash and time deposits ¥14,603 ¥13,833 ¥19,897 $148,666Time deposits with a maturity in excess of three months (7) (115) (84) (71) Cash and cash equivalents ¥14,596 ¥13,718 ¥19,812 $148,595

NoTE 13:CASHANDCASHEquIvALENTS

NoTE 14:LEASES

Major expenses included in selling, general and administrative expenses for the years ended March 31, 2009, 2008 and 2007 were

as follows:


2009 2008 2007 2009

Sales promotion expenses ¥4,356 ¥ 5,731 ¥ 5,574 $44,353Advertising cost 1,495 2,612 2,605 15,221Sales rebate 6,224 5,982 5,280 63,371Salaries and allowances 15,806 16,603 15,769 160,911Research and development expenses 3,958 4,368 4,829 40,295Provision for employees’ retirement and severance benefits 1,142 600 590 11,631Provision for doubtful accounts 0 8 3 4Provision for directors’ retirement and severance benefits – – 9 –

Research and development expenses included in general and administrative expenses and cost of sales for the years ended March

31, 2009, 2008 and 2007 amounted to ¥3,958 million (U.S.$40,295 thousand), ¥4,368 million and ¥4,829 million, respectively.

NoTE 12:mAjORExPENSES

Basic net income (loss) per share is computed based on the

net income (loss) and the weighted-average number of shares of

common stock outstanding during each year. Diluted net income

(loss) per share is computed based on the net income (loss) and

the weighted-average number of shares of common stock out-

standing during each year after giving effect to the dilutive

potential of shares of common stock to be issued. Diluted net

income (loss) per share for the years ended March 31, 2009 and

2008 has not been presented because there were no potentially

dilutive securities at March 31, 2009 and 2008 respectively.

Net assets per share are based on the number of shares of

common stock outstanding at each balance sheet date.

The consolidated subsidiaries and non-consolidated subsidiaries

and other affiliates to which the equity method had been applied

had 242,924, 239,169 and 235,759 shares of treasury stock at

March 31, 2009, 2008 and 2007, respectively.

The basis for calculation of basic net income per share for the years ended March 31, 2009, 2008 and 2007 was as follows:


2009 2008 2007 2009

Basic net income per share: net income ¥10,777 ¥9,139 ¥13,152 $109,713 Amounts not attributable to shareholders of common stock – – – –Amounts attributable to shareholders of common stock 10,777 9,139 13,152 109,713Weighted-average number of shares outstanding

(millions of shares) 70 70 70 70

(b) Assets and liabilities of Tsumura Lifescience Co., Ltd. which was excluded from consolidated subsidiaries due to the divestiture

during the year ended March 31, 2009 was as follows:


2009

Current assets ¥5,357 $54,544Non-current assets 1,690 17,204Total assets 7,047 71,749Current liabilities 2,764 28,139Long-term liabilities 563 5,732Total liabilities 3,327 33,871Selling price of the divestiture 4,550 46,319Cash and cash equivalent of the subsidiary 38 394Proceeds from sale of investments in subsidiaries resulting in change in scope of consolidation ¥4,511 $45,924

There was no significant non-cash transaction for the years ended March 31, 2009, 2008 and 2007.

4) Depreciation and interest allocation policy

The pro-forma effects of depreciation charges of the

Company’s Ibaraki plant and laboratory, Tsumura Lifescience

Co., Ltd.’s plant and the property of subsidiaries except

Tsumura Lifescience Co., Ltd. are computed using the

straight-line method over lease terms assuming no residual

value. The pro-forma effects of depreciation of other assets

represent ten-ninths of the amounts computed using the

declining balance method over lease terms.

The pro-forma effects of interest expenses are differences

between total lease payments and pro-forma acquisition cost

of leased property and are allocated to each accounting

period based on the interest method.

68 69


The Company has contingent liabilities as guarantor of an unconsolidated subsidiary’s loans from banks for the amount of ¥143 million

(U.S.$1,462 thousand) at March 31, 2009.

NoTE 15:CONTINgENTLIABILITIES

¥ in millions Pharmaceutical household Year ended March 31, 2008 products products Total Eliminations Consolidated

I. operating result Net sales (1) Sales to customers ¥ 80,874 ¥13,925 ¥ 94,799 ¥ – ¥ 94,799 (2) Intra-group sales and transfers – – – – – Total 80,874 13,925 94,799 – 94,799 operating expenses 65,756 13,222 78,979 – 78,979

operating profit ¥ 15,118 ¥ 702 ¥ 15,820 ¥ – ¥ 15,820 II. Assets, depreciation, impairment losses on fixed

assets and capital expendituresTotal assets ¥116,655 ¥ 9,476 ¥126,131 ¥ 9,014 ¥135,146Depreciation ¥ 3,210 ¥ 185 ¥ 3,396 ¥ – ¥ 3,396 Impairment losses on fixed assets ¥ 964 ¥ – ¥ 964 ¥ – ¥ 964 Capital expenditures ¥ 3,098 ¥ 144 ¥ 3,242 ¥ – ¥ 3,242




assets and capital expendituresTotal assets ¥118,177 ¥ 9,856 ¥128,034 ¥15,344 ¥143,378Depreciation ¥ 2,522 ¥ 255 ¥ 2,777 ¥ – ¥ 2,777Impairment losses on fixed assets ¥ 825 ¥ 72 ¥ 897 ¥ – ¥ 897Capital expenditures ¥ 3,694 ¥ 397 ¥ 4,092 ¥ – ¥ 4,092

US$ in thousands Pharmaceutical household Year ended March 31, 2009 products products Total Eliminations Consolidated

I. operating result Net sales (1) Sales to customers $ 888,219 $28,168 $ 916,387 $– $ 916,387(2) Intra-group sales and transfers – – – – – Total 888,219 28,168 916,387 – 916,387 operating expenses 720,435 28,149 748,584 – 748,584

operating profit $ 167,784 $ 18 $ 167,803 $– $ 167,803 II. Assets, depreciation, impairment losses on fixed

assets and capital expendituresTotal assets $1,291,098 $ – $1,291,098 $– $1,291,098Depreciation $ 33,218 $ 363 $ 33,582 $– $ 33,582Impairment losses on fixed assets $ 6,652 $ – $ 6,652 $– $ 6,652Capital expenditures $ 56,072 $ 888 $ 56,960 $– $ 56,960

Tsumura Lifescience Co., Ltd. engaging in household products business was not included in the segment information after the second

quarter of the year ended March 31, 2009, because Tsumura Lifescience Co., Ltd. was excluded from the Company’s consolidated

subsidiaries. As a result, the Company has categorized its business into a single industry segment, pharmaceutical products.

(b) Geographical segment information is not presented as net sales and total assets in Japan exceeded 90% of total sales and

consolidated assets.

(c) overseas sales are not presented as overseas sales were less than 10% of consolidated sales.

The Company has entered into forward foreign exchange contracts

and currency swap contracts to reduce its exposure to the risk

of future adverse fluctuations in foreign exchange rates related

to assets and liabilities denominated in foreign currencies. In

addition, the Company has entered into interest swap contracts

to fix the borrowing cost of loans with floating interest.

An unrealized gain or loss on a hedge instrument is deferred

until the Company recognizes a gain or loss on the hedged item.

It is the Company’s policy not to enter into any speculative

derivatives transactions. The Company and its subsidiaries have

entered into derivative transactions to hedge foreign exchange risk

of normal foreign currency transactions based on past import

activities, etc. and interest rate fluctuation of outstanding loans.

The management of the Company considers that the Company

would not be significantly impacted by market risk related to

derivative transactions because their effects on income would be

opposite to the effects of the underlying hedged transactions. As

the Company enters into contracts with domestic banks with

high credit ratings, the Company does not anticipate any risk of

non-performance by these counterparties.

The Company and subsidiaries enter into and monitor derivative

transactions in accordance with execution and control regulations

relating to derivative transactions which stipulate control policies,

purpose, scope and reporting system of derivative transactions.

There were no outstanding derivative transactions as of March

31, 2009 and 2008.

NoTE 16:DERIvATIvES

operating leases

Future minimum lease payments subsequent to March 31, 2009 and 2008 were as follows:


2009 2008 2009

Payable in one year or less ¥49 ¥3 $504Payable after one year 47 5 479

Total ¥96 ¥9 $984

(a) The Company and its subsidiaries have two major business segments. Business segment information for the years ended March

31, 2009, 2008 and 2007 is as follows:


I. operating result Net sales (1) Sales to customers ¥ 87,249 ¥2,766 ¥ 90,016 ¥– ¥ 90,016(2) Intra-group sales and transfers – – – – – Total 87,249 2,766 90,016 – 90,016 operating expenses 70,768 2,765 73,533 – 73,533

operating profit ¥ 16,481 ¥ 1 ¥ 16,483 ¥– ¥ 16,483 II. Assets, depreciation, impairment losses on fixed

assets and capital expendituresTotal assets ¥126,824 ¥ – ¥126,824 ¥– ¥126,824Depreciation ¥ 3,263 ¥ 35 ¥ 3,298 ¥– ¥ 3,298 Impairment losses on fixed assets ¥ 653 ¥ – ¥ 653 ¥– ¥ 653 Capital expenditures ¥ 5,508 ¥ 87 ¥ 5,595 ¥– ¥ 5,595

NoTE 17:SEgmENTINFORmATION

68 69


The Company has contingent liabilities as guarantor of an unconsolidated subsidiary’s loans from banks for the amount of ¥143 million

(U.S.$1,462 thousand) at March 31, 2009.

NoTE 15:CONTINgENTLIABILITIES




assets and capital expendituresTotal assets ¥116,655 ¥ 9,476 ¥126,131 ¥ 9,014 ¥135,146Depreciation ¥ 3,210 ¥ 185 ¥ 3,396 ¥ – ¥ 3,396 Impairment losses on fixed assets ¥ 964 ¥ – ¥ 964 ¥ – ¥ 964 Capital expenditures ¥ 3,098 ¥ 144 ¥ 3,242 ¥ – ¥ 3,242




assets and capital expendituresTotal assets ¥118,177 ¥ 9,856 ¥128,034 ¥15,344 ¥143,378Depreciation ¥ 2,522 ¥ 255 ¥ 2,777 ¥ – ¥ 2,777Impairment losses on fixed assets ¥ 825 ¥ 72 ¥ 897 ¥ – ¥ 897Capital expenditures ¥ 3,694 ¥ 397 ¥ 4,092 ¥ – ¥ 4,092

US$ in thousands Pharmaceutical household Year ended March 31, 2009 products products Total Eliminations Consolidated

I. operating result Net sales (1) Sales to customers $ 888,219 $28,168 $ 916,387 $– $ 916,387(2) Intra-group sales and transfers – – – – – Total 888,219 28,168 916,387 – 916,387 operating expenses 720,435 28,149 748,584 – 748,584

operating profit $ 167,784 $ 18 $ 167,803 $– $ 167,803 II. Assets, depreciation, impairment losses on fixed

assets and capital expendituresTotal assets $1,291,098 $ – $1,291,098 $– $1,291,098Depreciation $ 33,218 $ 363 $ 33,582 $– $ 33,582Impairment losses on fixed assets $ 6,652 $ – $ 6,652 $– $ 6,652Capital expenditures $ 56,072 $ 888 $ 56,960 $– $ 56,960

Tsumura Lifescience Co., Ltd. engaging in household products business was not included in the segment information after the second

quarter of the year ended March 31, 2009, because Tsumura Lifescience Co., Ltd. was excluded from the Company’s consolidated

subsidiaries. As a result, the Company has categorized its business into a single industry segment, pharmaceutical products.

(b) Geographical segment information is not presented as net sales and total assets in Japan exceeded 90% of total sales and

consolidated assets.

(c) overseas sales are not presented as overseas sales were less than 10% of consolidated sales.

The Company has entered into forward foreign exchange contracts

and currency swap contracts to reduce its exposure to the risk

of future adverse fluctuations in foreign exchange rates related

to assets and liabilities denominated in foreign currencies. In

addition, the Company has entered into interest swap contracts

to fix the borrowing cost of loans with floating interest.

An unrealized gain or loss on a hedge instrument is deferred

until the Company recognizes a gain or loss on the hedged item.

It is the Company’s policy not to enter into any speculative

derivatives transactions. The Company and its subsidiaries have

entered into derivative transactions to hedge foreign exchange risk

of normal foreign currency transactions based on past import

activities, etc. and interest rate fluctuation of outstanding loans.

The management of the Company considers that the Company

would not be significantly impacted by market risk related to

derivative transactions because their effects on income would be

opposite to the effects of the underlying hedged transactions. As

the Company enters into contracts with domestic banks with

high credit ratings, the Company does not anticipate any risk of

non-performance by these counterparties.

The Company and subsidiaries enter into and monitor derivative

transactions in accordance with execution and control regulations

relating to derivative transactions which stipulate control policies,

purpose, scope and reporting system of derivative transactions.

There were no outstanding derivative transactions as of March

31, 2009 and 2008.

NoTE 16:DERIvATIvES

operating leases

Future minimum lease payments subsequent to March 31, 2009 and 2008 were as follows:


2009 2008 2009

Payable in one year or less ¥49 ¥3 $504Payable after one year 47 5 479

Total ¥96 ¥9 $984

(a) The Company and its subsidiaries have two major business segments. Business segment information for the years ended March

31, 2009, 2008 and 2007 is as follows:


I. operating result Net sales (1) Sales to customers ¥ 87,249 ¥2,766 ¥ 90,016 ¥– ¥ 90,016(2) Intra-group sales and transfers – – – – – Total 87,249 2,766 90,016 – 90,016 operating expenses 70,768 2,765 73,533 – 73,533

operating profit ¥ 16,481 ¥ 1 ¥ 16,483 ¥– ¥ 16,483 II. Assets, depreciation, impairment losses on fixed

assets and capital expendituresTotal assets ¥126,824 ¥ – ¥126,824 ¥– ¥126,824Depreciation ¥ 3,263 ¥ 35 ¥ 3,298 ¥– ¥ 3,298 Impairment losses on fixed assets ¥ 653 ¥ – ¥ 653 ¥– ¥ 653 Capital expenditures ¥ 5,508 ¥ 87 ¥ 5,595 ¥– ¥ 5,595

NoTE 17:SEgmENTINFORmATION

70 71

(Fiscal 2009)

For the year ended March 31, 2009, the Company and its consolidated subsidiaries recognized ¥653 million (U.S.$6,652 thousand)

of impairment losses on fixed assets which consisted of the following:

Location Description Classification

Fujieda-shi, Shizuoka, Japan Distribution facilities Land, buildings, etc.Shimada-shi, Shizuoka, Japan Fertilizer production facilities Land, buildings, etc.Inashiki-shi, Ibaraki, Japan Fertilizer production facilities Land, buildings, etc.Inashiki-gun, Ibaraki, Japan Research facilities Buildings, machinery, etc.

NoTE 18:LOSSESONImPAIRmENTOFFIxEDASSETS

The Company and its consolidated subsidiaries group their fixed

assets on the basis of business segments, considering the charac-

teristics of the products and similarity of markets. Idle assets are

grouped individually. The recoverable amount utilized in the calcu-

lation was net realizable value based on reasonable estimate.

The Company identified the idle assets of distribution facilities

and their carrying values have been reduced to their recoverable

amounts and recognized in other expenses as impairment losses.

Regarding the fertilizer production facilities, the Company

entered into a sale contract in June 2008, and recognized the

difference between the contract price and book value as

impairment losses on fixed assets.

The Company reduced total carrying amount of the idle assets

of research facilities and recognized as impairment losses.

Impairment losses of ¥653 million (U.S.$6,652 thousand)

consist of ¥288 million (U.S.$2,937 thousand) for buildings and

structures, ¥44 million (U.S.$456 thousand) for machinery and

equipment, ¥1 million (U.S.$16 thousand) for tools, furniture and

fixtures and ¥318 million (U.S.$3,242 thousand) for land.

(Fiscal 2007)

For the year ended March 31, 2007, the Company and its consolidated subsidiaries recognized ¥897 million of impairment losses on

fixed assets which consisted of the following:


Chiyoda-ku, Tokyo, Japan head office Building, etc.

Chiyoda-ku, Tokyo, Japan Paintings Tools, furniture and fixtures

Chuo-ku, Tokyo, Japan office Building, etc.

oyama-cho, Suntou-gun, Shizuoka, Japan Idle asset Land

(Fiscal 2008)




Matsudo-shi, Chiba, Japan Dormitory Buildings, land, etc.

The Company and the consolidated subsidiaries group their

fixed assets on the basis of business segments, considering the

characteristics of the products and similarity of markets. Idle

assets are grouped individually.

About the above dormitory, the Company concluded a sale

agreement in March 2008. Therefore, the Company recognized

the difference between the contract price and book value as


Impairment losses of ¥964 million consist of ¥782 million for

buildings and structures, ¥6 million for machinery and equip-

ment, ¥0 million for tools, furniture and fixtures and ¥175 million

for land. The recoverable amount utilized in the calculation of the

dormitory was net selling price, which was evaluated based on

the contract price.





For the year ended March 31, 2007, the Company recognized

the difference of selling price and book value of building and

others as impairment losses on fixed assets as a result of consid-

ering selling price of per assets description. And the Company

recognized ¥7,333 million as profit on sale of land.

About the paintings and idle asset, the Company recognized

the difference of selling price and book value as impairment

losses on fixed assets.

The carrying value of the office has been reduced to the

recoverable amounts because of selling.


head office, ¥118 million for paintings, ¥23 million for office and

¥333 million for idle assets. The recoverable amounts utilized net

selling prices in the calculation of head office, paintings and idle

assets, and the office was evaluated as ¥0. Meanwhile, impair-

ment losses of ¥422 million for head office consist of ¥410

million for buildings and structures, ¥1 million for machinery

and equipment, and ¥9 million for tools, furniture and fixtures.

Issued stock and treasury stock as of March 31, 2009 were as follows.

Number of outstanding shares

Common stock 70,771 thousand shares

The number of treasury shares was as follows:

Thousands of shares

2008 Increase Decrease 2009

Common stock 239 3 – 242

Dividends from surplus as of March 31, 2009 were as follows: Total amount of dividends Dividend of Resolution (¥ in millions) share (yen) Record date Effective date

ordinary general meeting of shareholders

held on June 27, 2008 916 13 March 31, 2008 June 30, 2008

Board of directors’ meeting

held on November 31, 2008 1,199 17 September 30, 2008 December 4, 2008

Total amount of dividends Resource of Dividend of Scheduled resolution (¥ in millions) dividend share (yen) Record date Effective date

ordinary general meeting of shareholders held on June 26, 2009 1,198 Retained earnings 17 March 31, 2009 June 29, 2009

NoTE 20:NOTETOCONSOLIDATEDSTATEmENTSOFCHANgESINNETASSETS

At the shareholders’ meeting held on June 26, 2009, the following appropriation from unappropriated retained earnings of the

Company was approved by the shareholders:


Cash dividends, ¥17.00 (U.S.$0.17) per share ¥1,198 $12,205

NoTE 19:SuBSEquENTEvENT


70 71

(Fiscal 2009)

For the year ended March 31, 2009, the Company and its consolidated subsidiaries recognized ¥653 million (U.S.$6,652 thousand)

of impairment losses on fixed assets which consisted of the following:


Fujieda-shi, Shizuoka, Japan Distribution facilities Land, buildings, etc.Shimada-shi, Shizuoka, Japan Fertilizer production facilities Land, buildings, etc.Inashiki-shi, Ibaraki, Japan Fertilizer production facilities Land, buildings, etc.Inashiki-gun, Ibaraki, Japan Research facilities Buildings, machinery, etc.

NoTE 18:LOSSESONImPAIRmENTOFFIxEDASSETS

The Company and its consolidated subsidiaries group their fixed

assets on the basis of business segments, considering the charac-

teristics of the products and similarity of markets. Idle assets are

grouped individually. The recoverable amount utilized in the calcu-

lation was net realizable value based on reasonable estimate.

The Company identified the idle assets of distribution facilities

and their carrying values have been reduced to their recoverable

amounts and recognized in other expenses as impairment losses.

Regarding the fertilizer production facilities, the Company

entered into a sale contract in June 2008, and recognized the

difference between the contract price and book value as


The Company reduced total carrying amount of the idle assets

of research facilities and recognized as impairment losses.

Impairment losses of ¥653 million (U.S.$6,652 thousand)

consist of ¥288 million (U.S.$2,937 thousand) for buildings and

structures, ¥44 million (U.S.$456 thousand) for machinery and

equipment, ¥1 million (U.S.$16 thousand) for tools, furniture and

fixtures and ¥318 million (U.S.$3,242 thousand) for land.

(Fiscal 2007)




Chiyoda-ku, Tokyo, Japan head office Building, etc.

Chiyoda-ku, Tokyo, Japan Paintings Tools, furniture and fixtures

Chuo-ku, Tokyo, Japan office Building, etc.

oyama-cho, Suntou-gun, Shizuoka, Japan Idle asset Land

(Fiscal 2008)




Matsudo-shi, Chiba, Japan Dormitory Buildings, land, etc.





About the above dormitory, the Company concluded a sale

agreement in March 2008. Therefore, the Company recognized

the difference between the contract price and book value as



buildings and structures, ¥6 million for machinery and equip-

ment, ¥0 million for tools, furniture and fixtures and ¥175 million

for land. The recoverable amount utilized in the calculation of the

dormitory was net selling price, which was evaluated based on

the contract price.





For the year ended March 31, 2007, the Company recognized

the difference of selling price and book value of building and

others as impairment losses on fixed assets as a result of consid-

ering selling price of per assets description. And the Company

recognized ¥7,333 million as profit on sale of land.

About the paintings and idle asset, the Company recognized

the difference of selling price and book value as impairment

losses on fixed assets.

The carrying value of the office has been reduced to the

recoverable amounts because of selling.


head office, ¥118 million for paintings, ¥23 million for office and

¥333 million for idle assets. The recoverable amounts utilized net

selling prices in the calculation of head office, paintings and idle

assets, and the office was evaluated as ¥0. Meanwhile, impair-

ment losses of ¥422 million for head office consist of ¥410

million for buildings and structures, ¥1 million for machinery

and equipment, and ¥9 million for tools, furniture and fixtures.

Issued stock and treasury stock as of March 31, 2009 were as follows.

Number of outstanding shares

Common stock 70,771 thousand shares

The number of treasury shares was as follows:

Thousands of shares

2008 Increase Decrease 2009

Common stock 239 3 – 242

Dividends from surplus as of March 31, 2009 were as follows: Total amount of dividends Dividend of Resolution (¥ in millions) share (yen) Record date Effective date

ordinary general meeting of shareholders

held on June 27, 2008 916 13 March 31, 2008 June 30, 2008

Board of directors’ meeting

held on November 31, 2008 1,199 17 September 30, 2008 December 4, 2008

Total amount of dividends Resource of Dividend of Scheduled resolution (¥ in millions) dividend share (yen) Record date Effective date

ordinary general meeting of shareholders held on June 26, 2009 1,198 Retained earnings 17 March 31, 2009 June 29, 2009

NoTE 20:NOTETOCONSOLIDATEDSTATEmENTSOFCHANgESINNETASSETS

At the shareholders’ meeting held on June 26, 2009, the following appropriation from unappropriated retained earnings of the

Company was approved by the shareholders:


Cash dividends, ¥17.00 (U.S.$0.17) per share ¥1,198 $12,205

NoTE 19:SuBSEquENTEvENT


72 73

rEpOrT OF INdEpENdENT AUdITOrS

Major Shareholders(% of equity):

Japan Trustee Services Bank, Ltd. (Trust Account) 11.79%

The Master Trust Bank of Japan, Ltd. (Trust Account) 8.36%

Japan Trustee Services Bank, Ltd. 4G (Trust Account) 7.43%

The Bank of Tokyo-Mitsubishi UFJ, Ltd. 3.81%

Employees’ Stockholding 2.34%

Daiichi Sankyo Company, Limited 2.15%

The Chase Manhattan Bank N.A. London (SL omnibus Account) 1.65%

Dainippon Sumitomo Pharma Co., Ltd. 1.54%

State Street Bank and Trust Company 1.31%

Sumitomo Realty & Development Co., Ltd. 1.12%

Ownership and distribution of Shares (%):

Japanese Financial Institutions 44.40%Foreign Institutions 24.55%Japanese Individuals and Others 14.45%Other Japanese Corporations 15.77%Japanese Securities Firms 0.83%

Head Office:17-11, Akasaka, 2-chome

Tokyo 107-8521, Japan

Corporate Communications Department

Phone: 81-3-6361-7101

Fax: 81-3-5574-6630

URL: http://www.tsumura.co.jp

Founded: April 10, 1893

Incorporated: April 25, 1936

Number of Employees: 2,631 (Consolidated)

plants: Shizuoka, Ibaraki, Shanghai

research Laboratory:Ibaraki

Subsidiaries and Affiliates:

Country Company Business

Japan LoGITEM TSUMURA Co., LTD. Logistics, storage, distribution, and materials handling services

CREATIVE SERVICE, INC. Management of pharmacies

United States TSUMURA USA, INC. Marketing of Tsumura products in the United States

China ShENZhEN TSUMURA MEDICINE Co., LTD. Processing, export, and storage of botanical raw materials

ShANGhAI TSUMURA PhARMACEUTICALS Co., LTD.

Production and sale of Kampo extract intermediates and granular Kampo formulations

SIChUAN ChUANCUN TRADITIoNAL ChINESE MEDICINES Co., LTD.

Production and export of botanical raw materials

Stock Exchange Listing:Tokyo

Stock Code:4540

paid-in Capital:¥19,487 million

Net Assets:¥73,968 million

Common Stock:

Authorized: 250,000,000

Issued: 70,771,662

Closing date of Accounts:March 31

Independent Auditor:Ernst & Young ShinNihon LLC

hibiya Kokusai Bldg.,

2-3, Uchisaiwai-cho 2-chome,

Chiyoda-ku, Tokyo 100-0011, Japan

Shareholder register Agent for

Common Stock in japan:Mitsubishi UFJ Trust and

Banking Corporation

4-5, Marunouchi 1-chome,


Number of Shareholders:8,710

COrpOrATE dATAAS oF MARCh 31, 2009

INvESTOr INFOrMATION AS oF MARCh 31, 2009


72 73

rEpOrT OF INdEpENdENT AUdITOrS

Major Shareholders(% of equity):

Japan Trustee Services Bank, Ltd. (Trust Account) 11.79%

The Master Trust Bank of Japan, Ltd. (Trust Account) 8.36%

Japan Trustee Services Bank, Ltd. 4G (Trust Account) 7.43%

The Bank of Tokyo-Mitsubishi UFJ, Ltd. 3.81%

Employees’ Stockholding 2.34%

Daiichi Sankyo Company, Limited 2.15%

The Chase Manhattan Bank N.A. London (SL omnibus Account) 1.65%

Dainippon Sumitomo Pharma Co., Ltd. 1.54%

State Street Bank and Trust Company 1.31%

Sumitomo Realty & Development Co., Ltd. 1.12%

Ownership and distribution of Shares (%):


Head Office:17-11, Akasaka, 2-chome

Tokyo 107-8521, Japan

Corporate Communications Department

Phone: 81-3-6361-7101

Fax: 81-3-5574-6630

URL: http://www.tsumura.co.jp

Founded: April 10, 1893

Incorporated: April 25, 1936

Number of Employees: 2,631 (Consolidated)

plants: Shizuoka, Ibaraki, Shanghai

research Laboratory:Ibaraki

Subsidiaries and Affiliates:

Country Company Business

Japan LoGITEM TSUMURA Co., LTD. Logistics, storage, distribution, and materials handling services

CREATIVE SERVICE, INC. Management of pharmacies

United States TSUMURA USA, INC. Marketing of Tsumura products in the United States

China ShENZhEN TSUMURA MEDICINE Co., LTD. Processing, export, and storage of botanical raw materials

ShANGhAI TSUMURA PhARMACEUTICALS Co., LTD.

Production and sale of Kampo extract intermediates and granular Kampo formulations

SIChUAN ChUANCUN TRADITIoNAL ChINESE MEDICINES Co., LTD.

Production and export of botanical raw materials

Stock Exchange Listing:Tokyo

Stock Code:4540

paid-in Capital:¥19,487 million

Net Assets:¥73,968 million

Common Stock:

Authorized: 250,000,000

Issued: 70,771,662

Closing date of Accounts:March 31

Independent Auditor:Ernst & Young ShinNihon LLC

hibiya Kokusai Bldg.,

2-3, Uchisaiwai-cho 2-chome,


Shareholder register Agent for

Common Stock in japan:Mitsubishi UFJ Trust and

Banking Corporation

4-5, Marunouchi 1-chome,


Number of Shareholders:8,710

COrpOrATE dATAAS oF MARCh 31, 2009

INvESTOr INFOrMATION AS oF MARCh 31, 2009


More Focused, More Driven2009 Annual Report

Printed in Japan with soybean ink

Tsumura & Co.2-17-11, Akasaka, Minato-ku, Tokyo 107-8521, Japan

Annu

al Rep

ort 20

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