A A N N N N U U A A L L R R E E P P O O R R T T 2 2 0 0 1 1 7 7 A A s s t t e e l l l l a a s s P P h h a a r r m m a a I I n n c c . . For the Year Ended March 31, 2017 For the Year Ended March 31, 2017 ANNUAL REPORT ANNUAL REPORT 2017 2017 Contents Business Philosophy Introduction Astellas’ Value Creation Process Astellas’ Evolution Astellas Today Financial and Non-Financial Highlights Editorial Policy Corporate Strategy and Corporate Governance CEO Message Medium-Term Strategy CFO Message CSR-Based Management Corporate Governance Business Review Risk Management Directors and Audit & Supervisory Board Members Interview with an Outside Director 13 17 21 22 25 Executive Committee Top Management Discussion Value Creation and Value Protection Activities Maximizing the Product Value Review of Operations by Therapeutic Area Business Environment and Strategy by Region CSR Activities from Manufacturing to Sales Creating Innovation Research and Clinical Development R&D Topics during the Year CSR Activities in Research and Development Pursuing Operational Excellence Initiatives in the Fiscal Year Ended March 31, 2017 Our People, Our Organization Ethics & Compliance Contribution to the Sustainable Development Goals Access to Health Social Contribution Environmental Preservation Dialogue with Stakeholders Financial Information and Data 11-Year Financial Summary Financial Review Consolidated Financial Statements Notes to Consolidated Financial Statements Independent Auditor’s Report Investor Information Corporate Data/Principal Subsidiaries and Affiliates 2 3 3 5 7 9 11 12 30 31 33 36 37 38 41 43 49 51 53 57 61 63 64 67 71 72 75 77 81 82 83 85 94 99 154 155 156 Cautionary Note In this annual report, statements made with respect to current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Astellas. These statements are based on management’s current assumptions and beliefs in light of the information currently available to it and involve known and unknown risks and uncertainties. A number of factors could cause actual results to differ materially from those discussed in the forward-looking statements. Such factors include, but are not limited to: (i) changes in general economic conditions and in laws and regulations relating to pharmaceutical markets, (ii) currency exchange rate fluctuations, (iii) delays in new product launches, (iv) the inability of Astellas to market existing and new products effectively, (v) the inability of Astellas to continue to effectively research and develop products accepted by customers in highly competitive markets, and (vi) infringements of Astellas’ intellectual property rights by third parties. Information about pharmaceutical products (including products currently in development) which is included in this annual report is not intended to constitute an advertisement or medical advice. 1 Astellas Pharma Inc. ANNUAL REPORT 2017 Contents Business Philosophy Introduction Astellas’ Value Creation Process Astellas’ Evolution Astellas Today Editorial Policy Financial and Non-Financial Highlights Corporate Strategy and Corporate Governance CEO Message Medium-Term Strategy CFO Message CSR-Based Management Corporate Governance Risk Management Directors and Audit & Supervisory Board Members Interview with an Outside Director 13 17 21 22 25 Business Review Executive Committee Top Management Discussion Value Creation and Value Protection Activities Maximizing the Product Value Review of Operations by Therapeutic Area Business Environment and Strategy by Region CSR Activities from Manufacturing to Sales Creating Innovation Research and Clinical Development R&D Topics during the Year CSR Activities in Research and Development Pursuing Operational Initiatives in the Fiscal Year Ended March 31, 2017 Excellence Our People, Our Organization Ethics & Compliance Contribution to the Sustainable Development Goals Access to Health Social Contribution Environmental Preservation Dialogue with Stakeholders Financial Information and Data 11-Year Financial Summary Financial Review Consolidated Financial Statements Investor Information Corporate Data/Principal Subsidiaries and Affiliates 2 3 3 5 7 9 11 12 30 31 33 36 37 38 41 43 49 51 53 57 61 63 64 67 71 72 75 77 81 82 83 85 94 99 100 Cautionary Note In this annual report, statements made with respect to current plans, estimates, strategies and beliefs and other statements that are not historical facts are forward-looking statements about the future performance of Astellas. These statements are based on management’s current assumptions and beliefs in light of the information currently available to it and involve known and unknown risks and uncertainties. A number of factors could cause actual results to differ materially from those discussed in the forward-looking statements. Such factors include, but are not limited to: (i) changes in general economic conditions and in laws and regulations relating to pharmaceutical markets, (ii) currency exchange rate fluctuations, (iii) delays in new product launches, (iv) the inability of Astellas to market existing and new products effectively, (v) the inability of Astellas to continue to effectively research and develop products accepted by customers in highly competitive markets, and (vi) infringements of Astellas’ intellectual property rights by third parties. Information about pharmaceutical products (including products currently in development) which is included in this annual report is not intended to constitute an advertisement or medical advice. Business Philosophy Raison D'être Contribute toward improving the health of people around the world through the provision of innovative and reliable pharmaceutical products • To go beyond all others in exploring and tapping the potential of the life sciences. • To continue tackling new challenges and creating innovative pharmaceutical products. • To deliver quality products along with accurate information and retain solid credibility among customers. • To support healthy living for people around the world. • To continue shining on the global pharmaceutical field. Mission Sustainable enhancement of enterprise value • Astellas will seek to enhance its enterprise value in a sustainable manner. • Astellas will seek to be the company of choice among all its stakeholders, including its customers, shareholders, employees, and the global community. Astellas will strive to gain the trust of all stakeholders and thereby enhance its enterprise value. Beliefs Our “beliefs” provide the code of conduct we prize at all times. Astellas will always be a group of people who act upon these beliefs. High Sense of Ethics Customer Focus Creativity Competitive Focus We will always manage our business with the highest sense of ethics. We will always seek to understand customer needs and our focus will always be on achieving customer satisfaction. We will not be complacent and will always seek to innovate to create new value. Our eyes will always be directed to the outside world, and we will continue to create better value faster. Astellas promises to perform its obligations toward all stakeholders by acting ethically and seeking to actively disclose information. Business Philosophy Raison D'être Mission Beliefs Charter of Corporate Conduct Astellas Group Code of Conduct Charter of Corporate Conduct Astellas is committed to conducting its business activities with the highest ethical standards in order to realize its business philosophy and help enhance the sustainability of society by fulfilling its social responsibilities as a pharmaceutical company. For more details, please refer to WEB https://www.astellas.com/en/about/ charter-of-corporate-conduct/ Astellas Group Code of Conduct The Astellas Group Code of Conduct serves as a common global code of compliance for all officers and employees to ensure that compliance is maintained at all times in the course of conducting business activities. For more details, please refer to WEB https://www.astellas.com/en/about/ group-code-of-conduct/ 2 Astellas Pharma Inc. ANNUAL REPORT 2017 Astellas’ Value Creation Process Astellas stands on the forefront of healthcare change, turning innovative science into value for patients. By repeating this cycle continuously, we are pursuing the sustainable growth of enterprise value. Corporate Governance Create innovative new drugs and medical solutions by leveraging our core capabilities with a central focus on our innovative drug business Focus Areas View business opportunities from multiple perspectives Drivers Core capabilities Astellas Way Earning trust from patients and other stakeholders Principles of Activity Focus our resources on identified areas Redefine the focus when appropriate Expand into new opportunities CSR-Based Management Enhance the sustainability of society and the Company by fulfilling social responsibility Innovative science Value for patients Dialogue with stakeholders Sufficient funds to create innovation Returns to stakeholders Generate funds to sustain growth 3 Our Approach to the Value Creation Process Astellas’ raison d’être is to “contribute toward improving the health of people around the world through the provision of innovative and reliable pharmaceutical products.” Based on this, we aim to stand on the forefront of healthcare change, turning innovative science into value for patients. The keys to our success will be our Focus Areas, Principles of Activity, and Drivers, which describe where we should create value and how we should act to realize that value. Guided by this approach, we will create innovation with a central focus on the innovative drug business. This process originates with advances in science, and Astellas then allocates sufficient funds and implements measures to satisfy the requests and expectations of stakeholders. By creating value for patients, through this process, we will generate funds to sustain the next phase of growth and provide returns to stakeholders. Astellas will continue to follow this cycle to achieve sustainable growth of enterprise value. Focus Areas Amid continuing evolution in the healthcare industry, Astellas needs to identify business opportunities more flexibly and efficiently than ever in order to achieve further growth. We will define our Focus Areas by adding multiple perspectives to our conventional viewpoint of therapeutic areas. We will factor in a consideration of new technologies and treatment approaches, product development feasibility and new possibilities for commercialization, market trends and changes in pharmaceutical laws and regulations. Our goal is to identify areas of unmet need and find new business opportunities. Principles of Activity In a fast-changing business environment, it is crucial to have the flexibility to reexamine business fields as needed—even those that have been carefully selected as opportunities at some point in the past. Astellas aims to drive further evolution by having all employees remain mindful of the three-step process of Focus our resources on identified areas, Redefine the focus when appropriate, and Expand the focus for the next generation of activity, as they carry out their activities. Drivers One of the drivers for Astellas to achieve sustainable growth is its core capabilities, which constitute the source of its competitive edge. It is vital to carefully identify our essential capabilities and enhance them until they are among the world’s best. At the same time, when there are outstanding capabilities outside the Company, we will proactively form partnerships. By combining optimal capabilities, both internal and external, we enhance our productivity and creativity to maximize our value creation capabilities. Moreover, in the Astellas Way*, we have defined a shared set of values to be embraced by all our employees as part of efforts to foster a corporate culture to help realize our business philosophy. At the same time, we remain committed to understanding the requests and expectations of a multitude of stakeholders, including patients, and transforming that understanding into value. * For details on the Astellas Way, Five Messages for One Astellas—Patient Focus, Ownership, Results, Openness, and Integrity—please refer to p. 64. Astellas’ Currently Identified Core Capabilities Capability to Capability to create new drugs deliver new drugs Commercial presence Partnership Operational foundation Corporate Governance P25-29 CSR-Based Management P22-24 IntroductionAstellas Pharma Inc. ANNUAL REPORT 2017 Astellas stands on the forefront of healthcare change, turning innovative science into value for patients. By repeating this cycle continuously, we are pursuing the sustainable growth of enterprise value. Our Approach to the Value Creation Process Astellas’ raison d’être is to “contribute toward improving the health of people around the world through the provision of innovative and reliable pharmaceutical products.” Based on this, we aim to stand on the forefront of healthcare change, turning innovative science into value for patients. The keys to our success will be our Focus Areas, Principles of Activity, and Drivers, which describe where we should create value and how we should act to realize that value. Guided by this approach, we will create innovation with a central focus on the innovative drug business. This process originates with advances in science, and Astellas then allocates sufficient funds and implements measures to satisfy the requests and expectations of stakeholders. By creating value for patients, through this process, we will generate funds to sustain the next phase of growth and provide returns to stakeholders. Astellas will continue to follow this cycle to achieve sustainable growth of enterprise value. Focus Areas Amid continuing evolution in the healthcare industry, Astellas needs to identify business opportunities more flexibly and efficiently than ever in order to achieve further growth. We will define our Focus Areas by adding multiple perspectives to our conventional viewpoint of therapeutic areas. We will factor in a consideration of new technologies and treatment approaches, product development feasibility and new possibilities for commercialization, market trends and changes in pharmaceutical laws and regulations. Our goal is to identify areas of unmet need and find new business opportunities. Principles of Activity In a fast-changing business environment, it is crucial to have the flexibility to reexamine business fields as needed—even those that have been carefully selected as opportunities at some point in the past. Astellas aims to drive further evolution by having all employees remain mindful of the three-step process of Focus our resources on identified areas, Redefine the focus when appropriate, and Expand the focus for the next generation of activity, as they carry out their activities. Drivers One of the drivers for Astellas to achieve sustainable growth is its core capabilities, which constitute the source of its competitive edge. It is vital to carefully identify our essential capabilities and enhance them until they are among the world’s best. At the same time, when there are outstanding capabilities outside the Company, we will proactively form partnerships. By combining optimal capabilities, both internal and external, we enhance our productivity and creativity to maximize our value creation capabilities. Moreover, in the Astellas Way*, we have defined a shared set of values to be embraced by all our employees as part of efforts to foster a corporate culture to help realize our business philosophy. At the same time, we remain committed to understanding the requests and expectations of a multitude of stakeholders, including patients, and transforming that understanding into value. * For details on the Astellas Way, Five Messages for One Astellas—Patient Focus, Ownership, Results, Openness, and Integrity—please refer to p. 64. Astellas’ Currently Identified Core Capabilities Capability to create new drugs Capability to deliver new drugs Commercial presence Partnership Operational foundation Corporate Governance P25-29 CSR-Based Management P22-24 4 Corporate Governance Create innovative new drugs and medical solutions by leveraging our core capabilities with a central focus on our innovative drug business Focus Areas View business opportunities from multiple perspectives Drivers Core capabilities Astellas Way Earning trust from patients and other stakeholders Principles of Activity Focus our resources on identified areas the focus when appropriate Redefine Expand into new opportunities CSR-Based Management Enhance the sustainability of society and the Company by fulfilling social responsibility Innovative science Value for patients Dialogue with stakeholders Sufficient funds to create innovation Returns to stakeholders Generate funds to sustain growth IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Astellas’ Evolution Astellas will steadily expand business by optimally allocating resources, along with focusing on building a business foundation to sustain growth. Mid-Term Management Plan 2010-2014 Overcome the impacts of patent expiry for core products and accelerate growth to a new stage based on both growth and efficiency strategies Mid-Term Management Plan 2006-2010 Concentrate resources on the innovative drug business, strengthening product creation capabilities and building a solid global business foundation Global business expansion in Japan, the Americas, EMEA and Asia & Oceania • Expanded the urology franchise area while maintaining a leading position in transplantation • Implemented growth strategies according to regional characteristics in Japan, the Americas, EMEA and Asia & Oceania R&D • Global in-house development of compounds with high potential • Focused disease areas for research (urology, immunology and inflammatory, central nervous system and pain, diabetes, infectious disease, oncology) • Established global development headquarters in the U.S. • Acquired Agensys, Inc. Implemented growth strategies Cost structure reforms • Realigned the production framework (from 18 to 10 sites) Strategic Plan 2015-2017 Steadily advance three strategic priorities to achieve sustainable growth over the medium and long terms, while flexibly responding to changes in the environment Maximizing the product value P13-16, 17-18, 38, 43-52 • Expanded sales of new products • Rapidly established urology (overactive bladder) and oncology areas as growth drivers P13-16, 19-20, 39, 53-62 Enhancing capabilities to deliver innovative medicines • Open innovation through the Network Research System • Multi-tracked the R&D process through the use of FASTEN • Strengthened, enriched and expanded the pipeline • Acquired Ganymed Pharmaceuticals AG • Focused disease areas for research Existing diseases: Urology, oncology, immunology, nephrology and neuroscience New diseases: Muscle diseases and ophthalmology Advancing into new opportunities • New technologies and new modalities: regenerative medicine, vaccines, etc. • Acquired Ocata Therapeutics, Inc. (cell therapy) • Strengthened oncology (acquired OSI Pharmaceuticals, Create innovation Strategy for therapeutic areas • Strengthened and maintained position as a Global Category Leader (GCL) in the urology and transplantation areas Inc.) as a third GCL area Regional strategy • Implemented well-balanced business expansion in Japan, the Americas, EMEA and Asia & Oceania • Invested further in emerging countries R&D innovation strategy • Promoted a precision medicine approach • Harnessed cutting-edge technologies (antibody, regenerative medicine, vaccines, etc.) • Focused disease areas for research (urology, immunology and infectious diseases, oncology, neuroscience diseases, diabetes complications and metabolic diseases) • Enriched and expanded the pipeline Utilization of human resources • Achieved an agile, highly productive organizational structure and optimized personnel Efficiency strategy • Allocated resources efficiently through execution of the therapeutic area strategy • Optimal allocation of expenses Pursuing operational excellence P13-16, 20, 40, 63-70 • Streamlined costs further by reviewing operational processes • Five approaches, including the optimal reallocation of resources Initiatives to fulfill social responsibilities Value protection Activities centered on environmental preservation, ethics and compliance and social contribution Value creation + Value protection Contribution through business, including activities to improve Access to Health, in addition to existing activities based on CSR Market capitalization (¥ billion) • Patent expiry of Harnal and Prograf • Launched XTANDI and Betanis/Myrbetriq/BETMIGA 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (Year) 5,000 4,000 3,000 2,000 1,000 0 5 IntroductionAstellas Pharma Inc. ANNUAL REPORT 2017 Astellas will steadily expand business by optimally allocating resources, along with focusing on building a business foundation to sustain growth. Mid-Term Management Plan 2006-2010 Concentrate resources on the innovative drug business, strengthening product creation capabilities and building a solid global business foundation Global business expansion in Japan, the Americas, EMEA and Asia & Oceania • Expanded the urology franchise area while maintaining a leading position in transplantation • Implemented growth strategies according to regional characteristics in Japan, the Americas, EMEA and Asia & Oceania R&D • Global in-house development of compounds with high potential • Focused disease areas for research (urology, immunology and inflammatory, central nervous system and pain, diabetes, infectious disease, oncology) • Established global development headquarters in the U.S. • Acquired Agensys, Inc. Implemented growth strategies Cost structure reforms • Realigned the production framework (from 18 to 10 sites) Mid-Term Management Plan 2010-2014 Overcome the impacts of patent expiry for core products and accelerate growth to a new stage based on both growth and efficiency strategies Strategy for therapeutic areas • Strengthened and maintained position as a Global Category Leader (GCL) in the urology and transplantation areas • Strengthened oncology (acquired OSI Pharmaceuticals, Inc.) as a third GCL area Regional strategy • Implemented well-balanced business expansion in Japan, the Americas, EMEA and Asia & Oceania • Invested further in emerging countries R&D innovation strategy • Promoted a precision medicine approach • Harnessed cutting-edge technologies (antibody, regenerative medicine, vaccines, etc.) • Focused disease areas for research (urology, immunology and infectious diseases, oncology, neuroscience diseases, diabetes complications and metabolic diseases) • Enriched and expanded the pipeline 2015-2017 Strategic Plan Steadily advance three strategic priorities to achieve sustainable growth over the medium and long terms, while flexibly responding to changes in the environment Maximizing the product value • Expanded sales of new products • Rapidly established urology (overactive bladder) and P13-16, 17-18, 38, 43-52 oncology areas as growth drivers Create innovation P13-16, 19-20, 39, 53-62 Enhancing capabilities to deliver innovative medicines • Open innovation through the Network Research System • Multi-tracked the R&D process through the use of FASTEN • Strengthened, enriched and expanded the pipeline • Acquired Ganymed Pharmaceuticals AG • Focused disease areas for research Existing diseases: Urology, oncology, immunology, nephrology and neuroscience New diseases: Muscle diseases and ophthalmology Advancing into new opportunities • New technologies and new modalities: regenerative medicine, vaccines, etc. • Acquired Ocata Therapeutics, Inc. (cell therapy) Utilization of human resources • Achieved an agile, highly productive organizational structure and optimized personnel Efficiency strategy • Allocated resources efficiently through execution of the therapeutic area strategy • Optimal allocation of expenses • Streamlined costs further by reviewing operational processes Pursuing operational excellence • Five approaches, including the optimal reallocation of resources P13-16, 20, 40, 63-70 Value protection Activities centered on environmental preservation, ethics and compliance and social contribution Value creation + Value protection Contribution through business, including activities to improve Access to Health, in addition to existing activities based on CSR • Patent expiry of Harnal and Prograf • Launched XTANDI and Betanis/Myrbetriq/BETMIGA 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 (Year) 6 Initiatives to fulfill social responsibilities Market capitalization (¥ billion) 5,000 4,000 3,000 2,000 1,000 0 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Astellas Today (Fiscal 2016/as of March 31, 2017) As a global pharmaceutical company conducting business in more than 50 countries around the world, Astellas is focused on expanding new drugs and growth products, and creating innovative medicines that will help it to achieve sustainable growth. Market capitalization (as of June 30, 2017) ¥2.8 trillion Sales ¥1,311.7 billion Core Operating Profit ¥274.6 billion Core Operating Margin 20.9% ROE 17.3% Related Information Definition of Financial Results on a Core Basis P10 7 R&D Expenses ¥208.1 billion R&D Ratio to Sales % 15.9 35 Number of new molecular/ biological entities in the pipeline * Number of new molecular/biological entities in the pipeline as of April 2017 (partially updated) Number of ongoing collaborative research projects More than100 Number of R&D personnel Approx. 3,200 Sales composition of the three main therapeutic areas and main products Oncology 23.5 % • XTANDI Urology 16.4 • Vesicare % • Betanis/Myrbetriq/BETMIGA Transplantation 14.2 % • Prograf Number of countries where Astellas Sales by region has its own distribution channels Asia & Oceania Japan countries50 Approx. Number of Medical Representatives (MRs) 5,750 Approx. ¥87.7 billion 6.7 % EMEA ¥330.8 billion 25.2 % Number of employees by region Number of employees 17,202 Asia & Oceania 2,485 EMEA 4,672 ¥480.8 billion 36.7 % Americas ¥412.4 billion 31.4 % Japan 7,029 Americas 3,016 IntroductionAstellas Pharma Inc. ANNUAL REPORT 2017 As a global pharmaceutical company conducting business in more than 50 countries around the world, Astellas is focused on expanding new drugs and growth products, and creating innovative medicines that will help it to achieve sustainable growth. Sales composition of the three main therapeutic areas and main products Oncology 23.5 % • XTANDI Transplantation 14.2 % • Prograf Urology 16.4 % • Vesicare • Betanis/Myrbetriq/BETMIGA Number of countries where Astellas has its own distribution channels Number of Medical Representatives (MRs) Approx. countries50 5,750 Approx. Sales by region Asia & Oceania ¥87.7 6.7 % billion EMEA ¥330.8 billion 25.2 % Number of employees by region Number of employees 17,202 Asia & Oceania 2,485 EMEA 4,672 Japan ¥480.8 36.7 billion % Americas ¥412.4 billion 31.4 % Japan 7,029 Americas 3,016 8 Market capitalization (as of June 30, 2017) ¥2.8 trillion Sales ¥1,311.7 billion Core Operating Profit ¥274.6 billion Core Operating Margin 20.9% R&D Expenses ¥208.1 billion R&D Ratio to Sales 15.9 % Number of new molecular/ biological entities in the pipeline 35 * Number of new molecular/biological entities in the pipeline as of April 2017 (partially updated) Number of ongoing collaborative research projects More than100 ROE 17.3% Related Information Definition of Financial Results on a Core Basis P10 Number of R&D personnel Approx. 3,200 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Financial and Non-Financial Highlights Despite a decline in sales in the fiscal year ended March 31, 2017 due to the impact of foreign exchange rates, all levels of profit increased. We will steadily advance initiatives on strategic priorities for sustainable growth. Sales by Region Core Operating Profit / Core Operating Margin R&D Expenses / R&D Ratio to Sales Dividends per Share / DOE Number of Participants in Changing Tomorrow Day 1,311.7 87.7 330.8 74.2 313.3 329.3 1,372.7 91.1 1,247.3 Core operating margin (%) 25 Japan Americas EMEA Asia & Oceania Core operating profit (¥ billion) 1,500.0 1,200.0 900.0 600.0 300.0 0 (¥ billion) 400.0 320.0 240.0 160.0 80.0 0 361.0 455.1 412.4 498.7 497.2 480.8 20.9 19.5 267.5 274.6 17.4 216.5 20 15 10 5 0 R&D expenses R&D ratio to sales Dividends per share Japan Americas EMEA Asia & Oceania (¥ billion) 350.0 280.0 16.6 16.4 15.9 210.0 206.6 225.7 208.1 140.0 70.0 0 (%) 20 16 12 8 4 0 (¥) 50 40 30 20 10 0 (TJ) 5,000 3,000 2,000 1,000 0 5.1 30 5.4 32 5.6 34 DOE (%) 6 5 4 3 2 1 0 10,000 7,500 5,000 2,500 0 over 6,937 7,449 682 over 597 2,246 1,133 472 2,179 6,618 724 410 2,198 3,412 3,665 3,286 Number of Employees / Female Employee Ratio / Female Manager Ratio Number of employees (people) 50,000 Female employee ratio Female manager ratio 42.6 29.9 43.5 44.0 32.2 32.6 17,113 17,217 17,202 40,000 30,000 20,000 10,000 0 (%) 50 40 30 20 10 0 Energy Consumption / Greenhouse Gas Emissions Energy consumption Greenhouse gas emissions 4,000 3,923 3,917 3,801 10,456 10,331 8,788 (kilotons) 500 (thousand m3) 12,000 400 300 200 100 0 9,000 6,000 3,000 0 210 185 179 Definition of Financial Results on a Core Basis We disclose our financial results under IFRS on a core basis to help provide an accurate indication of the Group’s recurring profitability. Certain items reported in financial results under IFRS on a full basis that are deemed to be non-recurring items by the Company are excluded as non-core items on a core basis. Consolidated Financial Consolidated Financial Results (Full Basis) Results (Core Basis) Sales Cost of sales Gross profit Selling, general and administrative expenses R&D expenses Amortisation of intangible assets Share of profits of associates and joint ventures Other income Other expense Operating profit Finance income Finance expense Profit before tax Income tax expense Profit for the year Non-recurring other income and other expense within IFRS-based operating profit are excluded (for example, items such as impairment losses or restructuring expenses) Core operating profit Adjustments for finance income and finance expense (for example, gain (loss) on sale of available-for-sale (AFS) financial assets and impairment losses on AFS financial assets are excluded) Core profit for the year 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 Consolidated sales decreased by 4.4% year on year. Sales in Japan decreased mainly due to the impact of revisions to NHI drug prices, while sales in the Americas, EMEA and Asia & Oceania increased excluding the foreign exchange impact. Core operating profit increased 2.7% year on year to ¥274.6 billion. The core operating margin was 20.9%. Excluding the impact of foreign exchange rates and the transfer of the dermatology business, core operating profit rose 9%. Research and development (R&D) expenses decreased 7.8% year on year to ¥208.1 billion, partly due to the impact of foreign exchange rates. The ratio of R&D expenses to sales was 15.9%. Astellas strives to increase dividend payments stably and continuously based on medium- to long-term profit growth. In fiscal 2016, the annual dividend was ¥34 per share, representing a DOE of 5.6%. Astellas employees conduct a variety of volunteer activities as part of Changing Tomorrow Day based on the themes of promoting healthcare and maintaining the environment. In fiscal 2016, 6,618 employees participated in Changing Tomorrow Day worldwide. On a global basis, the female employee ratio was 44.0%, and the female manager ratio was 32.6%. In Japan, where the ratio of female employees in managerial positions is particularly low, improving the female manager ratio is an urgent issue for Astellas. Core Profit for the Year Free Cash Flow ROE Amount of Water Withdrawal 213.3 198.8 153.2 (¥ billion) 240.0 180.0 120.0 60.0 0 166.7 162.2 116.2 (¥ billion) 200.0 150.0 100.0 50.0 0 (%) 20 15 10 5 0 17.3 15.0 10.5 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 Core profit for the year increased by 7.3% year on year to ¥213.3 billion, tracking the increase in core operating profit. Free cash flow in fiscal 2016 was ¥162.2 billion, as a decrease in net cash flows from operating activities were mostly offset by an increase in proceeds from sales of available-for-sale financial assets. ROE was 17.3%. Positioning ROE as a key performance indicator, Astellas aims to maintain and improve ROE over the medium to long term by maximizing earnings capabilities and enhancing capital efficiency. Greenhouse gas emissions were 179 kilotons. Emissions were reduced mainly due to improvement in the electricity CO2 emissions coefficient and the transfer of the Norman Plant in the U.S. Aiming to establish a recycling-oriented society, Astellas has been striving to reduce water withdrawal. In fiscal 2016, Astellas established a new management indicator called “water resources productivity” (page 79), and has been working to make improvements on this front. * Figures for prior fiscal years are restated to reflect the addition of overseas research sites to the scope of reporting. 9 IntroductionAstellas Pharma Inc. ANNUAL REPORT 2017 Despite a decline in sales in the fiscal year ended March 31, 2017 due to the impact of foreign exchange rates, all levels of profit increased. We will steadily advance initiatives on strategic priorities for sustainable growth. Sales by Region (¥ billion) 1,500.0 1,200.0 1,247.3 900.0 600.0 300.0 0 1,372.7 1,311.7 91.1 74.2 313.3 329.3 87.7 330.8 361.0 455.1 412.4 498.7 497.2 480.8 20.9 19.5 267.5 274.6 17.4 216.5 16.6 16.4 15.9 210.0 206.6 225.7 208.1 Core operating margin (%) 25 20 15 10 5 0 (¥ billion) 350.0 280.0 140.0 70.0 0 (%) 20 16 12 8 4 0 Core Operating Profit / Core Operating Margin R&D Expenses / R&D Ratio to Sales Dividends per Share / DOE Number of Participants in Changing Tomorrow Day Japan Americas EMEA Asia & Oceania Core operating profit R&D expenses R&D ratio to sales Dividends per share 5.1 30 5.4 32 5.6 34 (¥) 50 40 30 20 10 0 DOE (%) 6 5 4 3 2 1 0 Japan Americas EMEA Asia & Oceania 10,000 7,500 5,000 2,500 0 over 6,937 682 over 597 2,246 7,449 1,133 472 2,179 6,618 724 410 2,198 3,412 3,665 3,286 Number of Employees / Female Employee Ratio / Female Manager Ratio Number of employees (people) 50,000 Female employee ratio Female manager ratio (%) 50 42.6 29.9 43.5 44.0 32.2 32.6 17,113 17,217 17,202 40,000 30,000 20,000 10,000 0 40 30 20 10 0 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 Consolidated sales decreased by 4.4% year on year. Sales in Japan decreased mainly due to the impact of revisions to NHI drug prices, while sales in the Americas, EMEA and Asia & Oceania increased excluding the foreign exchange impact. Core operating profit increased 2.7% year on year to ¥274.6 billion. The core operating margin was 20.9%. Excluding the impact of foreign exchange rates and the transfer of the dermatology business, core operating profit rose 9%. Research and development (R&D) expenses decreased 7.8% year on year to ¥208.1 billion, partly due to the impact of foreign exchange rates. The ratio of R&D expenses to sales was 15.9%. Astellas strives to increase dividend payments stably and continuously based on medium- to long-term profit growth. In fiscal 2016, the annual dividend was ¥34 per share, representing a DOE of 5.6%. Astellas employees conduct a variety of volunteer activities as part of Changing Tomorrow Day based on the themes of promoting healthcare and maintaining the environment. In fiscal 2016, 6,618 employees participated in Changing Tomorrow Day worldwide. On a global basis, the female employee ratio was 44.0%, and the female manager ratio was 32.6%. In Japan, where the ratio of female employees in managerial positions is particularly low, improving the female manager ratio is an urgent issue for Astellas. Core Profit for the Year Free Cash Flow ROE 213.3 198.8 153.2 166.7 162.2 17.3 15.0 116.2 10.5 (¥ billion) 240.0 180.0 120.0 60.0 0 (%) 20 15 10 5 0 Energy Consumption / Greenhouse Gas Emissions Energy consumption Greenhouse gas emissions Amount of Water Withdrawal (TJ) 5,000 (kilotons) 500 (thousand m3) 12,000 10,456 10,331 8,788 4,000 3,923 3,917 3,801 210 185 179 3,000 2,000 1,000 0 400 300 200 100 0 9,000 6,000 3,000 0 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 2015.3 2016.3 2017.3 Core profit for the year increased by 7.3% year on year to ¥213.3 billion, tracking the increase in core operating profit. Free cash flow in fiscal 2016 was ¥162.2 billion, as a decrease in net cash flows from operating activities were mostly offset by an increase in proceeds from sales of available-for-sale financial assets. ROE was 17.3%. Positioning ROE as a key performance indicator, Astellas aims to maintain and improve ROE over the medium to long term by maximizing earnings capabilities and enhancing capital efficiency. Greenhouse gas emissions were 179 kilotons. Emissions were reduced mainly due to improvement in the electricity CO2 emissions coefficient and the transfer of the Norman Plant in the U.S. Aiming to establish a recycling-oriented society, Astellas has been striving to reduce water withdrawal. In fiscal 2016, Astellas established a new management indicator called “water resources productivity” (page 79), and has been working to make improvements on this front. * Figures for prior fiscal years are restated to reflect the addition of overseas research sites to the scope of reporting. Definition of Financial Results on a Core Basis We disclose our financial results under IFRS on a core basis to help provide an accurate indication of the Group’s recurring profitability. Certain items reported in financial results under IFRS on a full basis that are deemed to be non-recurring items by the Company are excluded as non-core items on a core basis. Consolidated Financial Results (Full Basis) Consolidated Financial Results (Core Basis) Sales Cost of sales Gross profit Selling, general and administrative expenses R&D expenses Amortisation of intangible assets Share of profits of associates and joint ventures Other income Other expense Operating profit Finance income Finance expense Profit before tax Income tax expense Profit for the year Non-recurring other income and other expense within IFRS-based operating profit are excluded (for example, items such as impairment losses or restructuring expenses) Core operating profit Adjustments for finance income and finance expense (for example, gain (loss) on sale of available-for-sale (AFS) financial assets and impairment losses on AFS financial assets are excluded) Core profit for the year 10 (¥ billion) 400.0 320.0 240.0 160.0 80.0 0 (¥ billion) 200.0 150.0 100.0 50.0 0 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Corporate Strategy and Corporate Governance Anticipating and Flexibly Incorporating Change Is the Key to Achieving Sustained Growth Astellas will proactively incorporate state-of-the-art scientific and technological advances and turn them into value for patients. To achieve this, we will continue to transform ourselves and flexibly utilize external capabilities. We will make ceaseless efforts to further increase society’s trust in us. Astellas will continue these initiatives in response to a rapidly changing business environment, thereby achieving sustained growth. Editorial Policy To enable deeper stakeholder understanding of Astellas’ efforts to continue to create value for sustainable growth, the Company has published this annual report as an integrated report. In this report, we have attempted to provide disclosure while taking note of the Guiding Principles and Content Elements of the international integrated reporting framework of the International Integrated Reporting Council (IIRC). We have also referred to G4 Sustainability Reporting Guidelines* published by the Global Reporting Initiative and Environmental Reporting Guidelines (Fiscal Year 2012 Version) issued by Japan’s Ministry of the Environment. In creating the report, we have sought to make an effective tool for communicating with our many stakeholders. We have therefore used charts and photographs, and endeavored to use plain language that is easy to read. Astellas has adopted the International Financial Reporting Standards (IFRS), effective from fiscal 2013. Information in this report is based on IFRS unless otherwise indicated. * For the GRI Content Index, please visit the following website: https://www.astellas.com/en/csr/management/report.html Scope of the Report Period covered Fiscal 2016 (April 1, 2016 - March 31, 2017) * As much as possible, we have used the latest information available at the time of publication. * The period and scope of coverage may vary depending on the subject. We have noted each such case individually. * The figures indicated in the field of Environment represent the results for fiscal 2016 (April 1, 2016 to March 31, 2017) in Japan and the calendar year 2016 (January 1 to December 31, 2016) for overseas operations as a combined total. Organizations covered Astellas Pharma Inc. and its consolidated subsidiaries in Japan and overseas (referred to in the report as “Astellas”) * The Americas includes North America and Latin America, and EMEA includes Europe, the Middle East, and Africa. * In the field of Environment, the report covers all business sites in Japan and production sites overseas, which are subject to the Environmental Action Plan, as well as overseas sites not covered by the plan such as principal office buildings, research facilities, sales office buildings, and sales fleets. Note: In the information about pharmaceutical products in this report, market size, market share and product ranking are sourced from IMS Health Information Services. Copyright © 2017 QuintilesIMS. Calculated based on IMS MIDAS 2017Q1 MAT Reprinted with permission Astellas has launched a new global website as part of efforts to enhance the transparency of the Company and to strengthen its brand power. In order to promote further understanding of Astellas, the website is designed to be easy to read, easy to use, and easy to understand, and features content created according to these goals. By harnessing a variety of communication tools, including this new website, Astellas will work to provide timely and proper disclosure, as it strive to become the company of choice for all stakeholders. Websites Global Website https://www.astellas.com/en/ 11 IntroductionAstellas Pharma Inc. ANNUAL REPORT 2017 Editorial Policy To enable deeper stakeholder understanding of Scope of the Report Astellas’ efforts to continue to create value for sustainable growth, the Company has published this annual report as an integrated report. In this report, we have attempted to provide disclosure while taking note of the Guiding Principles and Content Elements of the international integrated reporting framework of the International Integrated Reporting Council (IIRC). We have also referred to G4 Sustainability Reporting Guidelines* published by the Global Reporting Initiative and Environmental Reporting Guidelines (Fiscal Year 2012 Version) issued by Japan’s Ministry of the Environment. In creating the report, we have sought to make an effective tool for communicating with our many stakeholders. We have therefore used charts and photographs, and endeavored to use plain language that is easy to read. Astellas has adopted the International Financial Reporting Standards (IFRS), effective from fiscal 2013. Information in this report is based on IFRS unless otherwise indicated. * For the GRI Content Index, please visit the following website: https://www.astellas.com/en/csr/management/report.html Period covered Fiscal 2016 (April 1, 2016 - March 31, 2017) * As much as possible, we have used the latest information available at the time of publication. * The period and scope of coverage may vary depending on the subject. We have noted each such case individually. * The figures indicated in the field of Environment represent the results for fiscal 2016 (April 1, 2016 to March 31, 2017) in Japan and the calendar year 2016 (January 1 to December 31, 2016) for overseas operations as a combined total. Organizations covered Astellas Pharma Inc. and its consolidated subsidiaries in Japan and overseas (referred to in the report as “Astellas”) * The Americas includes North America and Latin America, and EMEA includes Europe, the Middle East, and Africa. * In the field of Environment, the report covers all business sites in Japan and production sites overseas, which are subject to the Environmental Action Plan, as well as overseas sites not covered by the plan such as principal office buildings, research facilities, sales office buildings, and sales fleets. Note: In the information about pharmaceutical products in this report, market size, market share and product ranking are sourced from IMS Health Information Services. Copyright © 2017 QuintilesIMS. Calculated based on IMS MIDAS 2017Q1 MAT Reprinted with permission Websites Global Website https://www.astellas.com/en/ Astellas has launched a new global website as part of efforts to enhance the transparency of the Company and to strengthen its brand power. In order to promote further understanding of Astellas, the website is designed to be easy to read, easy to use, and easy to understand, and features content created according to these goals. By harnessing a variety of communication tools, including this new website, Astellas will work to provide timely and proper disclosure, as it strive to become the company of choice for all stakeholders. Corporate Strategy and Corporate Governance Anticipating and Flexibly Incorporating Change Is the Key to Achieving Sustained Growth Astellas will proactively incorporate state-of-the-art scientific and technological advances and turn them into value for patients. To achieve this, we will continue to transform ourselves and flexibly utilize external capabilities. We will make ceaseless efforts to further increase society’s trust in us. Astellas will continue these initiatives in response to a rapidly changing business environment, thereby achieving sustained growth. 12 Astellas Pharma Inc. ANNUAL REPORT 2017 CEO Message Flexibly Incorporate Cutting-Edge Science and Technology, Turning It into Value for Patients Yoshihiko Hatanaka Representative Director, President and CEO The Environment Surrounding the Pharmaceutical Industry and Astellas’ Vision Reference As Long as We Don’t Lose Our Vision, We Can Surmount a Changing Business Environment As the business environment surrounding Astellas undergoes changes, I believe there are two broad themes that will profoundly impact our businesses. The first theme is productivity in R&D. Drug discovery is becoming increasingly difficult because drug targets have become more complicated and the regulatory standard for new drug approval has become more strict. Under these conditions, R&D productivity has been decreasing, presenting a major issue for the entire pharmaceutical industry. The second theme concerns the problems surrounding access to medicine. Poverty, underdeveloped healthcare systems, and other factors have hindered patient access to medicines. We must find ways of improving access to medicines for the people who need them. Moreover, in the past few years, there has been extremely strong pressure in various countries to reduce the price of pharmaceuticals caused by healthcare financing and patients’ affordability. Meanwhile, these changes in the environment are major management priorities for pharmaceutical companies. If we could solve the challenges they present, we would be able to deliver significant value to patients. I believe that we must always keep this perspective in mind. If we are able to improve R&D productivity, we could deliver treatment modalities as early as possible to patients who previously did not have any effective treatment options. Improving patient access to medicines is an issue that must be ultimately examined based on the value for patients. In the past, pharmaceutical companies have seen their roles as confined to developing good medicines, obtaining regulatory approval, and launching those products in the marketplace. They have not 13 Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 taken adequate steps to ensure access to medicines by individual patients. However, only after launched drugs reach patients do they show their worth. Going forward, I believe that we must take proactive steps on this front as well. The environment surrounding Astellas has been changing at a dizzying pace and has become increasingly complex. However, Astellas’ vision—turning innovative science on the forefront of healthcare change into value for patients —will guide us forward as we determine our future course of action. As long as we stay focused on our vision, I’m confident that we will be able to find a way to surmount our challenging environment. Reference Medium-Term Strategy P17 Our People, Our Organization P64 Imperatives for Further Growth Our Vision and Strategy Remain Unchanged, but More Flexible Collaboration with External Partners Is Now Crucial There has been no change in our vision, or our strategy for realizing the vision, which is our goal. However, in the course of executing our strategy, I believe that it has become more crucial than ever to build up a flexible network and incorporate external capabilities. One key to solving the issues I discussed earlier is technological advancement. In drug discovery fields, the flexible use of new technologies, such as regenerative medicine, cell therapy, gene therapy, and platforms for new vaccines, will enable us to take unprecedented approaches to delivering innovative medicines. Advances in information technology are also becoming a critical factor behind drug discovery. The use of real-world data* is expected to help improve overall R&D productivity and the probability of success as a matter of course. Real-world data is also expected to be used to clarify the basis for setting drug prices. Apart from this, technologies that could dramatically increase value provided to patients and society as a whole are continuously evolving day by day, driven by progress on artificial intelligence, diagnostic technologies and other fronts. Based on this reasoning, we cannot completely create the final value we deliver using our own internal resources alone. That is why we must enhance our sensitivity to the world outside the Company and flexibly incorporate new technologies, human resources, approaches, and methods. In doing so, we must enhance Astellas’ Group-wide capabilities and continuously create innovation that maximizes the final value we deliver. This approach will be absolutely essential to driving our strategies even further. * Anonymized data obtained from clinical sites. Highly Eager to Obtain New Technology and Evolving into a Company Which Is Flexibly Incorporating External Capabilities Our vision is to turn innovative science into value for patients. That vision cannot be realized simply by preparing products and organizations already in place. The success of the vision will depend on whether every employee working at Astellas will take ownership of their duties based on an understanding of the Astellas Way and our aspirations for the organization. Guided by this firm belief, we have compiled our HR Vision, which lays out expectations for human resources and organizations that all members of Astellas should share on a global basis, and we have been concentrating on instilling this vision in employees. 14 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 We have been working to foster an organizational culture and nurture human resources by Reference consistently conveying the importance of respecting diversity, anticipating change and embracing Medium-Term Strategy challenges, focusing our thinking outwards and flexibly incorporating new initiatives. These efforts are already producing concrete results. For example, in the research field, Astellas has realized more than 20 new collaborations in the space of around three years. In new therapeutic areas (muscle diseases and ophthalmology), we have rapidly launched new projects in tandem by adding several P17 Business Review P36 new collaborations in these areas. Moreover, in the real-world informatics function*, in just 1.5 years since this initiative was started, we have already completed numerous analyses and are sharing the results across various departments and regions. I am confident that Astellas is highly eager to obtain new technology and has been evolving into a company that is flexibly incorporating external capabilities and transforming them into its own strengths. * A department launched in July 2015 that integrates the utilization of big data and its capabilities into a single specialized function. Progress on Strategic Priorities in the Strategic Plan Steady Progress on the Three Strategic Priorities Strengthening the Current Base and the Foundations for Medium- to Long-Term Growth As the President and CEO of Astellas, my duties are to lay the groundwork for Astellas to incorporate new initiatives in the manner described above and to transform these new initiatives into the Company’s own strengths. I also have a duty to constantly consider and decide on trade- offs between what to incorporate as new initiatives and what to discontinue in their place. If we only incorporate new initiatives without discontinuing other operations, management will become inefficient. Astellas will always flexibly review its own operations and take decisive measures with speed, such as by reshaping its business portfolio. In fact, this commitment is embodied by one of our strategic themes, “Pursuing Operational Excellence.” In the fiscal year ended March 31, 2017, we accelerated these initiatives through the transfer of our global dermatology business and 16 long-listed products manufactured and marketed in Japan. With regard to “Maximizing the Product Value,” we saw steady growth in the oncology field driven by the prostate cancer treatment XTANDI and in the overactive bladder (OAB) franchise. In other areas, there was a steady expansion in products underpinning growth in each region. Overall, performance is progressing largely as planned. In “Creating Innovation,” development projects in late-stage clinical development are advancing steadily, beginning with gilteritinib. In addition, we launched new products such as Repatha, a treatment for hypercholesterolemia, in Japan. Moreover, we are pushing ahead with initiatives that will contribute to patients over the medium and long terms, including advancing R&D in new therapeutic areas and treatment modalities, including muscle diseases, ophthalmology, and next-generation vaccines, along with expanding late-stage development assets through the acquisition of Ganymed Pharmaceuticals AG and Ogeda SA. 15 Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 Measures to Address Compliance A Stronger Focus on Building a Foundation to Ensure Trust We regard compliance as a crucial undertaking to maintain Astellas’ sustained growth and the trust of stakeholders into the future. First and foremost, all members of Astellas must conduct themselves based on high ethics, besides ensuring compliance with laws and regulations as a matter of course. In addition, as the responsibility of a company undertaking business in over 50 countries around the world, we must encourage the business partners with whom we work with in each country to conduct themselves in accordance with Astellas’ high ethical standards. To realize these initiatives at a higher level, we unified the Astellas Group Code of Conduct on a global basis and reconfigured the Ethics & Compliance Department as a global organization completely independent of the operating divisions. We are a consistent supporter of the United Nations Global Compact, and have incorporated its 10 principles covering the four fields of human rights, labor, the environment and anti- Reference Ethics & Compliance P67 Contribution to the Sustainable Development Goals P71 Access to Health P72 corruption into our daily business activities. Measures to Address Access to Health Issues Promoting This Initiative Proactively in Cooperation with External Partners To address Access to Health issues, which is a global priority, we continue to make contributions by harnessing our technologies, expertise and resources in each of the following four areas: (1) Creating innovation, which is our core business, (2) Enhancing availability, (3) Strengthening healthcare systems, and (4) Improving health literacy. In January 2017, we participated in Access Accelerated, a global initiative to enhance access to the prevention, diagnosis, and treatment of non-communicable diseases in low income countries and lower middle income countries. Going forward, we will expand these activities in cooperation with governments, other pharmaceutical companies, and third-party bodies. To Our Stakeholders Achieve Long-Term Growth by Capturing Change and Turning It into Value for Patients The business environment surrounding the pharmaceutical industry is in constant flux. Astellas will achieve long-term growth by capturing this change and turning it into value for patients. I would like our stakeholders to constantly evaluate whether Astellas is definitely evolving into the realization of its vision. We aim to create new value based on dialogue with our stakeholders by implementing even higher quality management. Yoshihiko Hatanaka Representative Director, President and CEO 16 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Medium-Term Strategy Focusing on three strategic priorities for realizing sustainable growth over the medium and long terms Overview of Strategic Plan 2015-2017 Maximizing the product value Enhancing capabilities to deliver innovative medicines Advancing into new opportunities Creating innovation Exploring and capturing external business opportunities through acquisition, collaboration, and in-licensing Net sales Pursuing operational excellence 2015.3 2016.3 2017.3 2018.3 Under Strategic Plan 2015-2017, covering the three years from fiscal 2015 to fiscal 2017, we will work on three strategic priorities. We target “Maximizing the Product Value,” including XTANDI and our overactive bladder (OAB) franchise, “Creating Innovation” to sustainably create innovative drugs, and “Pursuing Operational Excellence” in order to enhance our ability to address the changing business environment. By steadily implementing these, we are working to overcome the impact of the substance patent expiries for our OAB treatment Vesicare and our anticancer product Tarceva in the period of 2018 to 2020, and aim to achieve sustainable growth. Financial Guidance Astellas has recognized return on equity attributable to owners of the parent (ROE) as an important management indicator. Under Strategic Plan 2015-2017, we aim to achieve ROE of 15% or more by seeking to maximize our earnings capabilities while ensuring that we enhance capital efficiency. We also aim to maintain and improve this level after the strategic plan period. We prioritize the maximization of our earnings capabilities by maximizing the product value as a way of achieving growth in sales, while promoting measures to optimize cost of sales and SG&A expenses. In this way, we seek to maximize operating profit prior to deduction of R&D expenses. We plan to direct sufficient resources to investment in R&D to existing therapeutic areas as well as new opportunities, while also working to improve our operating margin. Moreover, we are pursuing balance sheet management and actively targeting shareholder returns, to enhance capital efficiency. 17 Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 Financial guidance regarding the figures during the period of the current strategic plan is as follows. Financial Guidance in Strategic Plan 2015-2017 Expanding Sales in the Major Therapeutic Areas Astellas is working to expand sales in therapeutic areas which have major products, including oncology and OAB franchises. ROE 15% or more Maintain and improve this level after the strategic plan period Consolidated Sales Core Operating Profit CAGR (%): Mid-single-digit CAGR that exceeds sales CAGR R&D Expenses Higher than 17% against sales Core EPS*1 CAGR that exceeds core operating profit CAGR DOE*2 6% or more *1 Core earnings per share *2 Dividend on equity attributable to owners of the parent Maximizing the Product Value Targeting Medium- to Long-Term Growth by Expanding Mainstay Products and New Product Group Sales To ensure sustainable growth during and after the current strategic plan, Astellas will maximize the value of the products that have been realized through its investments to date. In particular, Astellas will prioritize the investment of resources in its mainstay products and new product group centered on XTANDI and the OAB franchise. In this way, during the strategic plan, we forecast that the relative composition ratio in total sales will decrease for key products for which patents will expire by 2020. Nurturing the major and new product groups early is an important measure to overcome the impacts from patent expiry. Oncology Franchise Our efforts are focused on maximizing the value of XTANDI, our growth driver. We will work to expand the geographical sales area of XTANDI, while also working for label expansion to chemotherapy- naïve prostate cancer and early penetration in each country. Moreover, we will steadily advance clinical trials with the aim of expanding indications for earlier stages of prostate cancer. OAB Franchise To overcome the anticipated impact from the patent expiry of Vesicare and continue to increase the value of our franchise, we will work intensively to drive market penetration of Betanis/Myrbetriq/BETMIGA as a new option for OAB treatment. In the final year of the strategic plan, sales of Betanis/Myrbetriq/BETMIGA are expected to have increased to account for approximately half of the overall sales of the OAB franchise. Other Areas The transplantation franchise has established a strong presence with the immunosuppressant Prograf. We expect continued growth in Prograf in emerging countries, despite declines in the Americas, EMEA, and Japan, where the substance patent has expired. In resource allocation, we will prioritize new products in each region, aiming to achieve sales expansion at an early stage. In Japan, we will work to steadily achieve market penetration of new products including Suglat for type 2 diabetes, Repatha for hypercholesterolemia, and LINZESS which was launched for irritable bowel syndrome with constipation in March 2017. Major Initiatives in Year Ended March 31, 2017 • Growth of XTANDI • Expansion of Betanis/Myrbetriq/BETMIGA in the OAB Franchise • Maximization of product value in other areas P43 P45 P47 18 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Creating Innovation Enhancing Capabilities to Deliver Innovative Medicines through Acquisition of Cutting-Edge Science and Optimal Resource Allocation Astellas aims to continuously generate innovation through the acquisition of cutting-edge science and optimal resource allocation. Astellas is promoting open innovation by building a Network Research System. This system appoints optimal personnel and researchers from both inside and outside the Company to undertake dynamic research activities in the best possible environment, and based on the world’s most innovative science. By introducing a process named FASTEN to manage R&D projects along one of three different tracks, Astellas has achieved positive outcomes such as shortening of R&D duration and increased cost efficiency. In addition to the fields we have focused on to date, namely urology, oncology, immunology, nephrology, and neuroscience, we have selected muscle diseases and ophthalmology as new focused disease areas for research where we will concentrate our resources. There are high unmet medical needs in these therapeutic areas, and we aim to deliver new medicines while seeking alliance opportunities with external partners. Focused Disease Areas and Technologies/Modalities Enhancing Capabilities to Deliver Innovative Medicines Core technologies New technologies/ New modalities Small molecule Antibody Fusion protein Next- generation vaccines Gene therapy Cell therapy Network Research System Greater utilization of external R&D resources Take on challenges in new therapeutic areas and drug discovery technologies Best Science Best Talent Best Place FASTEN (FAST-Ex-New-standard) Highest resource priority FAST TRACK P O C ( P r o o f o f C o n c e p t ) L a u n c h NEW STANDARD TRACK Fastest POC Utilize external resources Ex. TRACK Existing TAs Oncology Urology Immunology Nephrology Neuroscience New TAs Muscle Diseases Ophthalmology TAs: Therapeutic areas 19 Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 Pursuing New Opportunities Astellas will make sufficient investments in opportunities that pave the way for long-term growth, including new therapeutic areas and the use of new technologies and modalities, and medical solutions that leverage our strengths, centered on the innovative drug business. Newly selecting muscle diseases and ophthalmology as focused disease areas for research, Astellas is undertaking groundbreaking research through partnerships with external entities. In the muscle disease area, we are targeting ways to control the progression of disease or achieve causal therapies. In the ophthalmology area, we are targeting disorders of the posterior eye segment for which no standard drug treatments are available. Astellas is also advancing initiatives leveraging new technologies and modalities. In addition to working to develop next-generation vaccines, we have commenced cell therapy research in earnest. At the Astellas Institute for Regenerative Medicine, Astellas is proactively promoting research and development program of cell therapy in the ophthalmology and other field. Major Initiatives in Year Ended March 31, 2017 • Strengthening our oncology franchise and expanding our development pipeline • Achieving many milestones in clinical development P53 P57 Pursuing Operational Excellence Raising the Quality of Operations in Anticipation of Change Astellas strives to improve the quality and efficiency of operations by keeping a close eye on changes in the business environment from a number of perspectives, and implementing measures in anticipation of these changes. Astellas will optimize the allocation of management resources in conjunction with making effective use of external resources. We are constantly reviewing our organization and functions to optimize our business processes, cost structures and other aspects. From the perspective of compliance, we will actively address laws, regulations and social norms while working to further increase the reliability of our products. Major Initiatives in Year Ended March 31, 2017 • Enhance organizational structure (Enhancement of global Ethics & Compliance function) • Optimizing the allocation of resources (Transfer of business of U.S. manufacturing subsidiary and long-listed products in Japan) P63 Advancing into New Opportunities Our Approach to Operational Excellence e m e d i c a l a l a s o l utions by combining a v n d e x t e rnal healthcare capabilitie arie t y s In n o v a ti v of in t e r n New therapeutic areas Rx business Advancing into new opportunities Existing therapeutic areas Advancing into new opportunities New technologies/ New modalities Optimal reallocation of resources Effective utilization of external resources Operational Excellence Continually enhance organizational structure Active response to various regulations and social norms (compliance) Strengthen core capabilities 20 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 CFO Message We will focus on optimal resource allocation and establishing the best business structure to achieve sustainable growth, responding to changes in the business environment. Chikashi Takeda Chief Financial Officer Putting Highest Priority on Business Investments for Future Growth Astellas prioritizes allocating funds to business investments for future growth in order to achieve a sustainable increase in enterprise value. The highest priority is on the investments to promptly advance R&D projects that could create high added value, and to acquire promising new drug candidates or cutting- edge technologies. We will also invest in activities to support growth such as leveraging real-world data, while also allocating sufficient funds to investments to deal with new risks, including enhancement of compliance. We will review resource allocation from scratch as appropriate based on environment changes. For example, we will reduce or stop investments for areas that have already matured and are not expected to grow in the future, or for activities that do not lead to a competitive advantage. Through these activities, we will strive to allocate optimal management resources as a whole. Looking at cash on hand, in addition to the working capital needed to fund day-to-day operations, we will Details of Shareholder Returns Dividends per share*1 (left axis) Profit for the year*2 (right axis) maintain a certain level of cash on hand, in order to respond flexibly to the need to make strategic investments for future growth. Moreover, we are prepared for cases where funding requirements exceed Astellas’ internal funding capacity so that we can finance smoothly. Further Enhancing the Level of Returns to Shareholders Astellas will target a stable and continuous increase in dividends based on the medium- to long-term growth prospects for consolidated earnings by taking into account dividend on equity attributable to owners of parent (DOE). During Strategic Plan 2015-2017, we are targeting DOE of 6% or more. We will implement share buybacks flexibly as needed based on an overall consideration of the business environment, investment plans, and the level of cash on hand, among other factors, with a view to further enhancing capital efficiency and the level of returns to shareholders. Our policy is to cancel acquired treasury stock, in principle, except for the portion needed for stock activities such as execution of existing stock options. (yen) 40 30 20 10 0 (billion yen) 250 200 150 100 50 0 34 36 (billion yen) Total dividends Acquisition of own shares Total return ratio (%) 2006.3 2007.3 2008.3 2009.3 2010.3 2011.3 2012.3 2013.3 2014.3 2015.3 2016.3 2017.3 2018.3 (Forecast) 39.3 46.2 82 42.3 219.9 200 55.2 81.8 77 56.9 123.4 106 58.2 27.0 70 57.7 – 85 57.7 – 74 59.4 49.4 118 60.6 30.0 100 66.0 58.2 92 68.5 119.3 97 71.3 91.4 74 74.4 *1 The Company conducted a stock split of common stock at a ratio of 5 for 1 with an effective date of April 1, 2014. Figures are calculated based on the number of shares issued after the stock split (excluding treasury shares) on the assumption that the stock split was conducted at the beginning of fiscal 2005. *2 From fiscal 2013, figures are in accordance with International Financial Reporting Standards (IFRS). 21 Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 CSR-Based Management Create and protect value for both Astellas and society by fulfilling social responsibility Astellas’ Interaction with Society Enhance the sustainability of society CSR-based management Society Astellas Trust from society Enhance the sustainability of Astellas Raison D’être Contribute toward improving the health of people around the world through the provision of innovative and reliable pharmaceutical products Mission Sustainable enhancement of enterprise value Fulfilling Our Social Responsibility Means Realizing Our Business Philosophy Value Creation and Protection for Both Astellas and Society Astellas recognizes its corporate social responsibility (CSR) is its responsibility for any impacts that its decisions and business activities have on society and the environment. Astellas is helping to enhance the sustainability of society by fulfilling its social responsibilities as a pharmaceutical company by, for example, providing pharmaceutical products that satisfy unmet medical needs. We believe that we earn trust from society for both the Company and our products as a result of these activities, and that this trust enhances our sustainability. This positive cycle will lead to the realization of our mission, “sustainable enhancement of enterprise value” through fulfillment of our raison d’être “contribute toward improving the health of people around the world through the provision of innovative and reliable pharmaceutical products.” For Astellas, fulfilling our social responsibility means realizing our business philosophy. CSR for Astellas has two aspects: value creation and value protection. Value Creation Through its business activities, Astellas is creating value for society by addressing social issues such as unmet medical needs, and by returning profits to stakeholders. By reinvesting the profit we gain through business activities, we strengthen our capabilities in research and development. In addition, by winning trust from government and business partners in each country, we create new business opportunities. This process creates value for Astellas. Value Protection Astellas seeks to preserve biodiversity by reducing the environmental burden associated with its business activities, while maintaining social order by ensuring compliance and preventing corruption. These activities will lead to the protection of value for society. In addition, Astellas protects its enterprise value by mitigating reputation risk and elevating its corporate brand through these activities. 22 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Identification and Prioritization of Material Issues in CSR Activities Astellas identifies and prioritizes material issues in CSR activities, and uses these material issues to guide its CSR- based management. Referring to various principles and guidelines, Astellas has identified material issues from among the issues to be addressed as prerequisites of its business activities and social priorities including global healthcare issues. Making reference to expectations and requests from a broad range of stakeholders, we classified and prioritized the material issues into three categories by evaluating their societal significance and relevance to our business (CSR Materiality Matrix). In addition, we are currently verifying the appropriateness of the material issues established in fiscal 2014, and are considering revising those issues based on progress with initiatives, changes in society and other factors. Activities and Monitoring of Material Issues To solve material issues through its CSR activities, Astellas’ relevant divisions draw up annual and medium-term activity plans for each material issue, and work to address the material issues based on those plans. Moreover, the CSR Committee* monitors activities and results, along with the status of progress against plans. * The CSR Committee discusses policies and plans for important activities in fulfilling the Company’s social responsibilities. The committee is chaired by the Chief Administrative Officer & Chief Ethics & Compliance Officer, and comprises the heads of the relevant divisions in Japan, the Americas, EMEA and Asia & Oceania. Materiality Determination Process Step1 Identify Issues Astellas’ material issues are identified with reference to various principles and guidelines (such as ISO 26000, the UN Global Compact’s ten principles and the SASB* Materiality Map), communications with stakeholders, and evaluation items for socially responsible investment (SRI) indices, etc. * SASB: Sustainability Accounting Standards Board. A U.S. non-profit organization exploring disclosure standards for non-financial information on an industry-by-industry basis. SASB has prepared industry-specific materiality maps by evaluating the materiality of 43 factors related to the environment, society and governance. Step2 Prioritize We will prioritize Astellas’ material issues from the dual perspectives of societal significance and relevance to our business. Step3 Review Astellas’ material issues will be periodically reviewed and verified. They will be modified depending on the attainment level of initiatives implemented and/or any changes in society’s demands. 23 Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 CSR Materiality Matrix For more details, please refer to WEB https://www.astellas.com/en/sustainability/materiality/ V e r y H g h i S o c i e t a l i i S g n fi c a n c e • Child labor and forced labor • Water usage reduction • Air pollution reduction • Biodiversity • Philanthropic community support i H g h High Important Very Important Most Important • Societal benefit-driven product development • Development of innovative products • Socially responsible R&D • Socially responsible marketing and ethical advertising • Fair pricing • Proper use of products • Product quality assurance • Anti-counterfeit efforts • Diversity and equal opportunity • Training and development of employees • Health, safety and welfare of employees • Compliance with laws and regulations • Business ethics and fair competition • Establishment and implementation of CSR policies • Customer privacy • Shareholder engagement • Transparent reporting of Board independence and its structure • Affordable pricing for patients • Improvement of healthcare infrastructure and services to solve ATH issues* • CSR procurement • Socially responsible manufacturing • Recruitment and retention of employees • Stakeholder engagement • Information disclosure • Universal design for products • Customer satisfaction • Reduction of environmental impact throughout lifecycle of our products • Environmental and social impacts of business operations • Climate change risk • Compensation and benefits • Labor relations and union practices • Risk mitigation and immediate remedy of environmental accidents • Efficient use of energy and reduction of greenhouse gas emissions • Waste management and hazardous water reduction • Patient assistance and advocacy • Advancement of medical science • Disclosure of executive compensation • Appropriate lobbying and political contributions Relevance to Astellas’ Business Very High * ATH issues: There are many people with insufficient access to the healthcare they need due to the lack of available treatments, poverty, challenges in healthcare systems and limited healthcare information. Astellas recognizes this problem as the Access to Health issue and works to improve Access to Health by engaging in various initiatives. 24 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Corporate Governance The Company’s raison d'être is to contribute to improving the health of people around the world through the provision of innovative and reliable pharmaceutical products. The Company aims to sustainably enhance enterprise value as its mission. Corporate governance takes an important role in realizing the sustainable enhancement of enterprise value. We work to ensure and strengthen the effectiveness of corporate governance from the following perspectives: 1) Ensuring transparency, appropriateness and agility of management and 2) Fulfillment of our fiduciary duties and accountability to shareholders and appropriate collaboration with all stakeholders. Corporate Governance System Characteristics • The Company adopts the organizational structure of a “Company with an Audit & Supervisory Board.” Outside Directors and outside Audit & Supervisory Board Members constitute the majority of the Board of Directors and the Audit & Supervisory Board, respectively. • The Board of Directors principally serves the oversight function of business execution and also makes decisions on important business execution. • As advisory bodies to the Board of Directors, the Company established the Nomination Committee and the Compensation Committee, each of which are composed of a majority of outside Directors. • Enhancing Systems Involving Business Execution • Executive Committee • Japan Management Committee • Appoints Executive Officers responsible for specific divisions and functions The Board of Directors established the Corporate Decision Authority Policy to ensure the agility of management and clarify the responsibility and authority for the execution of business by Executive Officers and others. • Matrix Management ( c o o r d n a t i o n i ) 25 Corporate Governance System The Company recognizes the Annual Shareholders Meeting as an important forum for constructive dialogue with shareholders. Election/Dismissal Election/Dismissal General Shareholders’ Meeting • The following measures are taken to invigorate the meeting for shareholders and encourage the exercise of voting rights. (1) To ensure sufficient time for consideration of resolutions, the convocation notice is dispatched three weeks before the meeting date. It is also published before dispatch on the Timely Disclosure Network (TDnet) provided by the Tokyo Stock Exchange and on the Company’s website. (2) Holding the Annual Shareholders Meeting avoiding dates when meetings of other companies are concentrated (since 2004). (3) Adoption of an electronic voting platform (since 2006). (4) Providing an English translation of the convocation notice. • The Board comprises an appropriate number of Directors, in consideration of diversity and balancefrom the perspectives of expertise and experience, and is chaired by the Director and Chairman of • Discusses matters concerning the election and Election/Dismissal Board of Directors • Primarily performs an oversight function over business execution, ensuring that management is transparent and appropriate. It also makes decisions on important business execution, while establishing the Corporate Decision Authority Policy, clarifying the business execution responsibility and authority of the respective Executive Officers and ensuring management agility. Role Composition the Board. Note that when the Director and Chairman of the Board is unable to fulfill their duties due to an accident or vacancy of the post, another Director, in the order prescribed in the Board of Directors Policy, shall assume the role. • The board has a majority of outside Directors to enable it to make decisions from a broader viewpoint and oversee business execution objectively. Audit Six Directors, of whom majority of four are outside Directors. Administration Directors Responsibilities • As members of the Board of Directors, Directors participate in management decision-making through resolutions to the Board, in addition to overseeing the performance of duties of other Directors. • To fully exercise their expected capabilities, Directors are expected to contribute to the sustained enhancement of enterprise value by collecting the information necessary for the execution of their duties and engaging actively in discussions. • Outside Directors are expected to enhance the appropriateness of management by overseeing the execution of business from an independent standpoint, while utilizing their individual experience and knowledge to offer advice from a standpoint different from that of internal Directors. Election • Subject to appointment via resolution of the Annual Shareholders Meeting. Proposal/Report Appointment/ Dismissal, Supervision • As a general rule, meetings are held once a month, with extraordinary meetings held as necessary. Composition Nomination Committee/ Compensation Committee Role • Established as advisory bodies to the Board of Directors to improve the transparency and objectivity of the deliberation process regarding election and dismissal of Directors, etc., and the remuneration system. dismissal of Directors, Audit & Supervisory Board Members, and the appointment and removal of Executive Officers, etc., and reports the results to the Board of Directors. • Discusses matters concerning remuneration of Directors, Executive Officers and others, and reports the results to the Board of Directors. • These committees are composed of members elected by the Board of Directors. • The majority of each committee’s members are outside Directors. • These Committees are chaired by an outside Director. President/ Executive Committee Executive Vice President/ Japan Management Committee This Committee discusses matters important to management of the Group overall, and is chaired by the President. This Committee discusses matters important to management of the Company and its Group companies in Japan, and is chaired by the Executive Vice President. Election/Dismissal Accounting Auditor • Ernst & Young ShinNihon LLC serves as the Company’s Accounting Auditor. • The Accounting Auditor and the Company’s Audit & Supervisory Board Members maintain close cooperation by meeting several times a year, verifying their annual auditing plans as well as sharing the results of audits and important audit information. Audit & Supervisory Board Role • The Audit & Supervisory Board is the only deliberation and decision-making body for forming opinions regarding the audits by Audit & Supervisory Board Members. Where necessary, the Audit & Supervisory Board provides its opinions to Directors or the Board of Directors. However, resolutions of the Audit & Supervisory Board do not obstruct the execution by each Audit & Supervisory Board Member of their authority. Composition • To further enhance the independence and neutrality of the auditing system, outside Audit & Supervisory Board Members comprise a majority of Audit & Supervisory Board Members. Five Audit & Supervisory Board members, of whom majority of three are outside Audit & Supervisory Board Members Administration • As a general rule, meetings are held once a month, with extraordinary meetings held as necessary. Audit Business execution Internal Auditing Department Proposal/Report Direction/Supervision Officers responsible for each function/Corporate Executives/Functional Heads Internal audit Report Business execution/Direction/Supervision Divisions Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 The Company’s raison d'être is to contribute to improving Corporate Governance System the health of people around the world through the provision of innovative and reliable pharmaceutical products. The Company aims to sustainably enhance enterprise value as its mission. Corporate governance takes an important role in realizing the sustainable enhancement of enterprise value. We work to ensure and strengthen the effectiveness of corporate governance from the following perspectives: 1) Ensuring transparency, appropriateness and agility of management and 2) Fulfillment of our fiduciary duties and accountability to shareholders and appropriate collaboration with all stakeholders. Corporate Governance System Characteristics • The Company adopts the organizational structure of a “Company with an Audit & Supervisory Board.” Outside Directors and outside Audit & Supervisory Board Members constitute the majority of the Board of Directors and the Audit & Supervisory Board, respectively. • The Board of Directors principally serves the oversight function of business execution and also makes decisions on important business execution. • As advisory bodies to the Board of Directors, the Company established the Nomination Committee and the Compensation Committee, each of which are composed of a majority of outside Directors. • Enhancing Systems Involving Business Execution • Executive Committee • Japan Management Committee • Appoints Executive Officers responsible for specific divisions and functions The Board of Directors established the Corporate Decision Authority Policy to ensure the agility of management and clarify the responsibility and authority for the execution of business by Executive Officers and others. • Matrix Management ( c o o r d i n a t i o n ) The Company recognizes the Annual Shareholders Meeting as an important forum for constructive dialogue with shareholders. Election/Dismissal Election/Dismissal Accounting Auditor • Ernst & Young ShinNihon LLC serves as the Company’s Accounting Auditor. • The Accounting Auditor and the Company’s Audit & Supervisory Board Members maintain close cooperation by meeting several times a year, verifying their annual auditing plans as well as sharing the results of audits and important audit information. Audit & Supervisory Board Role • The Audit & Supervisory Board is the only deliberation and decision-making body for forming opinions regarding the audits by Audit & Supervisory Board Members. Where necessary, the Audit & Supervisory Board provides its opinions to Directors or the Board of Directors. However, resolutions of the Audit & Supervisory Board do not obstruct the execution by each Audit & Supervisory Board Member of their authority. Composition • To further enhance the independence and neutrality of the auditing system, outside Audit & Supervisory Board Members comprise a majority of Audit & Supervisory Board Members. Five Audit & Supervisory Board members, of whom majority of three are outside Audit & Supervisory Board Members Administration • As a general rule, meetings are held once a month, with extraordinary meetings held as necessary. Audit Business execution Internal Auditing Department General Shareholders’ Meeting • The following measures are taken to invigorate the meeting for shareholders and encourage the exercise of voting rights. (1) To ensure sufficient time for consideration of resolutions, the convocation notice is dispatched three weeks before the meeting date. It is also published before dispatch on the Timely Disclosure Network (TDnet) provided by the Tokyo Stock Exchange and on the Company’s website. (2) Holding the Annual Shareholders Meeting avoiding dates when meetings of other companies are concentrated (since 2004). (3) Adoption of an electronic voting platform (since 2006). (4) Providing an English translation of the convocation notice. Election/Dismissal Board of Directors Role • Primarily performs an oversight function over business execution, ensuring that management is transparent and appropriate. It also makes decisions on important business execution, while establishing the Corporate Decision Authority Policy, clarifying the business execution responsibility and authority of the respective Executive Officers and ensuring management agility. Composition • The Board comprises an appropriate number of Directors, in consideration of diversity and balance from the perspectives of expertise and experience, and is chaired by the Director and Chairman of the Board. Note that when the Director and Chairman of the Board is unable to fulfill their duties due to an accident or vacancy of the post, another Director, in the order prescribed in the Board of Directors Policy, shall assume the role. • The board has a majority of outside Directors to enable it to make decisions from a broader viewpoint and oversee business execution objectively. Audit Six Directors, of whom majority of four are outside Directors. Administration • As a general rule, meetings are held once a month, with extraordinary meetings held as necessary. Directors Responsibilities • As members of the Board of Directors, Directors participate in management decision-making through resolutions to the Board, in addition to overseeing the performance of duties of other Directors. • To fully exercise their expected capabilities, Directors are expected to contribute to the sustained enhancement of enterprise value by collecting the information necessary for the execution of their duties and engaging actively in discussions. • Outside Directors are expected to enhance the appropriateness of management by overseeing the execution of business from an independent standpoint, while utilizing their individual experience and knowledge to offer advice from a standpoint different from that of internal Directors. Election • Subject to appointment via resolution of the Annual Shareholders Meeting. Proposal/Report Appointment/ Dismissal, Supervision Nomination Committee/ Compensation Committee Role • Established as advisory bodies to the Board of Directors to improve the transparency and objectivity of the deliberation process regarding election and dismissal of Directors, etc., and the remuneration system. • Discusses matters concerning the election and dismissal of Directors, Audit & Supervisory Board Members, and the appointment and removal of Executive Officers, etc., and reports the results to the Board of Directors. • Discusses matters concerning remuneration of Directors, Executive Officers and others, and reports the results to the Board of Directors. Composition • These committees are composed of members elected by the Board of Directors. • The majority of each committee’s members are outside Directors. • These Committees are chaired by an outside Director. President/ Executive Committee Executive Vice President/ Japan Management Committee This Committee discusses matters important to management of the Group overall, and is chaired by the President. This Committee discusses matters important to management of the Company and its Group companies in Japan, and is chaired by the Executive Vice President. Election/Dismissal Proposal/Report Direction/Supervision Officers responsible for each function/Corporate Executives/Functional Heads Internal audit Report Business execution/Direction/Supervision Divisions 26 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Progress in Enhancing Effectiveness Start of Efforts to Evaluate Effectiveness The Company continues to work to ensure and enhance the effectiveness of its corporate governance system in terms of the transparency, appropriateness and agility of management; the fulfillment of its fiduciary duties and accountability to shareholders as well as appropriate collaboration with all stakeholders. Since Astellas launch in April 2005, we have worked to increase the speed of execution by delegating authority to the management team, in the belief that prompt and accurate decision-making will result in the enhancement of enterprise value. In the year following our launch, the Company appointed a majority of outside Directors to its Board of Directors, and subsequently established the Nomination Committee and Compensation Committee, part of our ongoing efforts at structural reform. With the implementation of Japan’s Corporate Governance Code in June 2015, we also took the opportunity to further enhance the Company’s corporate governance structure. In September 2015, the Company formulated its Corporate Governance Guidelines as the basis for implementing the individual principles of the code. Through these efforts, the Company is working to enhance the effectiveness of its corporate governance. In fiscal 2015, the Company’s Board of Directors began the process of analyzing and evaluating the overall effectiveness of the Board of Directors. The results of that evaluation for fiscal 2016 are as follows. The Chairman of the Board of Directors conducted a survey based on a questionnaire to all Directors and Audit & Supervisory Board Members, primarily concerning the oversight function of the Board of Directors. Based on the results of this survey, the Board of Directors performed its analysis and evaluation. The Board of Directors was found to function appropriately, with highly transparent and lively discussions by the Directors, including independent outside Directors. The overall effectiveness of the Board of Directors was sufficiently ensured. The Company has accelerated business execution by focusing the function of the Board of Directors solely on the appropriate oversight of the management team and Major Corporate Governance Reforms Implemented to Date Date Change Objective New Board of Directors launched • Board of Directors comprised of 4 Executive Directors, 2 non-Executive Directors and 2 outside Directors April 2005 Launch of Astellas • Board of Directors specializes in supervising the management team and decision-making regarding legal and most important matters Ensure management transparency and appropriateness Authority delegated to the management team • To the extent legally allowable, delegate as much authority as possible to the management team Ensure management agility Outside Directors represent a majority of the Board of Directors • 9 Directors, of whom 5 are outside Directors Reduction in number of Directors • 7 Directors, of whom 4 are outside Directors Ensure management transparency and appropriateness Ensure management agility Established the Nomination Committee and the Compensation Committee • 5 committee members, of whom 3 are outside Directors Ensure management transparency and appropriateness Shortened term of appointment for Directors • Term of appointment shortened from two years to one year Clarify management responsibilities Elimination of advisor system • Prior to that, counselor system also eliminated Ensure management transparency Change in chairmanship of the Nomination and the Compensation Committees • Each Committee chaired by outside Director Ensure management transparency and appropriateness Increase outside Audit & Supervisory Board Members • From 2 to 3, resulting in outside members representing a majority of the total of 5 Audit & Supervisory Board Members Strengthen independence and neutrality of the auditing system June 2006 June 2007 June 2010 June 2011 June 2015 27 Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 decision-making on matters legally required to be resolved and matters of primary importance, as well as delegating authority to the management team. To enhance the oversight function, the Company has increased the number of outside Directors, established the Nomination Committee and the Compensation Committee, and shortened the term of appointment for Directors. The Board of Directors regularly collects the requisite information such as environmental changes from the management team, and has determined strategies of the Company based on such information. The Board of Directors also receives timely reports from the management side on the establishment and operation of a risk management system, and ensures that necessary information and time for discussions are secured for oversight. To enhance the effectiveness of discussions, the Board of Directors will continue to improve on the issues below which were identified in this evaluation. • Based on discussions regarding optimization of functions carried out by the Board of Directors in fiscal 2016, the Board of Directors will review matters for deliberation and reporting by the Board of Directors. At the same time, it will reaffirm and review as required the roles and authority of other committees. • In determining corporate strategy, the Board of Directors will work to enhance a shared recognition of the assumptions such as changes in the internal and external environments, and conduct multi-faceted discussions that give additional consideration to various stakeholders. • The Board of Directors will further strengthen frameworks for systematic risk assessment, while further facilitating comprehensive identification of Company-wide risk. Please refer to the following for the Corporate Governance Guidelines. WEB https://www.astellas.com/system/files/ governance_guideline_en_0_0.pdf A System of Remuneration for Directors and Audit & Supervisory Board Members That Contributes to Sustainable Improvements in Enterprise Value The compensation paid to Directors and Audit & Supervisory Board Members of the Company is designed to enable the Company to attract and retain talent, and maintain sufficient compensation standards and systems to meet the duties and responsibilities of the positions. The Company has improved the objectivity of decisions on remuneration levels by using survey data issued by outside research companies and other measures. Progress of Response to the Corporate Governance Code (Items complied since fiscal 2016) The Company implements all the principles of the Corporate Governance Code. Corporate Governance Code Activities in Astellas Principle 3-1: Full Disclosure In addition to making information disclosure in compliance with relevant laws and regulations, companies should disclose and proactively provide the information listed below in order to enhance transparency and fairness in decision-making and ensure effective corporate governance. v) Explanations with respect to the individual appointments and nominations when the Board appoints senior management and nominates candidates for Director and Audit & Supervisory Board Members. The Company has disclosed the reasons for its selection of candidates for outside Directors and outside Audit & Supervisory Board Members. Beginning in fiscal 2017, the Company added the candidates for internal Directors and internal Audit & Supervisory Board Members to this list, disclosing the reasons for selecting those candidates in the Annual Shareholders Meeting convocation notice. Notice of Convocation of the Annual Shareholders Meeting https://www.astellas.com/en/ir/stock_bond/pdf/ncsm12_en.pdf Page 31 of this annual report shows expected roles of outside Directors and outside Audit & Supervisory Board Members. Principle 4-11: Preconditions for Board and Audit & Supervisory Board Effectiveness (Omit 1st paragraph) The Board should endeavor to improve its function by analyzing and evaluating effectiveness of the board as a whole. Supplementary Principle 4.11.3 Each year the board should analyze and evaluate its effectiveness as a whole, taking into consideration the relevant matters, including the self-evaluations of each director. A summary of the results should be disclosed. The Company has implemented a questionnaire at irregular intervals for outside Directors and strived to improve operations of the Board of Directors while taking into account these opinions. From fiscal 2016, through the implementation of self-assessment by each Director and other means, the Board of Directors analyzes and evaluates the overall effectiveness of the Board of Directors and discloses a summary of the results every year. Corporate Governance Report https://www.astellas.com/en/corporate/pdf/governance_en_20170620.pdf 28 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Remuneration for internal Directors is fundamentally based upon contributions to sustainable improvements in business performance and enterprise value, and is composed of a fixed amount basic remuneration, bonuses and stock compensation. The Company appropriately links remuneration with business performance. In fiscal 2015, the Company introduced a performance-linked stock compensation scheme. Through this program, the Company is raising the awareness of Directors and executive officers regarding their responsibility to contribute to sustainable improvements in business performance and enterprise value. This program grants the Company stock based on the performance-linked coefficient regarding the level of attainment of the medium-term management targets. Medium-term performance targets include predetermined goals for sales, core operating margin, core ROE, etc., over a three-year time span. Remuneration for outside Directors and Audit & Supervisory Board Members (including outside Audit & Supervisory Board Members) consists solely of a fixed base salary. Remuneration for each Director are determined by resolution of the Board of Directors within a total ceiling amount approved by the General Meeting of Shareholders, and remuneration for each Audit & Supervisory Board Member is determined through deliberations of the Audit & Supervisory Board Members within a total ceiling amount approved by the General Meeting of Shareholders. Through the deliberations of the Compensation Committee, the Company enhances the transparency and objectivity of the deliberation process for remuneration for Directors. Remuneration for Directors and Audit & Supervisory Board Members in Fiscal 2016 (¥ million) Category Total amount of remuneration Type of remuneration Basic remuneration Bonus Stock remuneration Directors (excluding outside Directors): 3 Outside Directors: 4 Audit & Supervisory Board Members (excluding outside Audit & Supervisory Board Members): 3 Outside Audit & Supervisory Board Members: 4 404 55 88 41 178 118 55 — 88 — 41 — 108 — — — The total amount of remuneration shown here is the amount paid as remuneration for the performance of duties during fiscal 2016, and includes the amount paid to one Director and two Audit & Supervisory Board Members (including one outside Audit & Supervisory Board Member) who retired during fiscal 2016. Enhancing the Management Structure The Company has established a global management structure, and continues to work to strengthen it. Astellas establishes the Executive Committee as a body for discussion on significant issues in the global management of the Group, and the Japan Management Committee as a body for discussion on significant corporate governance issues of the Company and its affiliates in Japan. In order to build an optimal management system capable of agile and appropriate decision-making, we have been promoting a system called Matrix Management, under which we manage each division and function of Drug Discovery Research, Medical & Development, and Pharmaceutical Technology based on their respective functions from a global viewpoint across geographical regions, while the Sales & Marketing Divisions are managed on a regional basis. Enhancement of management functions from a global viewpoint is pursued in the area of corporate functions as well. In order to further strengthen compliance, the Ethics & Compliance function was established in April 2016, under a global compliance structure wherein Ethics & Compliance functions in each region (Japan, the Americas, EMEA, and Asia & Oceania) report to the Head of Ethics & Compliance. Furthermore, in April 2017, a new global Legal function that manages the regional legal functions was established. The General Counsel reports directly to CEO. In order to develop a system for more appropriate execution of business, the Company has established various committees comprising cross-functional members. These committees include the Corporate Disclosure Committee where matters including disclosure of corporate information are discussed, the CSR Committee that discusses policies and plans of important activities for the purpose of fulfilling the Company’s social responsibilities (such as issues on the environment, health and safety, and social contribution activities), the Global Benefit Risk Committee to discuss benefit and risk information of products as well as measures to deal with such benefit and risk, the Global Compliance Committee where matters including global compliance policies and plans are discussed, and the Global Risk Management Office to promote identifying global risks and implementing optimum risk management. 29 Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 Risk Management Identifying and Mitigating Risks Relating to the Performance of Business Activities As a global pharmaceutical company in a highly regulated industry, Astellas faces numerous risks that could impact our business results and society. To conduct risk management properly as a whole group, Astellas has established Global Risk Management and Regional Risk Management Programs in each region that identify risks relating to appropriate and efficient business conduct (risks relating to the performance of business activities). Each department and unit of the Company and the Astellas Group companies will proactively put the Company’s risk management initiatives into practice and promote risk mitigation within the Group and the proper response to such risks. The Global Risk Management Program established the Global Risk Management Secretariat to identify risks relating to the performance of Astellas’ business activities through interviews with Executive Committee (EC) members and functional heads. Risk owners are then assigned and are responsible for developing and implementing risk mitigation plans. These plans are regularly updated and mitigation progress is reported to senior management at the EC. At the regional level, the Regional Risk Management Office of each Astellas region identifies the regional risks Global Risk Management Structure relating to the performance of business activities and conducts risk management. The risks identified by the Regional Risk Management Offices that must be managed at the global level are incorporated into the Global Risk Management Program as necessary. Overview of Global Risk Management Interview EC members and functional heads and analyze results Global Risk Management Secretariat should: • Conduct interviews with EC members and functional heads • Analyze interview results and make proposals to the EC Identify global risk and assign global risk owners EC should: • Evaluate the global risk identified • Assign global risk owners Assess current controls and develop global risk mitigation plans Global risk owners should: • Assess assigned global risk • Identify current risk controls • Develop global risk mitigation plans and make proposals to the EC Implement additional risk control measures and report progress Global risk owners should: • Implement risk mitigation plans, including additional risk response measures over 1 to 3 years • Report half-year progress to the EC Global risk owner Assign Report Advise Report results Global risk Regional risk Departments Board of Directors Report status Executive Committee Global Risk Management Share status Report status of each area Report and propose significant items in each area Regional Risk Management (Japan, Americas, EMEA, Asia & Oceania) Advise Report status Departments in each region 30 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Directors and Audit & Supervisory Board Members (Front row, from left) Yoshiharu Aizawa, Keiko Yamagami, Yoshihiko Hatanaka, Toshiko Oka, Noriyuki Uematsu (Back row, from left) Mamoru Sekiyama, Etsuko Okajima, Kenji Yasukawa, Hiroko Sakai, Hitoshi Kanamori, Tomokazu Fujisawa Expected Role of Outside Directors and Outside Audit & Supervisory Board Members Expected Role Etsuko Okajima has been engaged in corporate management as a business manager of a human resource consulting company, and has abundant management experience and extensive insight. She currently plays a key role as an outside Director for management of the Company from an independent standpoint. The Company is confident that she will draw on her abundant experience of corporate management in management of the Company in the future as well. Yoshiharu Aizawa has been engaged in medical treatment while successively holding important posts at Kitasato University as a medical scientist, and has abundant specialized knowledge and experience. He currently plays a key role as an outside Director for management of the Company from an independent standpoint. The Company is confident that he will draw on his abundant specialized knowledge and experience in management of the Company in the future as well. Mamoru Sekiyama has been engaged in corporate management as a business manager of a general trading company over many years, and has abundant global experience and extensive insight. The Company is confident that he will be able to apply his abundant specialized knowledge and experience in corporate management and other strengths to the management of the Company from an independent standpoint. After successively holding important posts such as Public Prosecutor at the Supreme Public Prosecutors Office, Keiko Yamagami has been engaged in corporate legal affairs as an attorney-at-law, and has abundant expertise and experience. The Company is confident that she will be able to apply her abundant specialized knowledge and experience to the management of the Company from an independent standpoint. Toshiko Oka has been engaged in corporate management as a business manager of a management consulting firm, and has abundant management experience and extensive insight. She currently plays a key role as an outside Audit & Supervisory Board Member from an independent standpoint. The Company is confident that she will draw on her abundant experience in corporate management in auditing the Company in the future as well. Attendance at Meetings of the Board of Directors and Audit & Supervisory Board During Fiscal 2016 14/14 times 14/14 times Inaugurated in June 2017 Inaugurated in June 2017 14/14 Board of Directors meetings 15/15 Audit & Supervisory Board meetings After successively holding important posts such as Public Prosecutor at the Tokyo District Public Prosecutors Office, Hitoshi Kanamori has been engaged in corporate legal affairs as an attorney-at-law, and has abundant expertise and experience. He currently plays a key role as an outside Audit & Supervisory Board Member from an independent standpoint. The Company is confident that he will draw on his abundant specialized knowledge and experience in auditing the Company in the future as well. 14/14 Board of Directors meetings 15/15 Audit & Supervisory Board meetings With many years of experience as a certified public accountant, Noriyuki Uematsu has thorough knowledge of corporate consulting and auditing, and is also engaged in corporate management as a business manager of a consulting company relating to business accounting and tax accounting services. He currently plays a key role as an outside Audit & Superrisory Board Member from an independent standpoint. The Company is confident that he will draw on his abundant specialized knowledge and experience in auditing the Company in the future as well. 11/11 Board of Directors meetings 11/11 Audit & Supervisory Board meetings Position Name Outside Directors Etsuko Okajima Yoshiharu Aizawa Mamoru Sekiyama Keiko Yamagami Toshiko Oka Hitoshi Kanamori Noriyuki Uematsu Outside Audit & Supervisory Board Members 31 Profile of Directors and Audit & Supervisory Board Members Representative Director, Executive Vice President, Chief Strategy Officer and Chief Commercial Officer 1998: General Manager, Power Project Dept.-III, Representative Director, President and CEO Yoshihiko Hatanaka 1980: Joined Fujisawa Pharmaceutical Co., Ltd. 2003: Director, Corporate Planning, Fujisawa Pharmaceutical Co., Ltd. 2005: Vice President, Corporate Planning, Corporate Strategy Division, the Company 2005: Corporate Executive, Vice President, Corporate Planning, Corporate Strategy, the Company 2006: Corporate Executive of the Company and President & CEO, Astellas US LLC and President & CEO, Astellas Pharma US, Inc. 2008: Senior Corporate Executive of the Company and President & CEO, Astellas US LLC and President & CEO, Astellas Pharma US, Inc. 2009: Senior Corporate Executive, Chief Strategy Officer and Chief Financial Officer (CSTO & CFO), the Company 2011: Representative Director, President and CEO, the Company (present post) (CSTO & CCO) Kenji Yasukawa, Ph. D. 1986: Joined the Company 2005: Vice President, Project Management, Urology, the Company 2010: Corporate Executive of the Company and Therapeutic Area Head, Urology, Astellas Pharma Europe B.V. 2010: Corporate Executive of the Company and Therapeutic Area Head, Urology, Astellas Pharma Global Development, Inc. 2011: Corporate Executive, Vice President, Product & Portfolio Strategy, the Company 2012: Corporate Executive, Chief Strategy Officer (CSTO), 2012: Senior Corporate Executive, Chief Strategy Officer the Company (CSTO), the Company 2017: Senior Corporate Executive, Chief Strategy Officer and Chief Commercial Officer (CSTO & CCO), the Company 2017: Representative Director, Executive Vice President, Chief Strategy Officer and Chief Commercial Officer (CSTO & CCO), the Company (present post) Outside Directors Etsuko Okajima 1989: Joined Mitsubishi Corporation 2001: Joined McKinsey & Company, Inc., Japan 2002: Joined GLOBIS Management Bank, Inc. 2004: Executive Officer, GLOBIS Corporation 2005: President and Representative Director, GLOBIS Management Bank, Inc. 2007: Established ProNova Inc. Yoshiharu Aizawa, M.D., Ph.D. Hiroko Sakai 1975: Fellow, Department of Internal Medicine, School of 1983: Joined the Company Medicine, Keio University 2012: Vice President, Clinical and Research Quality Assurance, 1980: Assistant Professor, Department of Preventive Medicine QA, RA and Pharmacovigilance Department, the and Public Health, School of Medicine, Kitasato University Company 1983: Associate Professor, Department of Preventive Medicine 2014: Vice President, Clinical and Research Quality Assurance, and Public Health, School of Medicine, Kitasato University the Company 1994: Professor, Department of Preventive Medicine and 2016: Assistant to President & CEO, the Company Public Health, School of Medicine, Kitasato University 2016: Audit & Supervisory Board Member, the Company 2004: Chairperson, School of Medicine, Kitasato University (present post) 2006: Dean, School of Medicine, Kitasato University 2009: Vice President, Kitasato University 2010: Executive Trustee, The Kitasato Institute 2012: Professor Emeritus, Kitasato University (present post) 2015: Director, the Company (present post) Mamoru Sekiyama 1974: Joined Marubeni Corporation 1997: General Manager, Power Project Dept.-I, Marubeni Corporation Marubeni Corporation 1999: Deputy General Manager, Power Project Div.; General Manager, Power Project Dept. I, Marubeni Corporation 2001: Senior Operating Officer, Utility Infrastructure Div.; General Manager, Overseas Power Project Dept., Marubeni Corporation 2002: Corporate Vice President, Chief Operating Officer, Plant, Power & Infrastructure Div., Marubeni Corporation 2005: Corporate Senior Vice President, Chief Operating Officer, Plant, Power & Infrastructure Projects Div., Marubeni 2006: Corporate Senior Vice President, Member of the Board, Corporation Marubeni Corporation 2007: Corporate Executive Vice President, Member of the Outside Audit & Supervisory Board Members Toshiko Oka 1986: Joined Tohmatsu Touche Ross Consulting Limited (currently ABeam Consulting Ltd.) 2000: Joined Asahi Arthur Andersen Limited 2002: Principal, Deloitte Tohmatsu Consulting Co., Ltd. (currently ABeam Consulting Ltd.) 2005: President and Representative Director, ABeam Consulting Ltd. (currently PwC Advisory LLC) 2008: Outside Director, Netyear Group Corporation 2014: Audit & Supervisory Board Member, the Company (present post) (present post) 2015: Outside Corporate Auditor, HAPPINET CORPORATION 2016: Chief Executive Officer, PricewaterhouseCoopers Deals Advisory LLC (currently PwC Advisory LLC) 2016: Partner, PwC Advisory LLC 2016: CEO, Oka & Company Ltd. (present post) 2016: Outside Director, Mitsubishi Corporation (present post) 2016: Outside Director, Hitachi Metals, Ltd. (present post) Hitoshi Kanamori Board, Marubeni Corporation 1984: Public Prosecutor, Tokyo District Public Prosecutors Office 2009: Senior Executive Vice President, Member of the Board, 1985: Public Prosecutor, Yamagata District Public Marubeni Corporation Prosecutors Office 2013: Vice Chairman, Marubeni Corporation 1988: Public Prosecutor, Niigata District Public Prosecutors 2015: Corporate Adviser, Marubeni Corporation (present post) Office Chairman, Marubeni Power Systems Corporation 1990: Public Prosecutor, Tokyo District Public Prosecutors Office 2017: Director, the Company (present post) 1992: Registered as an attorney-at-law (Tokyo Bar Association) Keiko Yamagami Prosecutors Office 1987: Public Prosecutor, Yokohama District Public (present post) 1993: Partner, SANNO LAW OFFICE (present post) 2005: Visiting Professor, University of Tsukuba Law School 2015: Audit & Supervisory Board Member, the Company 2002: Coordinator, the Legislative Division, Criminal Affairs Bureau, Ministry of Justice 2005: Counselor, the Legislative Division, Criminal Affairs Bureau, Ministry of Justice 2005: Public Prosecutor, Supreme Public Prosecutors Office 2007: Deputy Director of Public Peace Department, Tokyo District Public Prosecutors Office 2008: Deputy Director of Trial Department, Tokyo District Noriyuki Uematsu 1985: Joined Tohmatsu & Aoki Audit Corporation 1997: Joined Deloitte Tohmatsu Consulting Co., Ltd. (current ABeam Consulting Ltd.) 1999: Global Partner for manufacturing industry and Managing Director in Kyushu area, Deloitte Tohmatsu Consulting Co., Ltd. (current ABeam Consulting Ltd.) President and Representative Director, ProNova Inc. Public Prosecutors Office (present post) 2009: Trial Director, Yokohama District Public Prosecutors Office 2003: Joined DENTSU INC. 2008: Established Uematsu & Co. 2014: Director, the Company (present post) 2014: Extarnal Director, MARUI GROUP CO., LTD (present post) 2015: External Director, SEPTENI HOLDINGS CO., LTD. (present post) (present post) 2010: Registered as an attorney-at-law (Dai-ichi Tokyo Bar Association) Managing Director, Uematsu & Co. (present post) 2011: President & Representative Director, SU Consultant Lawyer honorary member, Tokyo Seiwa Law Office Co., Ltd. (present post) 2016: Outside Director, Link and Motivation Inc. (present post) 2017: Director, the Company (present post) 2012: Outside Audit & Supervisory Board Member, NJK Corporation (present post) 2015: Outside Audit & Supervisory Board Member, Kamakura Shinsho, Ltd. 2016: Outside Director and Audit & Supervisory Committee Member, Kamakura Shinsho, Ltd. (present post) 2016: Audit & Supervisory Board Member, the Company (present post) Audit & Supervisory Board Members Tomokazu Fujisawa 1984: Joined Fujisawa Pharmaceutical Co., Ltd. 1999: Director of Planning, Medical Supply Business, Fujisawa Pharmaceutical Co., Ltd. 2006: Assistant to Senior Vice President, Corporate Finance & Accounting and Project Leader of J-SOX Project, the Company 2007: Project Leader of J-SOX Project, the Company 2013: Vice President, Internal Auditing, the Company 2014: Assistant to President and CEO, the Company 2014: Audit & Supervisory Board Member, the Company (present post) Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 Profile of Directors and Audit & Supervisory Board Members Representative Director, President and CEO Yoshihiko Hatanaka 1980: Joined Fujisawa Pharmaceutical Co., Ltd. 2003: Director, Corporate Planning, Fujisawa Pharmaceutical Co., Ltd. 2005: Vice President, Corporate Planning, Corporate Strategy Division, the Company 2005: Corporate Executive, Vice President, Corporate Planning, Corporate Strategy, the Company 2006: Corporate Executive of the Company and President & CEO, Astellas US LLC and President & CEO, Astellas Pharma US, Inc. 2008: Senior Corporate Executive of the Company and President & CEO, Astellas US LLC and President & CEO, Astellas Pharma US, Inc. 2009: Senior Corporate Executive, Chief Strategy Officer and Chief Financial Officer (CSTO & CFO), the Company 2011: Representative Director, President and CEO, the Company (present post) Representative Director, Executive Vice President, Chief Strategy Officer and Chief Commercial Officer (CSTO & CCO) Kenji Yasukawa, Ph. D. 1986: Joined the Company 2005: Vice President, Project Management, Urology, the Company 2010: Corporate Executive of the Company and Therapeutic Area Head, Urology, Astellas Pharma Europe B.V. 2010: Corporate Executive of the Company and Therapeutic Area Head, Urology, Astellas Pharma Global Development, Inc. 2011: Corporate Executive, Vice President, Product & Portfolio Strategy, the Company 2012: Corporate Executive, Chief Strategy Officer (CSTO), the Company 2012: Senior Corporate Executive, Chief Strategy Officer (CSTO), the Company 2017: Senior Corporate Executive, Chief Strategy Officer and Chief Commercial Officer (CSTO & CCO), the Company 2017: Representative Director, Executive Vice President, Chief Strategy Officer and Chief Commercial Officer (CSTO & CCO), the Company (present post) Outside Directors Etsuko Okajima 1989: Joined Mitsubishi Corporation 2001: Joined McKinsey & Company, Inc., Japan 2002: Joined GLOBIS Management Bank, Inc. 2004: Executive Officer, GLOBIS Corporation 2005: President and Representative Director, GLOBIS Management Bank, Inc. 2007: Established ProNova Inc. President and Representative Director, ProNova Inc. (present post) 2014: Director, the Company (present post) 2014: Extarnal Director, MARUI GROUP CO., LTD (present post) 2015: External Director, SEPTENI HOLDINGS CO., LTD. (present post) Yoshiharu Aizawa, M.D., Ph.D. 1975: Fellow, Department of Internal Medicine, School of Medicine, Keio University 1980: Assistant Professor, Department of Preventive Medicine and Public Health, School of Medicine, Kitasato University 1983: Associate Professor, Department of Preventive Medicine and Public Health, School of Medicine, Kitasato University Hiroko Sakai 1983: Joined the Company 2012: Vice President, Clinical and Research Quality Assurance, QA, RA and Pharmacovigilance Department, the Company 2014: Vice President, Clinical and Research Quality Assurance, the Company 1994: Professor, Department of Preventive Medicine and Public Health, School of Medicine, Kitasato University 2004: Chairperson, School of Medicine, Kitasato University 2006: Dean, School of Medicine, Kitasato University 2009: Vice President, Kitasato University 2010: Executive Trustee, The Kitasato Institute 2012: Professor Emeritus, Kitasato University (present post) 2015: Director, the Company (present post) Mamoru Sekiyama 1974: Joined Marubeni Corporation 1997: General Manager, Power Project Dept.-I, Marubeni Corporation 1998: General Manager, Power Project Dept.-III, Marubeni Corporation 1999: Deputy General Manager, Power Project Div.; General Manager, Power Project Dept. I, Marubeni Corporation 2016: Assistant to President & CEO, the Company 2016: Audit & Supervisory Board Member, the Company (present post) Outside Audit & Supervisory Board Members Toshiko Oka 1986: Joined Tohmatsu Touche Ross Consulting Limited (currently ABeam Consulting Ltd.) 2000: Joined Asahi Arthur Andersen Limited 2002: Principal, Deloitte Tohmatsu Consulting Co., Ltd. (currently ABeam Consulting Ltd.) 2005: President and Representative Director, ABeam Consulting Ltd. (currently PwC Advisory LLC) 2008: Outside Director, Netyear Group Corporation 2014: Audit & Supervisory Board Member, the Company (present post) 2015: Outside Corporate Auditor, HAPPINET CORPORATION 2001: Senior Operating Officer, Utility Infrastructure Div.; (present post) General Manager, Overseas Power Project Dept., Marubeni Corporation 2002: Corporate Vice President, Chief Operating Officer, Plant, Power & Infrastructure Div., Marubeni Corporation 2005: Corporate Senior Vice President, Chief Operating Officer, Plant, Power & Infrastructure Projects Div., Marubeni Corporation 2006: Corporate Senior Vice President, Member of the Board, Marubeni Corporation 2007: Corporate Executive Vice President, Member of the Board, Marubeni Corporation 2009: Senior Executive Vice President, Member of the Board, Marubeni Corporation 2013: Vice Chairman, Marubeni Corporation 2015: Corporate Adviser, Marubeni Corporation (present post) Chairman, Marubeni Power Systems Corporation 2017: Director, the Company (present post) Keiko Yamagami 1987: Public Prosecutor, Yokohama District Public Prosecutors Office 2002: Coordinator, the Legislative Division, Criminal Affairs Bureau, Ministry of Justice 2005: Counselor, the Legislative Division, Criminal Affairs Bureau, Ministry of Justice 2005: Public Prosecutor, Supreme Public Prosecutors Office 2007: Deputy Director of Public Peace Department, Tokyo District Public Prosecutors Office 2008: Deputy Director of Trial Department, Tokyo District Public Prosecutors Office 2009: Trial Director, Yokohama District Public Prosecutors Office 2010: Registered as an attorney-at-law (Dai-ichi Tokyo Bar Association) Lawyer honorary member, Tokyo Seiwa Law Office (present post) 2016: Chief Executive Officer, PricewaterhouseCoopers Deals Advisory LLC (currently PwC Advisory LLC) 2016: Partner, PwC Advisory LLC 2016: CEO, Oka & Company Ltd. (present post) 2016: Outside Director, Mitsubishi Corporation (present post) 2016: Outside Director, Hitachi Metals, Ltd. (present post) Hitoshi Kanamori 1984: Public Prosecutor, Tokyo District Public Prosecutors Office 1985: Public Prosecutor, Yamagata District Public Prosecutors Office 1988: Public Prosecutor, Niigata District Public Prosecutors Office 1990: Public Prosecutor, Tokyo District Public Prosecutors Office 1992: Registered as an attorney-at-law (Tokyo Bar Association) 1993: Partner, SANNO LAW OFFICE (present post) 2005: Visiting Professor, University of Tsukuba Law School 2015: Audit & Supervisory Board Member, the Company (present post) Noriyuki Uematsu 1985: Joined Tohmatsu & Aoki Audit Corporation 1997: Joined Deloitte Tohmatsu Consulting Co., Ltd. (current ABeam Consulting Ltd.) 1999: Global Partner for manufacturing industry and Managing Director in Kyushu area, Deloitte Tohmatsu Consulting Co., Ltd. (current ABeam Consulting Ltd.) 2003: Joined DENTSU INC. 2008: Established Uematsu & Co. Managing Director, Uematsu & Co. (present post) 2011: President & Representative Director, SU Consultant Co., Ltd. (present post) 2012: Outside Audit & Supervisory Board Member, NJK Corporation (present post) 2015: Outside Audit & Supervisory Board Member, Kamakura Shinsho, Ltd. 2016: Outside Director and Audit & Supervisory Committee Member, Kamakura Shinsho, Ltd. (present post) 2016: Audit & Supervisory Board Member, the Company (present post) 32 2016: Outside Director, Link and Motivation Inc. (present post) 2017: Director, the Company (present post) Audit & Supervisory Board Members Tomokazu Fujisawa 1984: Joined Fujisawa Pharmaceutical Co., Ltd. 1999: Director of Planning, Medical Supply Business, Fujisawa Pharmaceutical Co., Ltd. 2006: Assistant to Senior Vice President, Corporate Finance & Accounting and Project Leader of J-SOX Project, the Company 2007: Project Leader of J-SOX Project, the Company 2013: Vice President, Internal Auditing, the Company 2014: Assistant to President and CEO, the Company 2014: Audit & Supervisory Board Member, the Company (present post) (Front row, from left) Yoshiharu Aizawa, Keiko Yamagami, Yoshihiko Hatanaka, Toshiko Oka, Noriyuki Uematsu (Back row, from left) Mamoru Sekiyama, Etsuko Okajima, Kenji Yasukawa, Hiroko Sakai, Hitoshi Kanamori, Tomokazu Fujisawa Expected Role of Outside Directors and Outside Audit & Supervisory Board Members Position Name Outside Directors Etsuko Okajima Expected Role Etsuko Okajima has been engaged in corporate management as a business manager of a human resource consulting company, and has abundant management experience and extensive insight. She currently plays a key role as an outside Director for management of the Company from an independent standpoint. The Company is confident that she will draw on her abundant experience of corporate management in management of the Company in the future as well. Yoshiharu Aizawa Yoshiharu Aizawa has been engaged in medical treatment while successively holding important posts at Kitasato University as a medical scientist, and has abundant specialized knowledge and experience. He currently plays a key role as an outside Director for management of the Company from an independent standpoint. The Company is confident that he will draw on his abundant specialized knowledge and experience in management of the Company in the future as well. Mamoru Sekiyama Mamoru Sekiyama has been engaged in corporate management as a business manager of a general trading company over many years, and has abundant global experience and extensive insight. The Company is confident that he will be able to apply his abundant specialized knowledge and experience in corporate management and other strengths to the management of the Company from an independent standpoint. Keiko Yamagami After successively holding important posts such as Public Prosecutor at the Supreme Public Prosecutors Office, Keiko Yamagami has been engaged in corporate legal affairs as an attorney-at-law, and has abundant expertise and experience. The Company is confident that she will be able to apply her abundant specialized knowledge and experience to the management of the Company from an independent standpoint. Toshiko Oka Toshiko Oka has been engaged in corporate management as a business manager of a management consulting firm, and has abundant management experience and extensive insight. She currently plays a key role as an outside Audit & Supervisory Board Member from an independent standpoint. The Company is confident that she will draw on her abundant experience in corporate management in auditing the Company in the future as well. Hitoshi Kanamori After successively holding important posts such as Public Prosecutor at the Tokyo District Public Prosecutors Office, Hitoshi Kanamori has been engaged in corporate legal affairs as an attorney-at-law, and has abundant expertise and experience. He currently plays a key role as an outside Audit & Supervisory Board Member from an independent standpoint. The Company is confident that he will draw on his abundant specialized knowledge and experience in auditing the Company in the future as well. Noriyuki Uematsu With many years of experience as a certified public accountant, Noriyuki Uematsu has thorough knowledge of corporate consulting and auditing, and is also engaged in corporate management as a business manager of a consulting company relating to business accounting and tax accounting services. He currently plays a key role as an outside Audit & Superrisory Board Member from an independent standpoint. The Company is confident that he will draw on his abundant specialized knowledge and experience in auditing the Company in the future as well. Outside Audit & Supervisory Board Members Attendance at Meetings of the Board of Directors and Audit & Supervisory Board During Fiscal 2016 14/14 times 14/14 times Inaugurated in June 2017 Inaugurated in June 2017 14/14 Board of Directors meetings 15/15 Audit & Supervisory Board meetings 14/14 Board of Directors meetings 15/15 Audit & Supervisory Board meetings 11/11 Board of Directors meetings 11/11 Audit & Supervisory Board meetings IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Interview with an Outside Director I will contribute to enhancing the corporate governance, to fostering the continuous creation of innovation and to strengthening human resources and organizational capabilities. Etsuko Okajima Outside Director President and Representative Director, ProNova Inc. Professor, Graduate School of Management, GLOBIS University Ms. Okajima works as a consultant specializing in enhancement of management teams. Leveraging her extensive experience in corporate management, she has served as an outside Director of Astellas since 2014. Q: In your view, what roles should you fulfill as an outside Director to improve enterprise value and how are you making a contribution? A: I strive to supervise business execution from an objective viewpoint by taking full advantage of my expertise in human resource development. At Astellas, all outside Directors are expected to contribute as professionals from objective points of view. I am engaged in developing the next generation of management teams with my expertise in strategic human resource development as the president of a human resource consulting firm. Thus, I am committed to making a significant contribution especially to discussions on succession planning in the Nomination Committee, and to the supervision of personnel assignments and human resource development to create innovation. In my daily discussions as an outside Director, I recognize that the Company’s management should reflect objective perspectives, such as whether anything has been overlooked internally and what will be the impartial judgements. Notably, in terms of increasing enterprise value by creating innovation, it is crucial to evaluate risks and to supervise whether necessary risks are appropriately taken in resource allocation. It tends to be difficult to judge the extent of the risks that a company should take from the standpoint of outside Directors. In this respect, Astellas has a system that enables the outside Directors to monitor the situation by providing information to them on projects in consideration which are in the stage prior to being shared at Board of Directors meetings. In addition, I believe that the briefings given by the executives are vital to judging risk. For example, in discussions on M&As, President and CEO Hatanaka and other executives provide briefings in their own words on the reasons for implementing the project, the determination of management and their perspectives on risk, including the background of the project. Through this explanation and sound discussion over sufficient periods of time, we, outside Directors, deepen our understanding and awareness of the Company’s tolerance of risk and how positively management is willing to assume the risk. To date, we have communicated and discussed with Astellas’ management team so that we can confidently place fundamental trust in their management philosophy and their risk-taking capacity. In the course of examining each proposal, we are able to reconfirm the thinking of the management team to provide our perspective. Through this process, we strive to maximize our supervisory roles as outside Directors. 33 Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 Q: What are the initiatives at Astellas which are designed to enhance the effectiveness of the Board of Directors? A: Astellas continues to drive the evolution of the composition and operation of the Board of Directors, and the outside Directors are well-informed. I have had the opportunity to examine many different companies. I believe that Astellas’ Board of Directors clearly stands out in terms of ensuring reliable management to create innovation. My belief is based on two main reasons. The first reason is that Astellas continues to drive evolution in the composition and operation of the Board of Directors, in order to reach its clearly stated goal of realizing its business philosophy. Astellas’ management team has extensively looked at how the Board of Directors should be structured and operated to create innovation, including delegating authority to executives, and has reflected this resolve in the ways of working and management of the Board of Directors. For example, outside Directors have been the majority of the Board of Directors for many years and one or two of them are replaced every year. I believe that this approach helps to bring diverse and ongoing innovation through disciplined member turnover, in conjunction with maintaining the quality of discussions amongst the Board of Directors. The second reason is that Astellas has enhanced the information it provides to the outside Directors. Astellas properly provides the information needed by all board members to discuss matters using the same wording and concepts shared in meetings of the Board of Directors. I believe that this helps to enhance the effectiveness of the monitoring of business execution, besides increasing the quality of discussions as a matter of course. Twice a year, Astellas holds Board of Directors meetings at various business sites other than the Headquarters Office including locations outside of Japan. This provides a valuable opportunity to directly obtain real information related to my field of specialty regarding issues such as the capabilities and situations of local employees and the relationship between management and local employees. I feel that this opportunity is very helpful in the course of fulfilling my duties as an outside Director. Q: Could you discuss the features of succession planning at Astellas and your assessment of this process? A: Astellas is strategically developing people from an early stage who have been fairly selected. Astellas is strategically developing the next generation of business leaders. It also emphasizes fairness in the selection and development of those candidates. Based on these two points, I value the leading system of Astellas’ succession planning. In preparation for various environmental changes both within and outside the Company, Astellas identifies and captures high-potential employees who are candidates for the next generation of management well in advance. It then strategically assigns and transfers these personnel within the organization. Over the past few years, I have advised that this type of human resource development must begin at an early stage of people’s careers, and I feel that this discussion is ongoing now. Astellas intentionally assigns high-potential human resources to positions of responsibility from an early stage in their careers and gives them the opportunity to gain experience under pressure. I refer to this process as “pushing people beyond their comfort zone.” Through these assignments and appointments, Astellas develops human resources. Astellas also emphasizes the fair selection of candidates, looking at multiple factors beyond tenure to find the best fit for the job. From my perspective as a human resource specialist, Astellas is following a reliable process. 34 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 I believe that the importance of ensuring fairness in human resource development will only continue to further increase. In recent years, Astellas has proactively executed M&A deals. In order to attract talented human resources, including members who have joined the Group through M&A activity, and to harness their talent, it is critical for Astellas to treat all personnel fairly without any bias with respect to age or company background. I have been able to share this recognition with the management team, and I feel that we have held good discussions in both meetings of the Board of Directors and the Nomination Committee. Q: Could you discuss your expectations for Astellas as an outside Director? A: I expect Astellas to further develop “dynamic” systems in order to create innovation. Astellas needs to continue creating innovation to meet the expectations of its stakeholders, and this is my expectation as well. From the viewpoint of organizational development, which lies in my field of expertise, creating innovation requires implementation of diversified perspectives in making decisions and newly connecting factors which are as different as possible. To do that, it is crucial to incorporate “dynamic” systems into the organization. Astellas is already implementing these approaches to develop “dynamic” systems, i.e., taking steps to ensure that innovation is not hindered by a fixed organizational structure or by the impediments of sectionalism/narrow viewpoints. As I said before, Astellas regards personnel assignment as an important pillar of human resource development, and encourages strategic and proactive personnel transfers. In addition, Astellas has made various efforts to avoid fixed organizations through such means as promoting flexible collaboration with external partners and cross-functional collaboration. I expect these measures to contribute immensely to creating innovation. I believe the agenda for the future is to develop more “dynamic” systems in the Board of Directors. One specific example would be to further increase the diversity of the members of the Board of Directors, including the appointment of foreign nationals to the board. I am determined to trigger “dynamic” evolution through my comments in the Board of Directors discussions and in the Nomination Committee meetings. By doing so, I intend to continue contributing to the enhancement of corporate governance at Astellas. TOPIC Astellas Selected as one of the 2016 Prize Winners Corporate Governance of the Year 2016 Award Astellas has been selected as one of the winners in the Corporate Governance of the Year Awards for 2016 organized by the Japan Association of Corporate Directors. Corporate Governance of the Year Awards are held to recognize companies that are achieving sound medium- to long-term growth by implementing good corporate governance. Considering that one year has passed since the Corporate Governance Code entered force, the nomination process emphasized not only formal structures, but also the actual implementation of corporate governance systems. A member of the Nomination Committee for the awards commended Astellas’ corporate governance, noting that the Company has firmly instilled corporate governance in management and has a well-developed corporate governance system in place that facilitates prompt decision-making. Without becoming complacent with the status quo, Astellas will continue to strengthen corporate governance so that it can continue to improve its enterprise value. 35 Corporate Strategy and Corporate GovernanceAstellas Pharma Inc. ANNUAL REPORT 2017 Business Review Further Enhancing Value Creation and Value Protection through Our Business Activities Targeting medium- to long-term growth, Astellas is steadily advancing the three strategic priorities of “Maximizing the Product Value,” “Creating Innovation,” and “Pursuing Operational Excellence.” Through these initiatives, we will realize the sustainable enhancement of enterprise value and fulfill our corporate social responsibility. 36 Astellas Pharma Inc. ANNUAL REPORT 2017 Executive Committee (as of July 2017) The Executive Committee discusses important matters of management across Astellas. It is chaired by the Representative Director, President and CEO, and comprises top management and General Counsel as standing members. Extended members include the officers responsible for research, development and pharmaceutical technology capabilities together with the officers responsible for each region, and these members participate in any necessary discussions at the request of the chairman. Standing Members Fumiaki Sakurai Chief Administrative Officer & Chief Ethics & Compliance Officer Chikashi Takeda Chief Financial Officer Yoshihiko Hatanaka Representative Director, President and CEO Linda Friedman General Counsel Kenji Yasukawa, Ph. D. Representative Director, Executive Vice President, Chief Strategy Officer & Chief Commercial Officer Sef Kurstjens, M.D., Ph. D. Chief Medical Officer Extended Members Nobuaki Tanaka President, Japan Sales & Marketing Masatoshi Kuroda President, Asia & Oceania Business James Robinson President, Americas Operations Yukio Matsui President, EMEA Operations Wataru Uchida, Ph.D. President, Drug Discovery Research Mitsunori Matsuda President, Pharmaceutical Technology Bernie Zeiher, M.D. President, Development Global Heads Martin Golden Head of Marketing Strategy 37 Charlotte Kremer, M.D. Head of Medical Affairs Songlin Xue, M.D., Ph.D. Head of Pharmacovigilance Bill Fitzsimmons, Pharm.D. Head of Regulatory Affairs and Clinical and Research Quality Assurance Kunihiko Kokubo Head of Quality Assurance Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Top Management Discussion Speaking with the CSTO&CCO Maximizing the Product Value Achieving Sustained Growth through Long-Term Portfolio Management Kenji Yasukawa, Ph.D. Representative Director, Executive Vice President, Chief Strategy Officer & Chief Commercial Officer (CSTO&CCO) Q: How will you expand the growth drivers to overcome the patent cliff? A: We analyze the internal and external environment rigorously and continue to review our portfolio with a long-term view. The patent cliff, impacts on business performance due to patent expiry of major products, is an issue that we must overcome by undertaking long-term portfolio management. Every year, Astellas rigorously analyzes the internal and external environment and updates its long-term strategy. In the process, we select fields where we can succeed in tandem with continuously revising our product portfolio and pipeline. XTANDI and the OAB treatment franchise, our current growth drivers, are in the stage to steadily execute the strategies we drew up at launch, and we have made largely solid progress. Looking at our future growth drivers, we have a number of projects in late-stage clinical development, such as gilteritinib and roxadustat. Moreover, the acquisitions of Ganymed Pharmaceuticals AG and Ogeda SA added exciting projects in our pipeline. We will also invest in the cell therapy program which we obtained from acquired Ocata Therapeutics, Inc. We expect these projects to contribute to our medium-term growth. Astellas has a portfolio fully capable of achieving sustained growth over the next 5 to 10 years. Q: As drug prices come under increasing pressure, how will you raise product value? A: We will seek to obtain an understanding from various stakeholders by striving to effectively prove the value our products deliver. In the areas of serious diseases and fields with unmet medical needs, Astellas will continue to provide high value by turning innovative science into new medicines promptly. In order to continuously create new value, drug prices must reflect the value of drugs, in conjunction with ensuring patients’ access to drugs. To do so, Astellas must prove the value of drugs to stakeholders. Until now, we have proven the value of drugs through conducting numerous clinical trials, including comparisons with existing drugs and the use in various types of patient populations. However, the need to conduct multiple trials has been one factor behind surging drug prices. Going forward, it will become increasingly important to prove the value of new drugs efficiently by utilizing regulatory systems for obtaining early approval of innovative drugs, real-world data and other methods. As this will require arrangements such as the introduction of new systems, Astellas will also work to gain the mutual understanding of society toward these developments. 38 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Speaking with the CMO Creating Innovation Focusing on the Creation of Innovative New Drugs for Diseases in Areas of High Unmet Medical Needs Sef Kurstjens, M.D., Ph.D. Chief Medical Officer (CMO) Q: How do you evaluate the current pipeline? What are your key priorities for enhancing the pipeline? A: Astellas has demonstrated healthy growth and significantly strengthened its pipeline in recent years. To continue this trajectory, it is critical we do not become complacent and continue building out our expanding pipeline in our current and emerging therapeutic areas. At Astellas, our research and development efforts are focused predominantly in areas of high unmet medical need, in life-threatening diseases, with the potential to deliver first-in-class therapies. For the past decade, Astellas has demonstrated healthy growth, developing groundbreaking new medicines in urology, transplantation, infectious diseases and oncology, our largest focus area. We currently have more than 30 new molecular/biological entities in the pipeline, and have significantly grown our presence in oncology. We have a number of late-stage assets across the pipeline with data readouts expected in the coming year. While there has been demonstrable progress, we are not complacent and understand there is still a lot of work to do. We will continue to refine our current therapeutic areas, move assets forward in our emerging therapeutic areas, and build out our expanding pipeline. Q: How have you been improving R&D productivity? A: Throughout the R&D process, from bench to clinic, and into the marketplace, we focus on the best science, empower the best talent to pursue it, in the best location to optimize the chances of success for every molecule in development. Our approach to driving the speed of innovation is three-pronged: First, we have built speed and efficiency into our in-house, pre-Proof of Concept activities, with the initiation of our FASTEN program. Gilteritinib is a good example of how we’ve applied FASTEN to a development program. Second, we employ open innovation as a strategy to access the best science and scientists globally. Third, we continue to look for external mid- to late-stage assets that fit our strategic criteria through in-licensing, partnering or acquisition opportunities to continue to build our pipeline. Separate, but also important to improving productivity, is ensuring we design the best organization and fully engage our staff, utilizing the Astellas Way to create a common purpose and culture for our organization. 39 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Speaking with the CAO&CECO Pursuing Operational Excellence Human Resource Development That Leverages Diversity Drives Creating Innovation Fumiaki Sakurai Chief Administrative Officer & Chief Ethics & Compliance Officer (CAO&CECO) Q: Could you share your perspectives on human resource development aimed at creating innovation? A: We will create value by deliberately fostering constructive interaction and debate among employees with diverse values. Creating innovation is a universal theme for all employees, not just the departments involved in drug creation. Since its founding in 2005 through a merger of two leading Japanese pharmaceutical companies, Astellas has always pursued the best approaches and methods available in the world. One key to creating value is to respect the diverse values of various people. The breakthroughs that create opportunities are found in approaches that seem, at first glance, to be highly risky and unique. At times, diversity can give rise to opposing viewpoints. However, innovation is created when these differences are embraced and reconciled through communication. Based on this belief, Astellas provides opportunities for employees to grow by creatively tackling challenging duties through its personnel assignment process, which is one of the key pillars of human resource development. In human resource development, we provide opportunities for diverse employees from around the world to engage in a healthy rivalry and sharpen their thinking, and training programs where participants and top management can discuss and debate ideas on the same level. By deliberately creating situations where employees with diverse values engage in constructive interaction and debate, we will work to develop talent who can create innovation. Q: What is the aim of strengthening the compliance structure? A: The aim is to earn the trust and confidence of stakeholders as Astellas’ business expands globally. Stakeholders have always expected an extremely high standard of ethics from the pharmaceutical industry, which has a direct bearing on people’s lives. Moreover, as Astellas’ business expands globally, the requirements and rules are becoming more and more complex. In this environment, in order to preserve Astellas’ enterprise value while earning the trust of stakeholders, every Astellas employee must take action based on high ethics as a matter of course. In addition, we must also engage in a steady dialogue with our business partners to ensure that they practice the same level of compliance as Astellas. We have unified the Astellas Group Code of Conduct on a global basis. Along with this, the Department of Ethics & Compliance was reconfigured into a global organization independent of the operating divisions. Astellas has appointed individuals to be responsible for compliance at all of its subsidiaries, and is working to further strengthen the organization. 40 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Value Creation and Value Protection Activities Astellas will turn innovative science into value for patients through its value creation process. We believe that creating value for society through business activities will help Astellas to maintain trust from society and to capture new business opportunities, leading to creation of enterprise value. Protecting value for society will help Astellas to reduce its reputational risk and to elevate its corporate brand, leading to the protection of enterprise value. Value Creation Activities Value Protection Activities Maximizing the Product Value (Manufacturing to Sales and Procurement) • Enhancing the main franchise areas (oncology, OAB, etc.) • Launching new products and expanding indications and adding new formulations • Building an optimal sales structure in response to the market characteristics of each country/region • Measures to prevent medical malpractice and to improve the distinguishability of pharmaceuticals • Improving the pharmacovigilance system • Introducing universal design into product packaging • Increasing public awareness of diseases • Continuously executing a high level of investment in R&D • Actively incorporating cutting-edge science and technology through a Network Research System • Promoting rapid and efficient development • Acquiring promising candidate compounds • Patient centricity in drug development • Joint research into therapies and vaccines against tropical diseases • Expanded access to investigational medicines • Managing intellectual property to maintain corporate competitiveness and improve Access to Health • Continually enhancing organizational structure • Optimal reallocation of resources • Effective utilization of external resources • Nurturing and promoting the success of diverse human resources • Developing rewarding and safe work environments • Strengthening the corporate governance framework • Contributing to strengthening healthcare systems in developing countries • Using renewable energy • Strengthening the corporate governance framework • Reducing greenhouse gas (GHG) emissions • Initiatives for biodiversity Social Preserving the environment and biodiversity Social Improving Access to Health Enterprise Earning trust from society Related Information P43-52 Creating Innovation (Research and Development) Related Information P53-62 Pursuing Operational Excellence (Raising the Quality and Efficiency of Operations) Related Information P30, 63-70 Other Activities Related Information P25-29, 71-80 41 • Gathering and providing information that helps to ensure proper use of products • Anti-counterfeiting activities • Anti-doping measures • Strengthening the quality assurance system • Stable supply and quality control • Promoting CSR procurement Social Social Value Enterprise Enterprise Value Main Types of Social and Enterprise Value Created and Protected Social Improving the health condition of patients through medicines that satisfy unmet medical needs Social Returns to stakeholders Enterprise Funds to sustain growth • Conducting R&D based on compliance with relevant laws and regulations and ethical considerations • Protection of human rights, privacy and confidentiality of personal information of research subject and assurance of reliability in clinical trials Social Improving sustainability by solving social issues through business activities Social Improving the quality of healthcare by creating innovative medicines Enterprise Creating business opportunities by solving social issues related to health • Improving the internal control system • Strengthening the risk management system • Enhancing the awareness of employees toward ethics and compliance and the structure to promote ethics and compliance • Anti-bribery and anti-corruption initiatives • Commitment to fair competition • Ensuring occupational safety and health Social Maintaining social order by promoting ethics and compliance Enterprise Enhancing corporate competitiveness and productivity through human resource development Enterprise Enhancing corporate competitiveness and productivity by increasing the quality and efficiency of operations Enterprise Earning trust from society Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Maximizing the Product Value (Manufacturing to Sales and Procurement) • Enhancing the main franchise areas (oncology, OAB, etc.) • Launching new products and expanding indications and adding new formulations • Building an optimal sales structure in response to the market characteristics of • Measures to prevent medical malpractice and to improve the distinguishability of each country/region pharmaceuticals • Improving the pharmacovigilance system Related Information • Introducing universal design into product packaging P43-52 • Increasing public awareness of diseases Creating Innovation (Research and Development) • Continuously executing a high level of investment in R&D • Actively incorporating cutting-edge science and technology through a Network Research System • Patient centricity in drug development • Promoting rapid and efficient development • Acquiring promising candidate compounds • Joint research into therapies and vaccines against tropical diseases • Expanded access to investigational medicines Related Information • Managing intellectual property to maintain corporate competitiveness and improve P53-62 Access to Health • Continually enhancing organizational structure • Optimal reallocation of resources • Effective utilization of external resources • Nurturing and promoting the success of diverse human resources • Developing rewarding and safe work environments Pursuing Operational Excellence (Raising the Quality and Efficiency of Operations) Related Information P30, 63-70 Other Activities Value Creation Activities Value Protection Activities • Gathering and providing information that helps to ensure proper use of products • Anti-counterfeiting activities • Anti-doping measures • Strengthening the quality assurance system • Stable supply and quality control • Promoting CSR procurement Social Social Value Enterprise Enterprise Value Main Types of Social and Enterprise Value Created and Protected Social Improving the health condition of patients through medicines that satisfy unmet medical needs Social Returns to stakeholders Enterprise Funds to sustain growth • Conducting R&D based on compliance with relevant laws and regulations and ethical considerations • Protection of human rights, privacy and confidentiality of personal information of research subject and assurance of reliability in clinical trials Social Social Improving sustainability by solving social issues through business activities Improving the quality of healthcare by creating innovative medicines Enterprise Creating business opportunities by solving social issues related to health • Improving the internal control system • Strengthening the risk management system • Enhancing the awareness of employees toward ethics and compliance and the structure to promote ethics and compliance • Anti-bribery and anti-corruption initiatives • Commitment to fair competition • Ensuring occupational safety and health Social Maintaining social order by promoting ethics and compliance Enterprise Enterprise Enhancing corporate competitiveness and productivity through human resource development Enhancing corporate competitiveness and productivity by increasing the quality and efficiency of operations Enterprise Earning trust from society • Strengthening the corporate governance framework • Contributing to strengthening healthcare systems in developing countries Related Information P25-29, 71-80 • Using renewable energy • Strengthening the corporate governance framework • Reducing greenhouse gas (GHG) emissions • Initiatives for biodiversity Social Preserving the environment and biodiversity Social Improving Access to Health Enterprise Earning trust from society 42 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Maximizing the Product Value Maximizing the Product Value Review of Operations by Therapeutic Area in oncology. Currently, we are working to expand sales of XTANDI to new regions, as we work to expand the indication in each country and further increase the market penetration of this drug to chemotherapy-naïve patients. Leveraging our strengths including robust data obtained in clinical trials and our solid presence in the urology field, we aim to become the market leader in this category. Fiscal 2016 Performance Total sales of Astellas’ four oncology products decreased by 3.9% to ¥307.7 billion, due partly to the impact of foreign exchange rates. Excluding the foreign exchange impact, sales rose by around 6%. Sales of XTANDI were ¥252.1 billion, mostly flat year on year. Excluding the foreign exchange impact, sales increased by around 10%. Tarceva-related revenues were down 24.7% at ¥35.2 billion. Eligard is currently marketed in EMEA and Asia & Oceania. Sales declined 9.6% to ¥15.9 billion. Sales of Gonax, which is marketed in Japan, increased 15.9% to ¥4.5 billion. Sales of XTANDI by Region Americas Japan EMEA (¥ billion) 400.0 300.0 +0% 252.1 2.4 200.0 70.7 100.0 152.9 Asia & Oceania +10% 252.1 85.3 4.0 277.7 101.5 7.0 139.4 143.4 0 26.2 2016.3 23.4 2017.3 25.8 2018.3 (Forecast) Astellas is working to steadily grow and maximize the value of products developed through its investments over the years, including its growth drivers XTANDI and Betanis/Myrbetriq/BETMIGA. Oncology Business Environment and Basic Strategy Given that cancer is one of the leading causes of death, oncology has urgent unmet patient needs. It is also an area that has seen the development of a steady string of new drugs in line with scientific advancement. Astellas is focused on the oncology field as one of its core business areas. We currently have four oncology products: the prostate cancer treatments XTANDI, Eligard and Gonax, and Tarceva for the treatment of non-small cell lung cancer and pancreatic cancer. XTANDI stands out as a significant growth driver for us Sales by Product Eligard XTANDI Gonax Tarceva -4% 320.3 46.8 17.6 3.9 307.7 35.2 4.5 15.9 252.1 252.1 2016.3 2017.3 (¥ billion) 400.0 300.0 200.0 100.0 0 43 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Overview of Main Products XTANDI This product is a once-daily oral androgen receptor inhibitor. XTANDI has been sold since 2012 in various regions for prostate cancer patients who had previously received chemotherapy. As of March 2017, XTANDI is sold in around 70 countries and regions. It was also approved in key countries for the treatment of chemotherapy-naïve prostate cancer patients. Looking at regional sales of XTANDI in fiscal 2016, sales in Japan decreased 10.6% year on year to ¥23.4 billion, due partly to the impact of NHI drug price revisions. Sales in the Americas rose 1.1% to US$1,286 million. In this region, U.S. sales decreased 1.6% to US$1,215 million. Although sales volume increased in the U.S., the main reason for the lower sales was an increase in drugs supplied free of charge through patient access programs, which are not recorded as sales. In the EMEA region, sales rose by 34.7% to €718 million. XTANDI is gaining traction among chemotherapy-naïve prostate cancer patients. In the Asia & Oceania region, sales increased 66.5% to ¥4.0 billion, with sales growing primarily in Australia and Taiwan. Clinical study data comparing XTANDI and bicalutamide were reflected in the European label in April 2016 and the U.S. label in October 2016. In the U.S., Astellas and Pfizer Group co-promote XTANDI and share profits equally. In all countries excluding the U.S., Astellas develops and commercializes XTANDI, while paying Pfizer Group royalties based on sales. Eligard Eligard, a treatment for prostate cancer, is a luteinizing hormone-releasing hormone (LHRH) agonist that is marketed under license from TOLMAR Inc. In EMEA, sales increased by 0.6% to €132 million in fiscal 2016. In Asia & Oceania, sales rose 17.8% to ¥0.2 billion. Gonax Gonax, a treatment for prostate cancer, is a gonadotrophin-releasing hormone (GnRH)-receptor blocker with a subcutaneously injectable formulation in-licensed from Ferring Pharmaceuticals. It is sold by Astellas in Japan. In fiscal 2016, sales rose 15.9% to ¥4.5 billion. We will step up efforts to increase the market penetration of Gonax, along with that of XTANDI. Tarceva Tarceva, a treatment for non-small cell lung cancer and pancreatic cancer, is a small-molecule drug developed to target the epidermal growth factor receptor (EGFR) that plays a key role in cancer formation and growth. In fiscal 2016, Tarceva-related revenues decreased by 16.5% to US$325 million, mainly due to intensifying competition with other drugs. In the U.S., we have been co-promoting Tarceva with Genentech, Inc., with earnings split equally between bothcompanies. We also have a license agreement with F. Hoffmann-La Roche Ltd in other countries, and receive royalties based on sales. These revenues are recorded as sales in the Americas. XTANDI 44 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Maximizing the Product Value Urology and Nephrology Business Environment and Basic Strategy Astellas has established a strong presence in the urology area through the sale of Harnal, a treatment for functional symptoms of benign prostatic hyperplasia, as well as the overactive bladder (OAB) treatments Vesicare and Betanis/ Myrbetriq/BETMIGA. OAB treatments have now become one of Astellas’ core growth drivers. We will maintain the position of Vesicare as the first choice among anticholinergics—the standard therapy for OAB. Moreover, Betanis/Myrbetriq/ BETMIGA has earned a strong reputation as a new treatment option with a different mechanism of action from Vesicare. In anticipation of the expiry of patent protection for Vesicare in various regions from 2018 onward, we will allocate more resources than ever to Betanis/Myrbetriq/BETMIGA as we focus on achieving further market penetration, in order to maximize the value of the OAB franchise as a whole. Considering the large number of potential subjects in the OAB treatment market, we will work to contribute to the treatment of many more patients by raising public awareness of this condition. Moreover, the nephrology area offers prospects for synergies with Astellas’ existing products and therapeutic areas, including urology. Accordingly, the development of several projects is now under way. Total Sales of the OAB Franchise (By Product) Betanis/Myrbetriq/BETMIGA Vesicare (¥ billion) 300.0 200.0 100.0 0 217.4 81.7 135.6 -1% +10% 214.9 98.8 237.4 122.8 116.1 114.6 2016.3 2017.3 2018.3 (Forecast) Fiscal 2016 Performance In fiscal 2016, aggregate sales of our OAB franchise, including Vesicare and Betanis/Myrbetriq/BETMIGA, decreased by 1.1% to ¥214.9 billion, partly due to the impact of foreign exchange rates. Excluding the foreign exchange impact, sales increased by around 7%. Overview of Main Products Betanis/Myrbetriq/BETMIGA This drug is an OAB treatment. It is a beta-3 adrenergic receptor agonist that helps to relieve symptoms associated with OAB such as urinary urgency, frequent urination, and urinary incontinence. It is sold in around 50 countries and regions worldwide under the brand name of Betanis in Japan, Myrbetriq in the Americas, and BETMIGA in EMEA and Asia & Oceania. As an OAB treatment with a new mechanism of action, Betanis/Myrbetriq/BETMIGA has been achieving increased market penetration. In fiscal 2016, aggregate sales increased in every region despite the impact of foreign exchange rates, with sales growing sharply by 21.0% to ¥98.8 billion. In Japan, sales of Betanis increased by 22.0% to ¥25.9 billion. Betanis’ annual share of the OAB treatment market was approximately 32% (on a value basis). In the Americas, Myrbetriq sales continued to grow, up 34.2% to US$510 million. Myrbetriq’s annual share of the U.S. OAB treatment market reached approximately 31% (on a value basis). In the EMEA region, sales of BETMIGA increased by 17.8% to €119 million. In EMEA, BETMIGA’s annual share of the OAB treatment market reached approximately 13% (on a value basis). In Asia & Oceania, BETMIGA sales increased sharply by 144.8% to ¥3.5 billion. Betanis/Myrbetriq/BETMIGA 45 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Vesicare Vesicare, an OAB treatment, is an anticholinergic drug sold in approximately 80 countries and regions. It has continued to retain a high share in each region as the first choice of therapy in the OAB area. In fiscal 2016, sales of Vesicare decreased 14.4% to ¥116.1 billion. Looking at regional sales of Vesicare, sales in Japan declined 3.3% to ¥25.6 billion, sales in the Americas decreased 7.7% to US$490 million, sales in EMEA declined 10.2% to €270 million, and sales in Asia & Oceania fell 5.2% to ¥5.0 billion. Vesicare Harnal/Omnic This product is sold in approximately 100 countries and regions, and has established itself as a standard treatment of urinary disorders associated with benign prostatic hyperplasia (BPH). Sales declined 10.8% to ¥47.7 billion in fiscal 2016. Regionally, sales in Japan decreased 27.5% to ¥9.2 billion. In EMEA, sales, including bulk royalty revenue, declined 1.0% to €138 million. Sales in Asia & Oceania decreased 2.0% to ¥21.1 billion. Immunology Business Environment and Basic Strategy In the immunology area, Astellas is contributing to the field of transplantation through the immunosuppressant Prograf. The transplantation franchise is a vital earnings base globally and Astellas will continue to focus on the franchise. Fiscal 2016 Performance Sales of Prograf decreased 8.5% to ¥186.2 billion in fiscal 2016, due partly to the impact of foreign exchange rates. Excluding the foreign exchange impact, sales were mostly unchanged year on year. Although global Prograf sales are being impacted by generics in Japan, the Americas and EMEA, sales in Asia & Oceania continue to show strong growth on an adjusted basis excluding the impact of foreign exchange rates. Overview of Main Products Prograf and Advagraf/Graceptor/ASTAGRAF This drug is an immunosuppressant used to suppress organ transplant rejection. Although the patent for this drug has already expired in major countries, it is sold in approximately 100 countries and regions and has made a significant global contribution to the field of transplantation. 46 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Maximizing the Product Value Looking at regional sales in fiscal 2016, sales in Japan decreased 1.9% to ¥48.8 billion, due partly to the impact of NHI drug price revisions, despite continued growth in the once-daily formulation of Graceptor. Sales in EMEA via in-house distribution channels rose 0.4% to €590 million, mainly supported by expanded sales of the once-daily formulation of Advagraf. Sales in Asia & Oceania fell 2.9% to ¥37.3 billion, due partly to the impact of foreign exchange rates. On a basis excluding the foreign exchange impact, sales increased by around 11%. Meanwhile, sales in the Americas declined 12.6% to US$252 million, mainly due to the impact of generics. Cimzia Cimzia, an adult rheumatoid arthritis treatment, is an anti-TNF (tumor necrosis factor)-alpha antibody that is co-promoted in Japan with UCB Japan Co., Ltd. Sales increased 17.9% to ¥7.7 billion in fiscal 2016. Astellas will continue focusing on specialist physicians, in order to increase the prevalence of Cimzia in patients with rheumatoid arthritis at the early disease stages and patients with severe inflammation and symptoms. Sales of Prograf (By Region) (Including Advagraf/Graceptor/ASTAGRAF XL/Prograf XL) Japan Americas EMEA Asia & Oceania Export -9% 203.6 38.4 2.8 +0% 186.2 37.3 2.6 77.9 34.6 49.8 70.1 27.3 48.8 2016.3 2017.3 186.7 1.9 39.6 68.7 28.1 48.5 2018.3 (Forecast) (¥ billion) 300.0 200.0 100.0 0 47 Other Areas Overview of Main Products (Global Products) Funguard/MYCAMINE This drug is a candin-type antifungal agent used for the treatment of fungal infections. It is sold in approximately 60 countries and regions. In fiscal 2016, global sales of the product decreased 3.3% to ¥40.3 billion, partly due to the impact of foreign exchange rates. In terms of regional sales, sales in Japan decreased 3.7% to ¥11.2 billion. Meanwhile, sales in the Americas rose 3.9% to US$113 million. In EMEA, sales increased 7.6% to €91 million and in Asia & Oceania, sales increased 4.8% to ¥6.0 billion. Overview of Main Products (Japan) Micardis/Micombi/Micamlo Micardis, a hypertension treatment, is a once-daily oral angiotensin II receptor blocker (ARB). In Japan, Astellas is co-promoting the Micardis product line with Nippon Boehringer Ingelheim Co., Ltd. Sales of drugs in the Micardis product line, including combination drugs such as Micombi and Micamlo, decreased by 4.1% to ¥93.2 billion in fiscal 2016, partly due to the impact of NHI drug price revisions. The total share of the Micardis line of drugs in the ARB market was around 23% (on a value basis). In November 2016, Astellas launched Micatrio Combination Tablets* in Japan as a combination drug of Micardis, long-acting calcium channel blocker (CCB) amlodipine besylate, and the thiazide diuretic hydrochlorothiazide (HCTZ). Furthermore, the substance patent for this product expired in Japan in January 2017. * Official guidance on points to consider regarding the use of Micatrio Combination Tablets under National Health Insurance coverage was issued by the Medical Affairs Division of the Ministry of Health, Labour and Welfare. (Medical Affairs Division 1226 No.8; December 26, 2016) Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Celecox Celecox, an anti-inflammatory analgesic agent, is a selective cyclooxygenase-2 (COX-2) inhibitor that is co-promoted with Pfizer Japan Inc. In fiscal 2016, sales of Celecox increased 2.2% to ¥47.6 billion. Celecox’s share of the market for oral anti-inflammatory analgesic agents was around 64% (on a value basis) based on the strong reputation of its product features. Going forward, we will target an even higher share of the market for oral anti- inflammatory analgesic agents. Symbicort Symbicort, a treatment for adult bronchial asthma, is a combination drug of an inhaled corticosteroid and a rapid and long-acting beta-2 agonist. Astellas is co-promoting Symbicort with AstraZeneca K.K. in Japan. In fiscal 2016, sales of Symbicort increased 5.0% to ¥39.3 billion. Symbicort’s share of the market in Japan for adult inhaled steroid treatment including combination drugs was around 37% (on a value basis). We aim for further penetration of the product in the growing market due to factors including the dissemination of treatment guidelines. Bonoteo Bonoteo is an oral bisphosphonate osteoporosis treatment. In fiscal 2016, sales of Bonoteo decreased 2.2% to ¥13.8 billion. Amid slowing growth in the market for oral bisphosphonate drugs, Bonoteo’s share of the Japanese market for bisphosphonate agents was around 23% (on a value basis). Astellas will continue emphasizing the patient convenience offered by this drug, as well as its high clinical effect, with the aim of capturing market share. Suglat Suglat, a type 2 diabetes treatment, is Japan’s first selective sodium-glucose co-transporter 2 (SGLT2) inhibitor. In Japan, Astellas is co-promoting Suglat with Kotobuki Pharmaceutical Co., Ltd. and MSD K.K. Supported by growth in the market for selective SGLT2 inhibitors in Japan, sales of Suglat grew 30.2% to ¥9.5 billion in fiscal 2016. Suglat’s share of the market for selective SGLT2 inhibitors in Japan was around 27% (on a value basis). In May 2017, Astellas filed an application for manufacturing and marketing approval of a combination drug of Suglat and the DPP-4 inhibitor sitagliptin phosphate hydrate, with the indication of type 2 diabetes, in Japan. In April 2016, Astellas launched Repatha, the Repatha first proprotein convertase subtilisin/kexin type 9 (PCSK9) inhibitor in Japan, indicated for the treatment of familial hypercholesterolemia or hypercholesterolemia*. It is being co-promoted by Astellas and Amgen Astellas BioPharma K.K. We are working to steadily increase market penetration of Repatha by carrying out activities to supply information on this drug, with an emphasis on encouraging proper drug use. In May 2017, self-injectable of Repatha became eligible for National Health Insurance coverage and limits on the prescription period were removed. * The approved indication is as follows: “Familial hypercholesterolemia, hypercholesterolemia, only when patients who have high risk of cardiovascular events and do not adequately respond to HMG-CoA reductase inhibitors. * Official guidance on points to consider regarding the use of Repatha under National Health Insurance coverage was issued by the Medical Affairs Division of the Ministry of Health, Labour and Welfare. (Medical Affairs Division 0331 No.9; March 31, 2017). LINZESS LINZESS was launched in March 2017 as Japan’s first drug indicated for the treatment of irritable bowel syndrome with constipation (IBS-C). Astellas was granted the exclusive rights to develop and commercialize LINZESS in Japan from Ironwood Pharmaceuticals, Inc., and hopes to contribute to the treatment of IBS-C patients by building on its platform for Irribow, a treatment for diarrhea-predominant irritable bowel syndrome. Overview of Main Products (U.S.) Lexiscan Lexiscan is a pharmacologic stress agent in-licensed from Gilead Palo Alto, Inc. In fiscal 2016, sales of Lexiscan increased 4.3% to US$660 million. CRESEMBA CRESEMBA is an azole antifungal in-licensed from Basilea Pharmaceutica International Ltd. and launched in the U.S. in April 2015. In fiscal 2016, sales of CRESEMBA grew steadily, increasing 147.9% to US$53 million. We will continue working to increase market penetration of this drug, which provides a new option for treating severe fungal infections. 48 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Maximizing the Product Value Business Environment and Strategy by Region Japan Americas Nobuaki Tanaka President, Japan Sales & Marketing James Robinson President, Americas Operations In Japan, the government is accelerating measures to optimize healthcare expenditures, and healthcare delivery systems are also changing due to the concept of community medical care. Meanwhile, advances in information technology and artificial intelligence are expected to significantly alter the healthcare environment. We want to proactively transform these healthcare- environment changes into opportunities, and carry out even higher value-added information-providing activities. Taking action, to date Astellas has been carrying out a variety of reforms regarding our organization and our Medical Representatives (MRs). Our sales promotion structure currently involves two approaches. One is based on each individual medical institution, whereby the MRs work to understand customer needs in each medical region and provide prompt, accurate information. The other is that the MRs assigned to specific therapeutic areas in the highly specialized fields of oncology and immunology are providing more detailed information tailored to the specific treatment needs of individual patients. Our domestic product portfolio has also continued to change. The number of highly specialized products such as XTANDI and Repatha is increasing, and the new product LINZESS has been launched. From fiscal 2017, however, Micardis will begin to see the impact of generics. Astellas will transform these kinds of internal and external environmental changes into opportunities, and continue to evolve toward a patient-centric, optimized sales promotion structure, and by providing high-value-added products together with the relevant information, aiming to enhance our presence even further. The U.S. healthcare system is rapidly evolving and requiring a balance of priorities between fostering innovation and ensuring patient access to healthcare. We have been working to address this by engaging in constructive dialogue with various stakeholders including patients, payers and providers. The recent changes in the business environment faced by pharmaceutical companies in the Americas are expected to continue in the fiscal year ending March 31, 2018. Pharmaceutical companies will need to fulfill increasingly stronger requests from stakeholders to clearly present the value of our products. Meanwhile, we believe that new opportunities will emerge from trends such as the rising importance of preventive care and advances in the digital health field. Going forward, the Americas Operations team is focused on a new plan to streamline operations and concentrate resources on areas of growth. Guided by this plan, we will continue our aim to drive growth across the entire Americas region. In our core therapeutic areas, we will continue to focus on achieving growth in our oncology and urology franchises, while also gaining efficiencies in immunology, transplant and cardiology. In oncology, our highly experienced teams are advancing sales promotion activities for XTANDI. In addition, we have strengthened collaboration with urology medical representatives from the Pfizer Group. It is believed that many patients with metastatic castration-resistant prostate cancer are not diagnosed with this condition at the right stage of the disease. In response, Astellas is working to provide physicians with information concerning appropriate diagnosis and treatment. 49 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 EMEA Asia & Oceania Yukio Matsui President, EMEA Operations Masatoshi Kuroda President, Asia & Oceania Business In the EMEA region, the business environment is expected to come under mounting pressure, mainly based on various governments’ policies to curb medical expenditures and increasing insurance reimbursement challenges. Moreover, operations in the EMEA region are becoming increasingly complex because of the different market environments in various countries, ranging from emerging nations such as Russia and the Gulf Cooperation Council (GCC) states to the five major European countries, including the U.K. and Germany. In this environment, Astellas is working to establish optimal sales strategies for each country, in conjunction with optimizing the allocation of resources and maximizing the product value, with the aim of achieving sustained growth. Going forward, Astellas will continue to serve patients by delivering innovative pharmaceuticals in major therapeutic areas. In oncology, Astellas will focus on increasing uptake of XTANDI among patients with earlier stages of prostate cancer, with the aim of driving further growth in XTANDI. XTANDI is currently marketed in more than 35 countries in the EMEA region. Astellas will continue working to launch XTANDI sales in new markets. In the OAB franchise, Astellas has stepped up its activities to establish BETMIGA as the first choice of therapy. Another priority for Astellas is to develop systems that will strengthen compliance. Compliance requirements have been increasing year after year in countries in the EMEA region. Astellas will address these requests by taking actions such as appointing compliance officers at each sales affiliate. Significant market growth is expected to continue in the Asia & Oceania region, and Astellas currently has 11 sales affiliates covering 13 countries and regions. To ensure the growth in that market is incorporated in our own growth, we aim to provide high-value-added pharmaceutical products and further expand our business. We have high expectations that in addition to XTANDI and BETMIGA, Feburic, which is for hyperuricemia, will be among the new products supporting our growth going forward. We hope that by delivering these products to patients as quickly as possible, we will be able to maximize their value. In Asia, meanwhile, we are also focused on growing the transplantation franchise, a market that continues to expand. In April 2016, Astellas established an umbrella organization for the South East and South Asia regions (SESA Umbrella Organization), which are seeing significant economic growth, and business there has steadily expanded. Our strategy is to further improve the quality and efficiency of our business there by treating the entire region as a single major market, and working to optimize the allocation of management resources. We will also work to further enhance our management and administration systems. We are strengthening our compliance systems by assigning dedicated compliance officers to all of our sales affiliates. In terms of human resource utilization, we are proactively promoting the hiring of a diverse, talented workforce and the acquisition of outside human resources. In addition, in April 2017, we have launched a new organization that will allow us to focus even more on human resource development and build an even stronger business foundation. 50 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Maximizing the Product Value CSR Activities from Manufacturing to Sales Quality and Reliability Assurance development with the potential to be used in doping, and to prevent the misuse of such compounds. Anti-Counterfeiting Activities Improving the Pharmacovigilance System Counterfeit medicines getting into legitimate supply chains not only leads to the loss of opportunities for patients to receive medical treatment, but could also have adverse health consequences. This has become a serious problem worldwide. Astellas operates the Anti-Counterfeit Committee, led by the technology and quality assurance divisions, and has a product security division. These parts of Astellas conduct monitoring and surveys, and implement countermeasures targeting not only counterfeit medicines, but also diversion, smuggling, theft and related activities. When selling products, Astellas systematically introduces effective anti-counterfeit technologies, including product serialization as stipulated by regulations, based on pharmaceutical laws and regulations and risks in each market where products are sold, as well as product characteristics. In addition, Astellas carries out educational activities to prevent the spread of counterfeit medicines in collaboration with members of the pharmaceutical industry and organizations such as the WHO, the PSI* and the Transported Asset Protection Association. We also proactively endeavor to support and cooperate with national governments and judicial authorities to crack down on counterfeit medicines. Astellas published its Position on Counterfeit Medicines online in September 2016. * PSI: The Pharmaceutical Security Institute (PSI) is a not-for-profit organization established to strengthen global anti-counterfeiting efforts. A total of 33 pharmaceutical manufacturers are currently members of the PSI. Product Recalls Astellas has a recall system in place that is activated when the safety, efficacy or quality of a product is brought into question. The system ensures relevant information is promptly passed on to medical institutions and other affected parties, and that a recall of the product in question is instigated. Astellas voluntarily initiated three product recalls in fiscal 2016. As of April 2017, no reports of any related health impairments had been received. Anti-Doping Measures To contribute to the eradication of doping and improvement of public health, in October 2016, Astellas concluded an agreement with the World Anti-Doping Agency (WADA) relating to international cooperation aimed at preventing the abuse of pharmaceuticals in sports. Separately, Astellas continues to work to identify compounds under 51 Astellas is continuously improving its pharmacovigilance (PV) system by strengthening collaboration between the internal PV function and other relevant departments, affiliates and licensing partners. This is to support the provision of trustworthy products and their proper use, along with regulatory compliance. Astellas regularly provides product safety awareness training not only to staff closely involved with the PV function but also to all employees and contractors including affiliate staff to maintain and strengthen collection of safety information appropriately and timely. Moreover, Astellas continues to enhance the system to collect safety information from broader sources. For external service providers outsourced by departments other than the PV organization, Astellas updated contracts to reflect requirements for safety information collection as necessary. In addition, Astellas is exploring utilizing real-world data such as large healthcare databases for safety signal detection of Astellas products to minimize risk by enhancing collaboration between PV and other functions. Strengthening of Quality Assurance Systems at Affiliates Astellas has constructed a robust global quality assurance system to ensure the supply of pharmaceuticals of uniformly high quality to patients worldwide. The past quality assurance system comprised the four main regions of Japan, the Americas, EMEA and Asia & Oceania. We are trying to incorporate quality assurance activities taken by each affiliate into this global quality assurance structure. Through this change, we are developing quality management systems consistent with our quality assurance policy on a global, Company-wide basis. This will reinforce our sales affiliates globally receive proper support in improving quality and training personnel. Technology Development & Manufacturing Stable Supply and Quality Control Astellas places highest priority on ensuring stable manufacture and supply of safe and effective pharmaceuticals to patients. To ensure this, we have established our own Good Manufacturing Practice (GMP)- compliant quality standards as the basis for consistently Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 achieving the highest levels of quality control. We apply these standards to manufacturing facilities and equipment, and to all stages from raw material procurement and storage to manufacturing processes and shipment. Measures to Prevent Medical Malpractice and Improve the Distinguishability of Pharmaceuticals Astellas strives to supply user-oriented products designed so that patients and healthcare professionals do not mistake one pharmaceutical for another. To prevent medical malpractice in this respect, through measures including printing product names directly on capsules and tablets, as well as printing product names and dosages on packaging sheets (blister sheets) so that the product name and dosage can be easily identified even after the blister sheet is split apart. For example, the different dosages of Vesicare OD are color- coded, and the name and dosage are printed directly on the tablets to improve distinguishability. In addition, the blister sheets are printed using easily readable colors and fonts to help prevent mistakes and make the products more readily distinguishable. Vesicare OD tablets Provision of Product Information Ensuring Proper Use In fiscal 2016, a new policy was created in accordance with the Global Policy on Medical Affairs and Commercial Activities, which prevents commercial departments from providing off-label information to external customers. This is the first Astellas Medical Affairs policy on the standards and principles that govern appropriate scientific exchange between Medical Affairs colleagues, healthcare professionals, and healthcare organizations. Responding to Inquiries Astellas believes that it has a responsibility to provide accurate medical information in response to inquiries from patients and medical professionals. In countries throughout the globe, we have Medical Information Call Centers that respond to a variety of inquiries. In fiscal 2016, we responded to approximately 115,000 calls. Astellas makes continuous efforts to improve its medical information services, with the aim of providing accurate, appropriate and consistent information. As part of these efforts, Astellas launched a new global medical information system where global content is developed and shared. The system is also useful for analyzing matters of high interest based on the documented inquiries. By sharing the findings of these analyses with the relevant departments, Astellas seeks to more accurately provide information to patients and medical professionals. Procurement Promoting CSR Procurement Astellas considers it important to fulfill its social responsibility across the entire supply chain, including suppliers. To achieve this goal, Astellas has formulated the Astellas Business Partner Code of Conduct, which requires business partners to do their business in accordance with CSR measures. We also conduct global questionnaire- based surveys based on the code, along with requesting our business partners to sign the Acknowledgement of Astellas Business Partner Code of Conduct. As of March 31, 2017, we had obtained survey responses from approximately 850 companies, covering suppliers of direct materials, as well as major suppliers of indirect materials and major facility and equipment suppliers. Furthermore, we conduct on-site audits of suppliers in countries that pose a high CSR procurement risk. Please refer to the following URL for information about related CSR activities from manufacturing to sales. • Quality Assurance Policies • Introduction of Universal Design into Product Packaging WEB https://www.astellas.com/en/sustainability/ business-activities/ Please refer to the following URL for information about our policies & position statements. WEB https://www.astellas.com/en/about/ policies-and-position-statements/ 52 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Creating Innovation Creating Innovation Research and Clinical Development Astellas is efficiently advancing research and development by building systems to continuously create innovative medicines, along with challenging new opportunities, including new therapeutic areas and technologies. Oncology Gilteritinib Gilteritinib is a FLT3/AXL inhibitor which is being developed for acute myeloid leukemia (AML). Gilteritinib inhibits both FLT3, a receptor-type tyrosine kinase known to be involved in cancer cell proliferation, and AXL which is reported to be associated with resistance to some forms of chemotherapy. Considering the five-year survival rate for AML estimated to be approximately 25%*, the arrival of a promising new treatment has been awaited. The clinical data obtained so far suggested the efficacy and safety of gilteritinib in patients with FLT3 mutations who are known to have poor prognosis. Astellas is exploring a potential of gilteritinib in a broad range of the treatment paradigm for AML. Astellas is currently conducting multiple Phase 3 trials including ADMIRAL study in relapsed or refractory Gilteritinib in AML Treatment Landscape and Development Progress FLT3-positive AML High-intensity induction therapy Low-intensity chemo Chemo consolidation Transplantation Ongoing Maintenance Maintenance Ongoing Ongoing Salvage therapy Ongoing FLT3-positive AML patients, which is the most difficult AML patient segment to treat. Gilteritinib has been granted for SAKIGAKE designation in Japan. Astellas is working to further reduce the total development period by allocating resources to gilteritinib as a prioritized project. * NIH, National Cancer Institute, Cancer Stat Facts, Acute Myeloid Leukemia (AML) Enfortumab Vedotin Enfortumab vedotin is an antibody drug conjugate (ADC) targeting Nectin-4, a cell adhesion molecule. While it is stable in blood, it is designed to kill only the targeted cancer cells after it is internalized into cancer cells expressing Nectin-4. In urothelial cancer, a target indication of enfortumab vedotin, it is reported that some patients are confirmed for metastasis at the time of initial diagnosis and the five-year survival rate is low. A high relapse rate is reported even if diagnosed and treated at an early stage. A promising new treatment is awaited. Currently, Phase 2 trial in patients previously treated with checkpoint inhibitor (CPI) therapy is under preparation. Research Initiatives In the oncology field, the interest to cancer immunotherapy targeting immune checkpoints has been increasing recently. On the other hand, it has been pointed out that immune checkpoint inhibitors are ineffective for certain types of cancer and a segment of the patient population. Astellas believes that immunooncology is a strategically important approach. As one of the initiatives in this therapeutic area, Astellas launched a partnership with Potenza Therapeutics, Inc. in 2015. To address the cancer types which do not respond to the current cancer immunotherapy, Astellas is pursuing research and development of a next-generation cancer immunotherapy with different targets than current treatments. Two programs are underway to enter into the clinical development phase. 53 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Urology and Nephrology Roxadustat Roxadustat is a hypoxia-inducible factor (HIF) prolyl hydroxylase (PH) inhibitor with oral administration. Astellas is developing roxadustat for anemia associated with chronic kidney disease (CKD) in dialysis and non-dialysis. For filing and reimbursement in the EU, a total of six Phase 3 studies are being conducted. Another six Phase 3 studies are being conducted in Japan. HIF-PH, thereby enhancing the production of red blood cells and improving anemia. Roxadustat has a different mechanism of action than conventional treatments and can be administered orally. It is thus expected to become a new treatment option which could provide both effectiveness and convenience for patients. ASP8232 ASP8232 is a VAP-1 inhibitor being developed for diabetic nephropathy. Astellas has obtained the results of Phase 2 trial and is preparing for a subsequent trial. Anemia is one of the common complications of CKD. Diabetic nephropathy is one of major underlying It is said that the progression of anemia in CKD leads to end-stage renal disease and increases the mortality rate. Therefore, monitoring the hemoglobin (Hb) levels in patients with anemia in CKD is a crucial issue in the treatment of renal dysfunction. Roxadustat is thought to increase HIF, which is involved in the production of red blood cells, by inhibiting diseases for dialysis treatment. It is a common complication of diabetes. It is said that around half of patients suffering from diabetes for more than 20 years associate with diabetic nephropathy. With existing treatment methods limited to dialysis and kidney transplantation, there is a need for a new treatment. TOPIC Acquisition of Late-Stage Development Compound in Oncology IMAB362 Oncology is one of the important franchises that will drive the growth of Astellas. Through the acquisition of Ganymed Pharmaceuticals AG, Astellas has acquired multiple oncology pipeline assets in pre- clinical and clinical stages including IMAB362, which is being developed for the indication of gastroesophageal adenocarcinoma. IMAB362 is an antibody targeting Claudin 18.2, a transmembrane protein that forms a tight junction connecting and binding membranes of two adjoining cells. Claudin 18.2 is expressed locally in stomach cells for normal cells. Claudin 18.2 is expressed in various cancers, 80% in gastrointestinal adenocarcinomas and 60%* in pancreatic, biliary duct, ovarian and lung cancer. Phase 2b clinical trial (FAST) of IMAB362 showed that IMAB362 extended the median progression-free survival and the median overall survival. In the patient subgroup with high expression levels of Claudin 18.2, IMAB362 group resulted in nearly doubling the overall survival compared with the control group. The most frequent adverse events observed during the study were vomiting, nausea and neutropenia. Astellas is preparing for Phase 3 trial of IMAB362. Through this acquisition, Astellas will further strengthen its oncology franchise. * Al-Batran et al., 2016 American Society of Clinical Oncology 54 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Creating Innovation Immunology ASP0113 ASP0113 is a DNA vaccine being developed as a treatment to prevent cytomegalovirus (CMV) infection in hematopoietic cell transplant (HCT) patients. Currently, Astellas is conducting Phase 3 trial of ASP0113 in HCT patients. CMV infection and CMV reactivation are opportunistic infections commonly observed after hematopoietic cell transplantation and potentially lead to death in severe cases. From the standpoint of strengthening the control of infections, a prophylactic vaccine without safety concern is anticipated. ASP0113 builds immunity to CMV-derived antigen proteins by expressing CMV-derived antigen proteins in the body and inducing both cellular and humoral immune responses. ASP0113 is expected to suppress CMV infection and complications associated with CMV infection after hematopoietic cell transplantation. Peficitinib Peficitinib is a JAK inhibitor being developed for rheumatoid arthritis. Phase 3 clinical trials are currently being conducted in Japan. Astellas expects to obtain the results of these trials within fiscal year 2017. Rheumatoid arthritis is a chronic inflammatory autoimmune disease due to an immune disorder. The current standard treatments for rheumatoid arthritis are biologics including TNF-α drugs. Peficitinib has a different mechanism of action than other immunosuppressants. Peficitinib is thus expected to be a new drug treatment option which could be safe and convenient for patients. DNA Vaccine Using LAMP-vax Technology LAMP-vax technology is expected to serve as a drug discovery platform for creating drug products aimed for treatment or prophylaxis of a wide range of allergic diseases by enhancing the therapeutic effectiveness of DNA vaccines and changing the types of allergens encoded in plasmid DNA. Multiple development compounds using LAMP-vax technology are currently in non-clinical and clinical stages. Phase 1 trial of ASP0892 is currently being conducted in the U.S. targeting peanut allergy, and it has been granted Fast Track designation by the Food and Drug Administration (FDA). Peanut allergy can be a fatal food- related allergy with potential of life-threatening anaphylaxis induced by trace exposure. There is no 55 currently approved treatment and prophylaxis drugs for peanut allergy. Astellas is developing ASP4070 targeting allergies induced by Japanese red cedar pollen. Phase 2 trial of ASP4070 has been initiated in Japan in 2017. It is said that about one in four Japanese people suffer from allergies to Japanese red cedar pollen. The currently available treatment is mainly symptomatic treatments. ASP4070 is expected to become a fundamental treatment that will relieve allergy symptoms or achieve symptomatic remission over the long term with only a short-term administration. Drug Discovery Platform Using LAMP-vax Technology Food allergy ASP0892 for peanut allergy P1 study Seasonal pollen allergy ASP4070 for pollinosis caused by Japanese red cedar P2 study Perennial allergy Pre-clinical e.g. house dust mite, cat, etc. Research Initiatives In immunology, Astellas is working to develop an innovative drug discovery platform that will enable antigen-specific immune control. Astellas is also researching safe and fundamental treatments for allergies, autoimmune diseases, and infectious diseases. With regard to autoimmune diseases for which the specific antigens have been identified, through joint research with Kanyos Bio, Inc., Astellas has begun research that applies unique technologies for the induction of antigen-specific immune tolerance using red blood cells. For diseases in which specific organs are impaired by the excessive responses of immune systems due to specific antigens, regardless of whether the condition involves the body’s autoimmune or non-autoimmune systems, Astellas is promoting research and development activities using a unique technology targeting red blood cells that induces immune tolerance by removing T cells that cause excessive antigen-specific responses. Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 New Therapeutic Areas and Others Astellas Institute for Regenerative Medicine (AIRM) AIRM (Company name was changed after acquisition of Ocata Therapeutics, Inc.) possesses the world’s highest level of technology and expertise in research and development capabilities of cell therapy, taking a leading position in this field. AIRM seeks to realize cutting-edge drug discovery based on leading cell therapy approaches, thereby contributing to ophthalmology treatments with high unmet medical needs. Muscle Diseases In the muscle diseases area, CK-2127107, a fast skeletal troponin activator, has entered the clinical stage. Astellas is currently proceeding with Phase 2 trials for three diseases related to the atrophy of skeletal muscles: spinal muscular atrophy, amyotrophic lateral sclerosis, and chronic obstructive pulmonary disease. Of those three diseases, the trial targeting spinal muscular atrophy is in the most advanced clinical stage. Spinal muscular atrophy is a serious disease in which the progression of muscular atrophy can trigger respiratory failure and motor impairment. Astellas is working to provide a new treatment option for these diseases. Currently, AIRM is promoting development activities In addition, Astellas is steadily proceeding with targeting age-related macular degeneration and Stargardt macular degeneration with a focus on retinal pigment epithelium (RPE) cells, which are vital to the survival of visual cells and the maintenance of their functions. For both diseases, it is currently in the Phase 2 trial stage. preparations to initiate clinical trials of MTB-1, a mitochondrial gene expression regulator, including convening an advisory meeting of a neuromuscular disease commitee. MTB-1 is a development candidate under collaboration with Mitobridge, Inc. Fezolinetant TOPIC Anticipated to Provide a New Treatment Option to Replace Current Hormone Replacement Therapy Through the acquisition of Ogeda SA, Astellas obtained fezolinetant, a selective NK3 antagonist currently being developed for menopause-related vasomotor symptoms (VMS: hot flashes and night sweats). Astellas is currently conducting Phase 2b trial of fezolinetant. It is reported that MR-VMS is recognized in nearly 80%* of post-menopausal women. Given that existing hormone replacement treatments present safety concerns, a safe and effective non-hormonal therapy is awaited as a new treatment option. In a Phase 2a study, fezolinetant showed good results in terms of improvement in the frequency and extent of hot flashes. Based on these results, Astellas expects fezolinetant to become a first-in-class, non-hormonal treatment for MR-VMS. Astellas has built up strengths through the development of many small molecule drugs that improve patients’ quality of life, including treatments in the OAB area and promoting the development of fezolinetant to provide a new treatment option to the patients with MR-VMS. In addition, since both MR- VMS and OAB affect middle-aged and elderly women, Astellas expects to capture synergies with its strengths in the OAB area which have been developed over the years. * UpToDate – Clinical manifestations and diagnosis of menopause (Literature review current through June 2017) 56 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Creating Innovation R&D Topics During the Year Major Progress in Clinical Development (Approval and Filing) Japan Europe United States XTANDI for the treatment of prostate cancer Astellas received regulatory approval for inclusion of TERRAIN trial* data in the European label and updated the label. * Head-to-head trial of enzalutamide versus bicalutamide Quetiapine fumarate (extended-release tablets) Astellas filed an application for approval of the indication of improvement of depressive symptoms associated with bipolar disorder. Kiklin Granules for the treatment of hyperphosphatemia Astellas received regulatory approval of Kiklin Granules for the indication of treatment of hyperphosphatemia in patients with chronic kidney disease (launched in December 2016). XTANDI (generic name: enzalutamide) for the treatment of prostate cancer Astellas filed an application for approval of XTANDI tablets. Micatrio Combination Tablets for the treatment of hypertension Astellas received regulatory approval for a combination drug* containing the three ingredients of a renin-angiotensin inhibitor, a calcium channel blocker (CCB) and small dose diuretic (launched in November 2016). * Official guidance on points to consider regarding the use of Micatrio Combination Tablets under National Health Insurance coverage was issued by the Medical Economic Division, Health Insurance Bureau, Ministry of Health, Labour and Welfare. (Medical Economics Division 1226 No.8; December 26, 2016) XTANDI for the treatment of prostate cancer Astellas received regulatory approval for inclusion of TERRAIN trial* data in the U.S. label and updated the label. LINZESS for the treatment of irritable bowel syndrome with constipation Astellas received regulatory approval for the indication of irritable bowel syndrome with constipation (launched in March 2017). Anti-Sclerostin monoclonal antibody romosozumab Amgen Astellas BioPharma K.K. filed an application for approval of the indication of osteoporosis for those at high risk of fracture. 4 5 6 7 8 9 10 11 12 1 2 3 2016 2017 57 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Capturing New Opportunities Other Therapeutic Areas Oncology Antibody Drugs in Oncology In December 2016, Astellas acquired Ganymed Pharmaceuticals AG and made it a wholly owned subsidiary of Astellas. Ganymed Pharmaceuticals AG has several oncology pipeline assets in pre-clinical and clinical stages, including IMAB362, which is being developed as a treatment of gastroesophageal adenocarcinoma. The acquisition of the late-stage antibody program will further strengthen Astellas’ oncology franchise. Reference Research and Clinical Development P53 Immunology New Vaccine Targeting Streptococcus pneumoniae (pneumococcus) In February 2017, Astellas entered into an exclusive license agreement with Affinivax, Inc. for the worldwide development and commercialization of a vaccine targeting pneumococcal diseases. This pneumococcal vaccine is being developed using Affinivax, Inc.’s proprietary vaccine technology platform, Multiple Antigen Presenting System (MAPS). Muscle Diseases Expansion of Global Collaboration on Skeletal Muscle Activators In July 2016, Astellas and Cytokinetics, Inc. amended their collaboration agreement on skeletal muscle activators to expand the agreement to include amyotrophic lateral sclerosis (ALS). The companies decided to include ALS for the development of the fast skeletal troponin activator CK-2127107. In addition, Cytokinetics, Inc. granted Astellas an option right for the development and commercialization of tirasemtiv, an investigational skeletal muscle activator being developed by Cytokinetics, Inc. Moreover, the companies agreed to extend their joint research focused on the discovery of next-generation skeletal muscle activators through 2017. Reference Research and Clinical Development P56 Treatment for Chronic Tympanic Membrane Perforation In January 2017, Astellas signed an exclusive license agreement with Auration Biotech, Inc. for the worldwide development and commercialization of AU-935, which is being developed as a simple ear topical application for the treatment of chronic tympanic membrane perforation. Acquisition of Ogeda SA In March 2017, Astellas entered into an agreement to acquire Ogeda SA. In May 2017, the acquisition was completed, making Ogeda SA a wholly owned subsidiary of Astellas. Ogeda SA has multiple small molecule compounds targeting G protein-coupled receptors in the pre-clinical and clinical stages, including fezolinetant, which is being developed for the treatment of menopause-related vasomotor symptoms. Through the acquisition of Ogeda SA, Astellas expanded its pipeline and reinforced its medium- to long-term growth. Reference Research and Clinical Development P56 Other Termination of Agreement for Cell Culture Based Influenza Vaccine Programs In March 2017, Astellas terminated the agreement executed as of September 2010 between Astellas and UMN Pharma Inc. for the co-development and Astellas’ exclusive commercialization of ASP7374 and ASP7373, the cell culture based influenza vaccine programs in Japan. Accordingly, Astellas returned to UMN Pharma Inc. all rights granted under the agreement. 58 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Creating Innovation Status of R&D Pipeline (As of April 2017, partly updated) Code No. Generic Name Oncology MDV3100 enzalutamide ASP2215 gilteritinib ASP3550 degarelix AGS-16C3F IMAB362 ASG-22ME enfortumab vedotin AMG 103 blinatumomab ASG-15ME ASP5878 ASP4132 AGS67E AGS62P1 Classification Target Disease Phase / Area Dosage Form Licensor*1 Remarks Androgen receptor inhibitor Metastatic castration-resistant prostate cancer (Tablet) Castration-resistant prostate cancer (Tablet) Non-metastatic castration- resistant prostate cancer Prostate cancer in patients with non-metastatic biochemical recurrence Oral Pfizer Filed (Mar. 2016) Europe Filed (Sept. 2016) Japan Phase-III US, Europe, Asia Phase-III US, Europe, Asia Metastatic hormone-sensitive prostate cancer Phase-III US, Europe, Japan, Asia Hepatocellular carcinoma Phase-II US, Europe, Asia FLT3/AXL inhibitor Acute myeloid leukemia GnRH antagonist Prostate cancer (3-month formulation) Phase-III US, Europe, Japan, Asia Oral In-house Phase-III Japan Injection Ferring ADC targeting ENPP3 Renal cell carcinoma Phase-II US, Europe Injection In-house (ADC technology New formulation New formulation New indication New indication New indication New indication New formulation Phase-II Europe Injection In-house (Ganymed in-licensed from Seattle Genetics) Anti-Claudin 18.2 monoclonal antibody Gastroesophageal adenocarcinoma ADC targeting nectin-4 Urothelial cancer Phase-II US Phase-I Japan Anti-CD19 BiTE antibody Acute lymphoblastic leukemia Phase-II Japan Urothelial cancer Cancer Cancer Lymphoid malignancies Phase-I Phase-I Phase-I Phase-I Pharmaceuticals) Injection In-house (co-development with Seattle Genetics) Injection Amgen (co-development with AABP*2) Injection In-house (co-development with Seattle Genetics) Oral Oral In-house In-house Injection In-house (ADC technology in-licensed from Seattle Genetics) Acute myeloid leukemia Phase-I Injection In-house (ADC technology, EuCODE license from Ambrx) Urology and Nephrology Muscarine M3 receptor antagonist Neurogenic detrusor overactivity in pediatric patients Filed (Feb. 2017) US Filed (Apr. 2017) Europe Oral In-house New indication (pediatric) Concomitant use of solifenacin and mirabegron HIF stabilizer Urinary frequency, urinary incontinence or urgency associated with overactive bladder Anemia associated with chronic kidney disease in patients not on dialysis and on dialysis Phase-III US, Europe, Asia Oral In-house Phase-III Europe Phase-III Japan Oral FibroGen Beta 3 receptor agonist Neurogenic detrusor overactivity Phase-III Europe Oral In-house HIF stabilizer Renal anemia in pediatric patients VAP-1 inhibitor Diabetic nephropathy Nerve growth factor (NGF) neutralization antibody Bladder pain syndrome / Interstitial cystitis Phase-II Europe Phase-I Japan Phase-II Europe Phase-II Europe Underactive bladder Nocturia Underactive bladder Underactive bladder Phase-I Phase-I Phase-I Phase-I Oral FibroGen Oral In-house Injection In-house Oral Oral Oral Oral In-house In-house In-house In-house New indication (pediatric) YM905 solifenacin EB178 solifenacin/ mirabegron ASP1517 (FG-4592) roxadustat YM178 mirabegron YM311 (FG-2216) ASP8232 ASP6294 ASP6282 ASP7398 ASP8302 ASP7713 59 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Code No. Generic Name Classification Target Disease Phase / Area Dosage Form Licensor*1 Remarks Immunology and Neuroscience FK949E quetiapine ASP0113 (VCL-CB01) ASP015K peficitinib ASKP1240 bleselumab ASP1707 ASP7962 ASP8062 ASP0819 Serotonin / dopamine antagonist DNA vaccine for cytomegalovirus Improvement of depressive symptoms associated with bipolar disorder (Extended-release tablet) Filed (Aug. 2016) Japan Cytomegalovirus reactivation in hematopoietic cell transplant recipients Phase-III US, Europe, Japan Oral AstraZeneca Injection Vical JAK inhibitor Rheumatoid arthritis Anti-CD40 monoclonal antibody Recurrence of focal segmental glomerulosclerosis in de novo kidney transplant recipients GnRH antagonist Rheumatoid arthritis Osteoarthritis Fibromyalgia TrkA inhibitor GABAB receptor positive allosteric modulator Calcium2+-activated K+ channel opener Phase-III Japan, Asia Phase-II US, Europe Oral In-house Phase-II US Injection Kyowa Hakko Kirin Phase-II Japan Phase-II Europe Phase-II US Oral Oral Oral In-house In-house In-house Fibromyalgia Phase-II US Oral In-house ASP3662 11beta-HSD1 inhibitor Agitation associated with Alzheimer’s disease ASP4070 (JRC2-LAMP-vax) DNA vaccine for Japanese red cedar Pollinosis caused by Japanese red cedar Phase-II US Oral In-house Phase-II Japan Injection Immunomic Therapeutics ASP5094 ASP4345 ASP7266 ASP0892 ASP1807 (CC8464) Others AMG 785 romosozumab ipragliflozin/ sitagliptin Rheumatoid arthritis Cognitive impairment associated with schizophrenia Severe asthma Peanut allergy Neuropathic pain Phase-I Phase-I Phase-I Phase-I Phase-I Injection In-house Oral In-house Injection In-house Injection Immunomic Therapeutics Oral Chromocell Anti-Sclerostin monoclonal antibody Osteoporosis for those at high risk of fracture Filed (Dec. 2016) Japan Fixed dose combination of ipragliflozin and sitagliptin Type 2 diabetes mellitus Filed (May 2017) Japan Injection Amgen (co-development with AABP*2) In-house (co-development with MSD and Kotobuki) Oral fidaxomicin Macrocyclic antibiotic Infectious enteritis (bacterial target: Clostridium difficile) Clostridium difficile infection in pediatric patients Phase-III Japan Oral Merck Phase-III Europe ASP1941 ipragliflozin ASP0456 linaclotide ASP1707 CK-2127107 SGLT2 inhibitor Type 1 diabetes mellitus Phase-III Japan Oral In-house (co-development with Kotobuki Pharmaceutical) Guanylate cyclase-C receptor agonist Chronic constipation Phase-III Japan Oral Ironwood New indication GnRH antagonist Endometriosis Phase-II Europe, Japan New indication (pediatric) New indication Fast skeletal troponin activator Spinal muscular atrophy Chronic obstructive pulmonary disease Amyotrophic lateral sclerosis Dry age-related macular degeneration, Stargardt’s macular degeneration Phase-II US Phase-II US Phase-II US Phase-II US RPE cell program Cell therapy (Retinal pigment epithelium cell) *1 Compounds with “In-house” in this column include ones discovered by collaborative research. *2 AABP: Amgen Astellas BioPharma Oral Oral In-house Cytokinetics Injection In-house (Astellas Institute for Regenerative Medicine) 60 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Creating Innovation CSR Activities in Research and Development Research Ethical Considerations in Research on Human Subjects and Specimens Derived from Humans Astellas conducts research on human subjects, and obtains and conducts research on specimens derived from humans, after appropriately obtaining the consent of the trial subjects in accordance with the Declaration of Helsinki* as well as the laws, regulations and guidelines of relevant countries. In Japan, Astellas provides training for researchers in areas such as bioethics, genomic research and related clinical studies, based on a strong commitment to respecting the human rights of research subjects, protecting the privacy and confidentiality of their personal information, and assuring the reliability of the research. The Astellas Research Ethics Committee has been established to determine the ethical acceptability and scientific propriety of research plans in a fair and impartial manner, taking account of information on potential conflicts of interest involving research institutions, researchers and other parties. In fiscal 2016, this committee met 12 times, deliberated on 31 issues, and conducted 179 brief reviews. * Declaration of Helsinki: A statement of ethical principles for medical research involving human subjects, addressed to physicians and others who are involved in medical research on human subjects. Ethical Considerations in Animal Testing Astellas has established a Global Policy for Animal Care and Use, and conducts animal testing based on this policy. We have established the Corporate Institutional Animal Care and Use Committee, in which outside members also participate as committee members, at our animal testing facilities. Astellas’ initiatives in animal testing are recognized by AAALAC International*. As a result, all of our animal testing facilities have acquired accreditation from AAALAC International. * AAALAC International: The Association for Assessment and Accreditation of Laboratory Animal Care International. An international organization that promotes the humane treatment of animals through international accreditation and assessment programs. Studies are undertaken from both scientific and ethical standpoints to verify the quality of animal control and use programs. Biosafety Control Astellas performs experiments using genetically modified organisms, or materials containing pathogens, under the World Health Organization Laboratory Biosafety Manual*1 and the Centers for Disease Control (CDC) and Prevention / National Institute of Health Biosafety in Microbiological and Biomedical Laboratories*2, as well as the laws of individual countries. In Japan, Astellas has established biosafety management rules in compliance with the Cartagena Act*3 and related ministerial ordinances, and has detailed procedures in place for handling experimental materials. In addition, we have set up the Biosafety Committee at each facility as a body to review whether the experiments meet the standards required by these rules. In addition, laboratory personnel receive regular training courses once a year, in order to rigorously enforce safe and proper biosafety management and use of these organisms and suchlike. 1,010 participants received the training in fiscal 2016. In the U.S., we use such experimental materials based on the rules established by the occupational health and safety authorities. *1 Laboratory Biosafety Manual 3rd Edition *2 Biosafety in Microbiological and Biomedical Laboratories 5th Edition *3 Cartagena Act: Law concerning the conservation and sustainable use of biological diversity through regulations on the use of genetically modified organisms and suchlike. Use of Genetic Resources Astellas is committed to full compliance with the relevant laws and regulations of countries supplying genetic resources, and to the proper distribution of any contractually defined profits from the use of such resources, based on the concept of genetic resources utilization and the associated distribution of profits set out in the Convention on Biological Diversity*1 and Nagoya Protocol*2. *1 The Convention of Biological Diversity: International convention on the sustainable use and conservation of biological diversity *2 Nagoya Protocol: Protocol on access to genetic resources and the fair and equitable sharing of benefits arising from their utilization Treatment of Intellectual Property Appropriate protection of intellectual property is critical to Astellas in order to address unmet medical needs and maintain a competitive advantage. Astellas has established a Policy on Intellectual Property. In view of the importance of improving people’s access to healthcare, we are committed to not filing or enforcing patents in countries facing significant economic challenges. These select countries are decided by referring to those designated as Least Developed Countries (LDCs) defined by the United Nations or Low Income Countries (LICs) defined by World Bank. 61 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Clinical Development Protection of Human Rights, Privacy and Confidentiality of Personal Information of Research Subjects, and Assurance of Reliability in Clinical Trials In clinical trials, we investigate new drug candidates developed through drug discovery research in further detail, and assess the efficacy and safety of the new drug candidates in patients. Under the Declaration of Helsinki, clinical trials must be ethically planned and safely conducted with full consideration to protecting the human rights and privacy of clinical trial subjects. Astellas ensures full compliance with Good Clinical Practice (GCP) and all relevant laws and regulations so that new drug candidates are developed into drugs that can be used confidently by patients. Plans for clinical trials conducted by Astellas are evaluated and approved for ethical acceptability and scientific validity by internal and external committees. In conducting clinical trials, Astellas confirms that clinical trial subjects have provided informed consent, having received a full explanation of the purpose and methods of the trial, its expected benefits and disadvantages, matters related to compensation for health impairment and other details. Moreover, we implement education and training for any employees or staff members involved in clinical trials, and monitor medical institutions that perform clinical trials to ensure full GCP compliance. In addition, we manage trial data appropriately to protect the privacy of clinical trial subjects. Periodic assessments are also made to check that any outsourced clinical trials are conducted in accordance with the same standards. Disclosure of Information on Clinical Trials and Their Results Astellas has formulated a global policy on the disclosure of clinical trial data and results to enhance the transparency of information gained from clinical studies while maximizing its value, and to ensure this leads to the advancement of science and the promotion of innovation. Specifically, Astellas provides patient-level data that have been anonymized in accordance with applicable laws and regulations through an external website*1 to those scientists and healthcare professionals requesting it. Doctors and the public can access summaries of clinical trial findings via the Astellas website. We are also developing a website to give patients access to special summaries of study results prepared for non-experts*2. *1 Patient-level data are provided through the following website: http://www.clinicalstudydatarequest.com *2 Results of the clinical trials are provided through the following website: http://www.astellasclinicalstudyresults.com/Welcome.aspx Patient Centricity in Drug Development Real-world considerations in clinical trials are increasingly important in ensuring that our studies are aligned with current medical practices and patient needs. We are trying to incorporate insights from real-world data into our clinical trials by understanding how healthcare is provided to patients. Patient centricity is now a focus for regulatory authorities and the pharmaceutical industry. The patient- centric approach is being discussed at all points in the drug development value chain, from discovery through commercialization. Efforts are being made to include patient input in how to optimally design trials, recruit participants, and identify relevant endpoints that patients care most about. Astellas employs various methods to incorporate patient-centric approaches into clinical programs. For example, we use patient-reported outcomes (PROs) such as questionnaires and patient diaries to assess patients’ health conditions. In addition, we use real-world data for estimation of target population based on the morbidity rate or ineligible cases in screening, and feasibility of studies in clinical trial facilities. Also, patient input is used to assess feasibility of clinical trials. Through these activities, we try to improve recruitment, retention and relevance of data. We are also working with patient advocacy organizations where appropriate to assess protocol feasibility including frequency of visits, procedures and PRO elements. Please refer to the following URL for information about related CSR activities in research and development. • Ethical Considerations in Stem Cell Research and Development • Expanded Access to Investigational Medicines WEB https://www.astellas.com/en/sustainability/ business-activities/ Please refer to the following URL for information about our policies & position statements. WEB https://www.astellas.com/en/about/ policies-and-position-statements/ 62 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Pursuing Operational Excellence Pursuing Operational Excellence Initiatives in the Fiscal Year Ended March 31, 2017 organizational operation structure, Astellas decided that Astellas Business Service Co., Ltd. a subsidiary which performs shared administrative support, would be dissolved at the end of September 2017. Establishment of a Jointly-Operated Logistics Center and Logistics Platform in Japan On the logistics front, in February 2017, Astellas, Takeda Pharmaceutical Company Limited, Teva Takeda Pharma Ltd., and Teva Takeda Yakuhin Ltd. concluded a memorandum of understanding concerning the establishment of a jointly-operated logistics center in Hokkaido. Through this agreement, the four companies will establish a structure for the joint storage and distribution of pharmaceuticals, with the objective of further ensuring stable supplies, qualities and efficient transportation of pharmaceuticals in emergency situations, such as a natural disaster. Transfer of 16 Long-Listed Products in Japan and Other Initiatives In March 2017, Astellas and LTL Pharma Co., Ltd. entered into an Asset Purchase Agreement, under which Astellas will transfer its marketing authorization for 16 long-listed products in Japan, supply business of active pharmaceutical ingredients/bulk of these products to third parties in Japan and outside of Japan and royalty business of these products to LTL Pharma. Through this agreement, Astellas will reallocate the funds generated by the transfer of assets into businesses and products that will drive our competitive advantage, thereby aiming to achieve sustained growth. In other initiatives, in December 2016, Astellas entered into a definitive agreement with Grünenthal, under which Astellas will transfer the exclusive rights for Qutenza in Europe, the Middle East and Africa to Grünenthal. In February 2017, Astellas also entered into an agreement providing Kyowa Pharmaceutical Industry Co., Ltd. the exclusive right to distribute and promote extended-release tablets of quetiapine fumarate in Japan, pending approval of the new drug application submitted in Japan. In order to further increase both the quality and efficiency of operations, Astellas continues to implement initiatives that anticipate changes in the business environment from a number of perspectives, such as optimal reallocation of resources, effective utilization of external resources, continual enhancement of the organizational structure, active response to various regulations and social norms (compliance), and strengthening of core capabilities. With regard to the organizational structure, Astellas is working to strengthen its global management functions. Astellas set up a global compliance function in April 2016 with the aim of further strengthening compliance, thereby building a global compliance framework in which the regional compliance functions in Japan, the Americas, EMEA and Asia & Oceania report to the head of Ethics & Compliance. Additionally, in April 2017, Astellas created a new function designed to globally manage legal and intellectual property functions in each region. In addition, Astellas implemented the following initiatives in the fiscal year ended March 31, 2017. Transfer of a U.S. Manufacturing Subsidiary In the areas of manufacturing and technology, Astellas strives to promote the establishment of a stable manufacturing system that will efficiently realize the steady supply of high-quality drugs through the effective use of external resources. As part of these efforts, in August 2016, Astellas transferred all the shares of Astellas Pharma Technologies, Inc. (APT) to Avara Norman Pharmaceutical Services, Inc. (Avara). The manufacturing of pharmaceuticals previously undertaken by APT will be continued through outsourcing to Avara on a contract basis. Outsourcing of Facility and Equipment Management Support in Japan Astellas has decided to outsource certain operational and management support duties, such as facility and equipment management support at Group companies in Japan. Through collaboration with external partners with specialized capabilities, Astellas aims to receive high- quality services and promote efficiency. In addition to the outsourcing, as a result of reassessment of the 63 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Our People, Our Organization Astellas recognizes employees as important stakeholders and we sincerely strive to fulfill our social responsibilities. Astellas employees play the most valuable role in shaping the Company and creating new levels of enterprise value. We are working to train employees and strengthen their competitiveness. Astellas is fostering a corporate culture that aims to align the aspirations of its diverse employees in one direction to realize its business philosophy. HR Vision Astellas has formulated a Human Resources (HR) Vision shared globally to define its aspirations for its human resources and for its organization. Making Astellas’ vision a reality requires individual employees to understand the HR Vision and to act based on the Astellas Way. Astellas redoubled its efforts to disseminate the HR Vision in fiscal 2016. Specifically, this involved translating the HR Vision into various languages, conducting training and meetings for managers, and implementing initiatives, Overview of the HR Vision Towards Realizing the Corporate Vision One Astellas with the Astellas Way Our People Our Organization Embrace Change and Challenge Value Diversity and Inclusion Serve Others Act with Integrity Resilient Inspired Aligned Ethical HR MANAGEMENT DEVELOP EMPLOYER OF CHOICE ATTRACT RETAIN including personnel measures, to spread understanding among all employees. Astellas Pharma Hong Kong won the 2016 ERB Manpower Developer Award. Astellas will improve human resources and organizational capabilities by spreading and implementing the HR Vision and Astellas Way. Moreover, we will bring together individuals from diverse backgrounds within the Company to surmount national, regional and organizational barriers, foster mutual respect, enhance our organizational capabilities, and unite our people to continuously achieve innovation. The Astellas Way —Five Messages for One Astellas— Patient Focus: Ask yourself if your decisions and actions contribute to improving patient health. Ownership: Embrace change and always challenge by taking ownership. Results: Commit to results each time you face a challenge, and consider fresh approaches to achieving them. Openness: Maximize your creativity through diversity and open communication. Integrity: Act with integrity by always considering the implications of your actions, and then take responsibility for the outcomes. Providing Opportunities for Employees to Succeed Globally Astellas provides employees with opportunities to succeed globally. In Japan, we have developed an internal recruitment system to revitalize our organization and motivate employees to develop their own abilities and grow, while encouraging our people to succeed in roles at various overseas bases by proactively appointing employees to be assigned abroad from each division. In addition, we accept long-term and short-term assignees from Group companies outside Japan. In these and other ways, we are working to promote global interaction among our people at the divisional level. 64 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Pursuing Operational Excellence Diversity Management Astellas is working to promote diversity so that diverse people can play a role in our Company, irrespective of race, nationality, gender, or age. Respect for the diverse values of our employees will be reflected in various ways in our business activities to encourage creativity in our organization. We also believe that it will help to attract talented people as employees and enhance our competitiveness. For Astellas, promoting the career advancement of women in Japan is a high priority, particularly because the country has a low ratio of women in management positions compared to other regions. We aim to develop a work environment in which life events will not hinder career advancement, and have established a target to raise our ratio of female managers in Japan to 10% or higher (at Astellas Pharma Inc.) by 2020 on a non-consolidated basis. Male/Female Employee Ratio per Region and Ratio of Female Managers (Fiscal 2016) Japan Americas EMEA Asia & Oceania Total Astellas continues to monitor the turnover rate of employees as an indicator for gauging the extent to which the Company provides a rewarding and safe place to work. * Accessibility Consortium of Enterprises (ACE): A general incorporated association that was formed to conduct activities such as the establishment of a new employment model for people with disabilities who contribute to the growth of companies. Number of Employees per Region and Turnover Rate 2015.3*2 2016.3 2017.3*3 Japan Number of employees Turnover rate*1 Americas Number of employees Turnover rate 7,241 7.5% 2,975 10.4% EMEA Number of employees 4,628 Asia & Oceania Turnover rate 15.6% Number of employees 2,269 Turnover rate 13.4% 7,056 1.1% 3,062 12.9% 4,726 11.9% 2,373 12.9% 7,029 1.2% 3,016 17.7% 4,672 14.3% 2,485 13.3% Total Number of employees 17,113 17,217 17,202 Turnover rate 11.0% 7.8% 9.4% *1 The turnover rate in Japan excludes people retiring at the mandatory retirement age and employees moving outside of the Group due to transfer of Group businesses. Male Female Ratio of female managers 71.7% 46.2% 42.1% 49.4% 56.0% *2 The increase in the total turnover rate in fiscal 2014 is mainly due to the 28.3% 53.8% 57.9% 50.6% 44.0% 7.8% 48.4% 50.9% 46.1% 32.6% introduction of an early retirement plan in Japan. *3 The Increase in the total turnover rate in fiscal 2016 is mainly due to the transfer of Astellas Pharma Technologies, Inc. (APT) to Avara Norman Pharmaceutical Services, Inc. Developing Rewarding and Safe Work Environments Astellas is working to ensure rewarding and safe work environments where employees are able to concentrate on their duties. This is to ensure that every employee is able to maximize their abilities and creativity on the job. In Japan, we have been promoting workstyle reforms since 2015 in order to raise enterprise value and provide employees with rich individual lives. This is all in an effort to strike an equilibrium that enables each person to improve their own work-life balance while establishing high levels of productivity and creativity. Our efforts to promote inclusive employment and decent work, one of the United Nations’ Sustainable Development Goals (SDGs), include initiatives for upgrading the work environment we provide for people with disabilities. We have been a participating member of Japan’s Accessibility Consortium for Enterprises (ACE)*. The support we provide people to overcome disabilities includes an app we have introduced for hearing-impaired employees that instantaneously converts voice data into written words. Ensuring Occupational Health and Safety We have the Astellas Environment, Health & Safety Policy in place to prevent work-related accidents and minimize those caused by workplace mishaps and hazards. Under this policy, each facility is independently building Environment, Health & Safety management systems and promoting associated initiatives. We are also working to ensure occupational safety from many different perspectives based on the information we share on accidents and near misses that have occurred at our workplaces around the world. Between January and December 2016, there were five work-related injuries requiring leaves of absence in Japan. Of these five injuries, the longest leave of absence was nine days. There were four injuries requiring leaves of absence at our overseas plants, of which the longest leave of absence was 93 days. In view of the lengthy leaves resulting from injuries in Japan and at our overseas plants, we will strive to reduce our occupational safety risks with the goal of holding our severity rate of work-related injuries under 0.005 on a global basis. 65 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Incidence of Work-Related Injuries in Japan 2014.1-12 2015.1-12 2016.1-12 Respect for Human Rights Number of injuries requiring leave of absence Frequency rate of work-related injuries*1 Severity rate of work-related injuries*2 5 2 5 0.34 0.14 0.34 0.002 0.007 0.001 Incidence of Work-Related Injuries at Overseas Plants*3 2015.1-12 2016.1-12 Number of injuries requiring leave of absence Frequency rate of work-related injuries*1 Severity rate of work-related injuries*2 2 1.11 0.047 4 2.40 0.065 *1 Frequency rate of work-related injuries: This rate shows the number of employee deaths or injuries resulting from work-related accidents causing leaves of absence per million hours of work. The larger the number, the more frequently work-related injuries occur. *2 Severity rate of work-related injuries: This rate shows the number of days absent from work due to work-related injuries per thousand hours of work. The larger the number, the more serious the injury. *3 From 2015 onward, we began disclosing consolidated data for all five overseas plants. Astellas disclosed its Position on Human Rights in April 2017. Wherever we operate, Astellas is committed to complying with internationally recognized basic human rights and labor standards as well as applicable local labor and employment laws, and to implementing and upholding the UN Guiding Principles on Business and Human Rights. Also, Astellas has identified four rights to which we pay particular attention as human rights in clinical trials and other research and development activities, product safety and counterfeit drugs, Access to Health and human rights in the workplace. Under the U.K. Modern Slavery Act 2015, we publish a Slavery and Human Trafficking Statement for each financial year, describing what steps we have taken to address this risk in our own operations or our supply chains. We have been globally confirming the awareness of human rights issues in the workplace and the status of human rights activities at our Group companies by conducting written surveys. In fiscal 2016, there were no urgent human rights issues or other issues of common, worldwide concern reported in the survey. For details on our people, our organization, please visit the following website: WEB https://www.astellas.com/en/sustainability/employees/ Message from Senior Vice President, Human Resources and Facilities, Astellas US LLC We conduct initiatives to encourage women’s success. In July 2016, Astellas US LLC hosted the first ever Women in Action conference, which drew more than 1,600 attendees, including female employees of Astellas Americas and local female students in STEM education. The aim of this event was to develop women’s leadership and confidence and to help them overcome difficulties and succeed. In addition to the lecture, Astellas held experiential workshops on how to communicate opinions in conversation and the skills needed to be more effective in managing crucial conversations. This conference underscored the value the company places on the contributions of women and a commitment to encouraging female empowerment. We are proud of the recognition that we have received in Professional Woman’s Magazine and Working Mother Magazine’s 100 Best Companies in the U.S. for our commitment to establishing a corporate culture supportive of working mothers and their families. The Women in Action event is an example of how we are maximizing creativity through diversity and open communication as part of the Astellas Way. * STEM education is teaching that emphasizes science, technology, engineering and mathematics. Collette Taylor Senior Vice President, Human Resources and Facilities Astellas US LLC 66 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Business Review Pursuing Operational Excellence Ethics & Compliance Astellas believes that acting in accordance with the highest ethical standards, which includes obeying the letter and spirit of the law, is the cornerstone of all its activities. Accordingly, the Astellas Charter of Corporate Conduct which is shared globally, expresses the Company’s ethical business philosophy in terms of specific corporate behavior. In addition, the Astellas Group Code of Conduct is a global code for all directors, officers and employees around the world, establishing that they are expected to comply with laws and regulations and maintain high ethical standards in the performance of their job responsibilities for Astellas. Astellas promotes compliance and acts in accordance with the highest ethical standards through the development, implementation and continuous enhancement of policies, processes, and our global compliance structures and thereby maintains the trust of society and enhances enterprise value. Structure to Promote Ethics and Compliance Astellas continues to enhance a robust compliance structure that includes a Chief Ethics & Compliance Officer (CECO) and Global Compliance Committee chaired by the CECO and comprised of the Head of Ethics & Compliance and senior business leadership. Two global compliance functions, Anti-Bribery/ Anti-Corruption Compliance and Data Privacy, were created in April 2016 and April 2017, respectively. In addition, an Ethics & Compliance Group Operations function was established in fiscal 2016. This function oversees and coordinates various compliance activities to ensure consistency in approach on a global basis. These activities include training and communications, risk assessment, monitoring, investigations, and managing policies and procedures. As our business expands globally, we continue to seek opportunities for global alignment and collaboration between functional lines, and maintain consistently high standards of compliance in everything we do. Astellas is committed to supporting every employee in their efforts to conduct business with the highest integrity and in an ethical and legal manner. Global Compliance Structure (as of April 2017) Chief Ethics & Compliance Officer (CECO) Head of Ethics & Compliance Global Compliance Committee Anti-Bribery/Anti-Corruption Data Privacy Japan & East Asia South East, South Asia, Hong Kong, and Oceania Americas EMEA Ethics & Compliance Head Ethics & Compliance Head Ethics & Compliance Head Ethics & Compliance Head Compliance Committee Compliance Committee Compliance Committee Compliance Committee Ethics & Compliance Group Operations 67 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Initiative Promoting Compliance Compliance Training Training and communication about new policies and procedures as well as updates to existing policies and procedures help to nurture a compliance mindset among all employees. All new Ethics & Compliance employees are required to undergo comprehensive onboarding training and all new Ethics & Compliance leaders receive training on specific topics including healthcare compliance, anti- bribery and anti-corruption compliance, investigation processes, conflict of interest, data privacy and transparency reporting. A wide variety of platforms, including online and in-person sessions, are used to train employees on various topics related to their job responsibilities. Integrity in Action Program In fiscal 2016, messages about integrity, ethics and compliance were delivered to employees through various means in order to enhance their ethics and compliance awareness. For example, an Integrity in Action program was implemented globally and conducted at each regional headquarters and multiple affiliate offices in fiscal 2016. These programs bring subject matter experts from local, regional and global Ethics & Compliance functions to regional and affiliate offices where employees receive informative and impactful information about various compliance related matters. Business leaders provide Tone from the TOP by reinforcing the compliance messages through their presentations. Establishing and Encouraging a Speak-Up Culture Following the establishment of a stand-alone Ethics & Compliance organization in April 2016, one of the first initiatives undertaken was to establish and enhance, throughout the entire organization, a speak-up culture that encourages all employees to bring to the Company’s attention potential issues and concerns that may give rise to more serious compliance problems if not addressed promptly and effectively. The importance of an effective speak-up culture is communicated regularly to all employees not only by the Ethics & Compliance function but also by senior leadership at the local, regional and global levels throughout the organization. In part due to this emphasis on a vibrant speak-up culture, Astellas has seen an increase in compliance reports from fiscal 2015 to fiscal 2016. Implementation of a Global Conflict of Interest Policy The foundation of an effective and robust Ethics & Compliance program is based on how a company approaches its own internal behavior even when no violation of law may have occurred. In these situations, often referred to as conflicts of interest, a company must assess its approach to ethics and compliance when no one is looking. Doing so with integrity and ethics in these situations informs and predicts how a company approaches ethics and compliance when everyone is looking. Conflicts of interest arise when outside activities or other personal interests impair an employee’s objectivity or judgment when performing his/her job responsibilities. Conflicts of interest also arise in situations where there is a potential conflict between an employee’s personal interests and the interests of Astellas. During fiscal 2016, Astellas implemented an enhanced global Conflict of Interest Policy and, in fiscal 2017, will be initiating comprehensive training on the enhanced policy across the organization. This policy and the accompanying training communicate to every Astellas employee the ethical values of the Company, its expectation that we will conduct all our business with the highest degree of integrity, and its commitment to compliance. Helpline for Employees Astellas has external compliance reporting helplines available for employees in each region that enable employees to report and receive advice on how to react in the event they discover actual or suspected misconduct. These helplines are available in employees’ local languages. In many countries, an external helpline has also been put into place, and employees also receive regular reminders and periodic training on how to use the helplines. In Japan, a separate sexual harassment helpline is also available. Astellas fosters an environment that encourages employees to use the helplines. There is a strict policy of non-retaliation against those who raise a concern or report a suspected compliance breach in good faith, even if the concern or report is not substantiated. In fiscal 2016, our helplines received consultation requests in each region. Matters raised included potential harassment and promotional code violations. In response, we conducted thorough investigations and took appropriate actions. 68 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Business Review Pursuing Operational Excellence Monitoring System for Compliance Issues Developing a Consistent Global Internal Compliance Risk Assessment Capability Astellas, like most multinational pharmaceutical companies, confronts a myriad of different compliance risks across its global operations. These include anti- bribery/anti-corruption compliance risk, data privacy risk, healthcare compliance risk, and cybersecurity risk. The ability to efficiently and effectively assess risk in these and other areas at the local, regional and global levels is a foundational element of any compliance program and enables companies like Astellas to more quickly identify and better respond to existing and emerging compliance risks. Establishing a globally consistent process for conducting its own internal compliance risk assessments allows management at Astellas to better allocate resources that are focused on areas of high compliance risk based on the best available information. Internal compliance risk assessments that are conducted at the local affiliate level are supported by resources provided at both the regional and global levels. Internal compliance risk assessments evaluate both the external (or market risk) environment as well as those activities conducted by Astellas that create the highest level of risk for the Company. The internal activities assessed include those where value in any form is transferred to healthcare professionals, interactions between the Company and government officials/healthcare professionals, fair competition between companies, data privacy, clinical research and gifts/hospitality. The Ethics & Compliance function at Astellas works closely with the business throughout the internal compliance risk assessment process and helps develop and support any risk mitigation plans developed to address the identified risks. Tracking and Investigating Reports of Compliance Violations In fiscal 2016, Astellas continued to enhance its process for tracking all reports of potential compliance violations no matter how they were received by the Company. These reports are analyzed by Ethics & Compliance to determine if any trends or patterns in misconduct are occurring anywhere in the organization. These reports and any analyses are also shared with senior leadership to ensure there is visibility and awareness of potentially problematic activity. Astellas defined these processes in a global policy on investigations and two global standard operating procedures. Training on the policy and the procedures has been provided to Ethics & Compliance personnel and other Astellas employees responsible for conducting internal compliance investigations. Ethics & Compliance often coordinates with Legal and Human Resources throughout the course of any compliance-related investigations. Astellas is committed to conducting all compliance investigations fairly, objectively, consistently and efficiently with any disciplinary action taken being proportional to any substantiated misconduct. Astellas has a strict policy prohibiting any retaliation against any employee who brings to the Company’s attention a suspected or actual compliance violation in good faith even if the allegation is ultimately unsubstantiated. Anti-Bribery and Anti-Corruption Initiatives As business has become increasingly globalized, countries around the world have been enhancing their efforts to prevent corruption and bribery. Enforcement authorities have prosecuted cases involving direct corruption and bribery as well as cases involving bribery that occurred through the actions of a business partner or third-party agent. Astellas continues to strengthen its compliance awareness to prevent bribery and corruption not only at Astellas but also by third parties with whom we conduct business. In its continued effort to prevent bribery in the conduct of its business, Astellas has established a global anti-bribery and anti-corruption compliance position that works with Ethics & Compliance and business functions at the regional and local levels to ensure compliance with the Astellas Group Code of Conduct, the Global Anti- Bribery and Anti-Corruption Policy, and other policies and procedures that address the transfer of value from Astellas to government officials and healthcare professionals. To foster a deeper understanding of this issue among its employees, Astellas regularly provides training on various anti-corruption and anti-bribery compliance initiatives. 69 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Commitment to Fair Competition Astellas is committed to conducting its business in a fair and competitive environment and does not collude or reach any agreements with its competitors regarding sales conditions, such as prices, sales plans and strategies, and market and customer shares. Astellas limits its engagement with competitors and avoids any conversation concerning these topics when engagement is necessary, as it might be construed to reflect such an agreement even when there is none. If a competitor brings up these subjects in conversation, we refuse to discuss it, end the conversation immediately and unequivocally, and report the incident to the legal department. In fiscal 2016, there were no incidences of government authorities taking legal action against Astellas for anti- competitive, anti-trust, or monopolistic practices, or of authorities imposing significant fines or other sanctions for non-compliance with laws and regulations. For further information on Astellas’ ethics and compliance activities, please visit the following website: WEB https://www.astellas.com/en/about/ compliance-initiatives/ Message from the Vice President, Head of Ethics & Compliance Americas and Ethics & Compliance Group Operations Lead Establishing an Effective and Impactful Group Operations Function in Ethics & Compliance The Ethics & Compliance (E&C) Group Operations team was created following the establishment of the stand- alone E&C function on April 1, 2016. The purpose of having a global group operations function is to drive efficiencies and consistencies of E&C function across country, region and global levels. The E&C Group Operations team is responsible for setting strategy, planning and coordination for training, communications, risk assessment, monitoring, investigations, policies, procedures and program governance. The Group Operations team works with its E&C counterparts at all levels and across all regions to ensure there is a consistent approach to how these activities are conducted. One of the biggest challenges facing the E&C Group Operations team is finding a way to reflect and allow for regional and local differences and customs. In this respect close collaboration between the E&C affiliate leads, regional E&C teams and the E&C Group Operations team will ensure that our compliance practices adhere to global standards and best practices but also are reasonably adapted to local and regional differences. Tatjana Dragovic Vice President, Head of Ethics & Compliance Americas and Ethics & Compliance Group Operations Lead 70 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Contribution to the Sustainable Development Goals Adopted by the United Nations General Assembly in 2015, the Sustainable Development Goals (SDGs) are a set of collective targets for the world to achieve by 2030. Referring to the SDG Compass, Astellas has identified issues for priority action, based on the evaluation of positive and negative SDG-related impacts across the entire value chain. Going forward, Astellas plans to contribute to the attainment of the SDGs through various business activities, focusing primarily on “Goal 3: Good Health and Well-Being.” Focus on Improving Access to Health in Four Areas In regard to “Goal 3: Good Health and Well-Being” under the SDGs, Astellas is addressing this goal from the viewpoint of improving access to healthcare. There are many people with insufficient access to the healthcare they need due to the lack of available treatments, poverty, challenges in healthcare systems and limited healthcare information. Astellas recognizes this problem as the Access to Health issue. Astellas has identified four areas where it is working to address Access to Health issues by making full use of the strengths and technology that Astellas has. The four areas are (1) Creating innovation, (2) Enhancing availability, (3) Strengthening healthcare systems, and (4) Improving health literacy. In doing so, Astellas will make maximum use of its partnerships in the manner of Goal 17. In creating innovation, Astellas is working to create innovative medicines and medical solutions in disease areas with low treatment satisfaction and to deliver them to patients around the world. For example, Astellas has been conducting collaborative research with the National Institute of Advanced Industrial Science and Technology to discover new drugs for the treatment of Chagas disease, and collaborative research with the Institute of Medical Science, the University of Tokyo in developing the rice- based oral vaccine MucoRice-CTB against infectious diseases such as cholera and enterotoxigenic Escherichia coli (E.coli). Furthermore, Astellas is working closely with partners to develop a pediatric formulation of praziquantel tablets for the treatment of schistosomiasis. To help enhance availability, we have established programs to assist patients facing severe financial constraints with the cost of dispensing pharmaceutical products. We also support patients by not filing or enforcing patents in countries facing significant economic challenges. As part of strengthening healthcare systems and improving health literacy, Astellas has participated in the Access Accelerated global partnership. This initiative aims to contribute to achieving one of the SDG targets of reducing by one-third premature mortality from non- communicable diseases by 2030. In other SDG-related initiatives, Astellas is supporting the Action on Fistula program in Kenya. Astellas aims to contribute through various business activities to achieving SDGs. Astellas views such programs as part of fulfilling society’s expectations while at the same time enhancing competitiveness and enterprise value sustainably. Examples of Astellas’ Activities for Achieving SDGs SDGs Theme Examples of Astellas’ Activities Goal 3 Good Health and Well-Being Creation of innovative medicines and healthcare solutions; joint research into treatments and vaccines for tropical diseases Goal 5 Goal 6 Gender Equality Greater proportion of women in managerial roles in Japan Clean Water and Sanitation Reduced water usage; management of wastewater Goal 8 Decent Work and Economic Growth Cultivation of productive workplaces; employee training and education; promotion of occupational health and safety Goal 9 Industry Innovation and Infrastructure Creating innovation through the Network Research System Goal 12 Responsible Consumption and Production Eco-conscious production Goal 13 Climate Action Reduction of greenhouse gas emissions Goal 15 Life on Land Maintenance/preservation of biodiversity Goal 17 Partnerships for the Goals Participating partner in Global Health Innovative Technology (GHIT) Fund 71 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Access to Health The following describes more in detail the initiatives in which Astellas is participating to address Access to Health issues. Astellas believes that the relationships with governments and the local partners it develops through these initiatives will generate synergies with its business activities over the long term. working with the UICC to develop initiatives to improve the quality of treatment for cancer patients living in selected cities of developing countries to try to boost survival rates. * For details about Access Accelerated, please visit the following website: http://www.accessaccelerated.org/ Participation in Access Accelerated to Improve Access to Healthcare Astellas has participated in Access Accelerated since January 2017. Access Accelerated is a global initiative aimed at improving access to non-communicable disease prevention, diagnosis and treatment in low and lower- middle income countries. More than 20 international pharmaceutical companies are partners in the program, working alongside organizations such as the World Bank and the Union for International Cancer Control (UICC). Non-communicable diseases (NCDs) are any diseases not caused by human-to-human transmission of an infectious agent. Leading NCDs include cancer, cardiovascular disease, chronic respiratory disease, diabetes and mental health disorders. Many NCDs are caused by unhealthy eating, lack of exercise, smoking or excessive drinking, and could be prevented by lifestyle improvement. NCDs are not just on the increase in developed countries, but the number of patients suffering from NCDs is also increasing in developing countries. The rising incidence of NCDs not only puts pressure on the healthcare budgets of developing countries, but also leads to economic losses when patients cannot work due to illness. Access Accelerated has more than 100 programs that channel long-term investments by companies into the improvement of access to prevention, diagnosis and treatment of NCDs. The effectiveness of these programs is being evaluated using a rigorous metrics framework developed with the cooperation of Boston University. The Action on Fistula program that we support is one of the specific programs highlighted on the Access Accelerated website*. In cooperation with corporate partners and the World Bank Group, we are also engaged in solving national-level health issues in Africa. In addition, we are Collaborative Research to Discover Anti-Protozoan Parasite Drugs Since April 2016, Astellas has been conducting joint research with the National Institute of Advanced Industrial Science and Technology (AIST) into Chagas disease, one of the neglected tropical diseases (NTDs*1) caused by protozoan parasites that belong to trypanosomatidae. New drugs are needed to treat this condition. From 2012 to March 2016, Astellas worked in collaboration with five research institutions in Japan and an international non- profit organization*2 to discover new drugs for the treatment of NTDs caused by protozoan parasites belonging to trypanosomatidae. Astellas and AIST are now utilizing the knowledge gained in this collaborative research to conduct joint research into Chagas disease, focusing on validating if genes crucial to the survival of the protozoan parasite can be identified quickly and accurately using genome editing technology. *1 Neglected tropical diseases (NTDs): NTDs are infections caused by parasites and bacteria which are rampant mainly among underprivileged people in tropical areas of developing countries. It is estimated that over one billion people worldwide are suffering from these infections. *2 Collaborative research had been undertaken with the University of Tokyo, the Tokyo Institute of Technology, Nagasaki University, the High Energy Accelerator Research Organization, AIST and the international non-profit organization Drugs for Neglected Diseases initiative (DNDi). 72 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 international non-profit organizations, Astellas is developing a pediatric formulation of praziquantel. The pediatric formulation newly developed by Astellas uses its original drug formulation technology. The pediatric formulation was designed to be smaller than the existing tablet and orally dispersible so that it can be taken even without water, due to a reduction of bitterness. In addition, the pediatric formulation can be manufactured using simple production technology, while holding down production costs, and the tablets are stable even in the hot and humid environment of tropical areas. Astellas has transferred the technology and expertise needed to develop the pediatric formulations to consortium partners in Brazil and Germany, thereby helping to produce drug products used for clinical trials and to build local pharmaceutical manufacturing capabilities. The consortium is conducting Phase II clinical trials and has received a third funding from the GHIT Fund in December 2016 for future Phase III clinical trials. Astellas continues to provide its expertise and technology to the consortium. Newly developed pediatric formulation (top) and existing formulation (bottom) Members of the consortium developing the pediatric formulation of praziquantel ©Lygature 2016 Collaborative Research on a Rice-Based Oral Vaccine Since June 2016, Astellas has been conducting collaborative research with the Institute of Medical Science, the University of Tokyo (IMSUT) on the rice-based oral vaccine MucoRice-CTB against diarrheal diseases caused by cholera and enterotoxigenic Escherichia coli (E.coli). In developing countries, diarrhea caused by pathogenic bacteria, such as Vibrio cholerae and enterotoxigenic E.coli, is a major cause of death among infants and young children. However, existing cholera vaccines present several issues, including the need to store and transport the vaccines at a constant low temperature, and their ineffectiveness against enterotoxigenic E.coli. MucoRice-CTB is stable at room temperature and easily produced. Therefore, it is expected to meet the unmet medical needs of existing cholera vaccines. IMSUT provides investigational medicines, study data, etc., which are necessary for phase 1 and 2 of clinical trials of MucoRice-CTB for cholera and enterotoxigenic E.coli, and Astellas is responsible for conducting and managing the clinical trials. In May 2017, IMSUT and Astellas signed an agreement for expansion of the scope of collaborative research utilizing MucoRice to viral gastroenteritis diarrhea including norovirus infection. Furthermore, through these collaborative research projects, IMSUT and Astellas will attempt to develop the new platform technology to create innovative new drugs to address unmet medical needs. Development of Pediatric Formulation for Schistosomiasis Schistosomiasis is one of the most prevalent parasitic diseases in developing countries centered on Africa and South America. The disease has a particularly high incidence rate among children. The existing “gold standard” treatment for schistosomiasis is praziquantel. However, one challenge is that praziquantel tablets are difficult to administer to preschool-age children, including infants and toddlers, mainly due to the risk of choking stemming from the tablets’ large size and the drug’s bitter taste. Having set up a consortium with other pharmaceutical companies, research institutions and 73 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Action on Fistula Action on Fistula*1, a program focused on urology, is a ground-breaking partnership between the Fistula Foundation and Astellas that was set up to transform the lives of more than 1,200 women in Kenya living with obstetric fistula*2. The program, supported by an unrestricted grant of €1.5 million from Astellas to the Fistula Foundation in the three years from 2014 to 2017, aimed to improve the lives of obstetric fistula patients while simultaneously training doctors who will be able to provide surgical treatment in Kenya. Since its launch, the program has significantly increased the surgical capacity in Kenya to treat the condition, by training six fistula surgeons to the global competency standards set forth by the International Federation of Gynecology and Obstetrics (FIGO). It has also set up a Fistula Treatment Network to extend access to services, with six treatment centers enrolled and providing fistula surgeries on a routine basis. This has enabled Action on Fistula to successfully treat over 2,400 fistula patients, doubling the initial target set. The initiative also built a major outreach program with community workers to identify and bring women in for treatment. Kenyan NGO (WADADIA) and community members share information about Action on Fistula ©Georgina Goodwin 2017 Progress in the Action on Fistula Program (May 2014-March 2017) Patients successfully treated with reconstructive surgery 2,471 patients Trained and certified doctors to the standard level of competency 6 Kenyan doctors Centers in the Fistula Treatment Network 6 centers FIGO-accredited fistula training center Established the Gynocare Women’s and Fistula Hospital In May 2017, Astellas pledged its continuous support Kenyan counties* reached 43 counties Trained community outreach workers 243 outreach workers Conducted outreach activities 7,469 activities Community members reached with fistula messages 477,599 community members * Kenya is divided into 47 counties. There are several units of governance below the county level. These units include subcounties, wards, and villages. to the Fistula Foundation as the second phase of Action on Fistula by 2020, considering the remarkable achievement of the first phase. In three years from 2017 to 2020, this new program will provide surgeries to an additional 2,000 women with obstetric fistula and will continue to build capacity to deliver ongoing treatment. In addition, the new program will establish support groups throughout Kenya to help enable survivors to return to their communities. *1 For more information about the program visit www.astellas.eu/action-on-fistula *2 An obstetric fistula is a hole that develops between the vagina and rectum or bladder, causing incontinence. It is caused by prolonged and obstructed hard labor which lasts for several days, when emergency care is unavailable. Untreated, fistulas can lead to chronic medical problems including ulcerations, kidney disease and nerve damage in the legs. Because of incontinence, women with fistula can be socially marginalized. They are often abandoned by their husbands and family. As a result, fistulas can cause poverty in some cases. The United Nations Population Fund estimates 3,000 new cases of obstetric fistulas occur annually in Kenya. 74 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Social Contribution Astellas is cooperating with a range of stakeholders in an effort to address social issues which affect people throughout the world. AECEP Overseas Volunteer Program In fiscal 2016, Astellas launched a new social contribution program called the Astellas Emerging Countries Empowerment Program (AECEP). AECEP is a program for addressing social issues in emerging countries in partnership with enterprises and non-governmental organizations (NGO) in which Astellas employees utilize their respective expertise, skills and experience. Volunteer employees participating in the program (“participants”) travel to an emerging country after a preparation period of one and half months. They then carry out initiatives in the country for a limited time of three and a half months to address social issues and generate results that meet the expectations of the partner enterprise or NGO. Partners are selected from among enterprises and NGOs involved in addressing medical, health and safety issues or environmental problems. Participants get directly involved in local social issues and learn many things through collaborating with leaders and community members who are strongly committed to solving the issues. At the same time, participants maximize their use of the experience and abilities they have cultivated through work at Astellas to help make the partner activities more effective, and to build or improve their systems. Engaging in social contributions in this kind of equal, interactive relationship is the major characteristic of AECEP. In fiscal 2016, the first year of the program, three employees were selected as participants from among numerous applicants. The participants were assigned to organizations in Indonesia and Cambodia, and they worked in the areas of health, medicine, poverty, and the environment. They cooperated with the local organizations while overcoming various difficulties, and managed to successfully generate results that drew the praise of our partners. The invaluable experiences that can be obtained through AECEP—getting away from daily work and 75 pursuing one’s own potential in an emerging country while newly creating value for society—also have major significance for Astellas from the standpoint of human resource development. “Embrace Change and Challenge” is included in the “Our People” section of our HR Vision, and Astellas will also continue promoting AECEP for this reason: to help develop human resources with a long-term, strategic thinking ability who are truly capable of taking on challenges with a sense of ownership. An Astellas employee (right end) taking part in awareness-raising activities in a Cambodian farming village in connection with cooking stoves that are healthier and better for the environment Craftswomen from the island of Flores in Indonesia and an Astellas employee who visited for fieldwork (right end) Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Support for Patients Astellas conducts a variety of activities to provide assistance to patients fighting illnesses, and to their family members, on a global basis. Astellas promotes Peer Support Training Sessions in Japan as part of efforts to support the self-reliance and development of patient associations. Peer Support Training Sessions are held for a wide range of participants, including patients and their families, along with those who have recently formed patient associations. In these training sessions, activities include programs for participants to learn attentive listening skills, which enable colleagues who have faced the same issues or have experienced the same problems to serve as consulting partners to one another. In fiscal 2016, Peer Support Training Sessions were held in 3 locations across Japan, and were attended by 32 organizations and 42 people. Group-Wide Volunteer Activities for Changing Tomorrow Day Astellas Group employees around the world are encouraging a diverse range of volunteer activities as part of Changing Tomorrow Day based on the themes of promoting healthcare and maintaining the environment, thereby contributing to their local communities. In fiscal 2016, more than 6,600 employees participated. Changing Tomorrow Day Held in Fiscal 2016 Region Participants Volunteering hours Number of locations Number of countries Japan Americas EMEA Asia & Oceania Total 3,286 2,198 410 724 6,618 2,904 8,831 2,770 2,584 17,089 132 89 16 13 250 1 3 16 10 30 Message from an AECEP Participant I became more acutely aware of the significance of social contribution through joint work with an NGO. In Indonesia, an increase in unwanted pregnancies, maternal death, sexually transmitted diseases among young people and people becoming infected with HIV/ AIDS due to a lack of knowledge or low level of awareness have become major issues. The Indonesian NGO I was assigned to is actively engaged in addressing these issues. Their main activities are providing education on family planning and reproductive health as well as treatments for infectious diseases and abortion procedures at a low cost. They are also planning to establish a pharmacy that will enable local community members to purchase medical supplies and daily necessities more conveniently, and this will provide a stable source of income for their activities. This is the project I was involved in. I found myself bewildered at first in many respects, due to the differences in culture and workstyles. As I had started the project nearly from scratch, I was pretty worried about repeated trial-and-error. However, I was satisfied that in the three and a half months I was able to produce results. Moreover, the fact that I was able to create something new was a big confidence boost. I very much admire their sincere and committed efforts to addressing social problems. My desire to contribute to patients and medical professionals continues to be strengthened. The people at the organization told me that they had learned a lot from the passion and attitude I have towards my work, and I think the experience was stimulating for all of us. In my current work in recruiting and hiring, I draw on my experience volunteering to communicate to students the social role of a pharmaceutical company, and I strive to hire people with passion. Yumiko Otsu Human Resources 76 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Environmental Preservation Astellas understands that maintaining a healthy global environment is an essential theme for maintaining sound business activities and building a sustainable society. Going forward, Astellas will strive to realize its vision for being a responsible corporation based on a long- term timeframe that keeps future generations in mind and a global perspective. At the same time, we will continue efforts to address regional social issues and pursue corporate activities in harmony with the global environment. Environmental Action Plan Having determined its basic policy on the environment and identified aspirational guidelines, Astellas formulated its Environmental Action Plan, which outlines short- to medium-term activity targets, and has continued pursuing initiatives to achieve its numerical targets. Going forward, we will review the plan based on various factors, including progress status and social circumstances, and add new initiatives and/or set more challenging targets. Among the numerical targets of the Environmental Action Plan, Astellas has achieved all the items with a final target year of fiscal 2015. Accordingly, we have set new targets for water resources productivity and waste generated per unit of sales, and have begun working towards these targets from fiscal 2016. Initiatives for Realizing a Low-Carbon Society Reducing Astellas’ Greenhouse Gas Emissions Astellas endeavors to reduce the greenhouse gas (GHG) emissions accompanying its own activities in order to help realize a low-carbon society. Global GHG emissions accompanying Astellas’ business activities (actual emissions) totaled 216 kilotons, with activities generating approximately 83% of those emissions covered by the Environmental Action Plan. In fiscal 2016, GHG emissions covered by the Environmental Action Plan (actual emissions) were 179 kilotons. This represented a decrease of 23.7% (55 kilotons) from fiscal 2005. In Japan, there was a reduction of 5 kilotons due to improvement in the electricity CO2 emissions coefficient compared to the previous fiscal year, a reduction of 13 kilotons due to the closure of the Kashima R&D Center and the transfer of the Kiyosu Plant. However, there was an increase of 10 kilotons due to an increase in business activities such as the operation of new facilities. The difference between the coefficients for actual emissions and for use in evaluating progress against the Environmental Action Plan was 0.201 kg-CO2/kWh. As a result of the difference between these coefficients, actual emissions were 23 kilotons greater than emissions in the Environmental Action Plan. GHG emissions at overseas production sites decreased 4 kilotons, as a result of the transfer of the Norman Plant to a third-party company in August 2016. Environmental Action Plan Performance in Fiscal 2016 (Summary) Environmental Action Plan 1. Measures to Address Climate Change (Base year: Fiscal 2005) Reduce greenhouse gas (GHG) emissions by 35% or more by the end of fiscal 2020 - Japan: Reduce GHG emissions by 30% or more - Overseas plants: Reduce GHG emissions by 45% or more 2. Measures for the Conservation of Natural Resources (Research and production sites) (Base year: Fiscal 2005) 1) Enhance water resource productivity by around 2.5 times the fiscal 2005 result by the end of fiscal 2020 Indicator: Sales (¥ billion)/Volume of water resources withdrawn (1,000 m3) 2) Improve waste generated per unit of sales to around 20% of the fiscal 2005 result by the end of fiscal 2020 Indicator: Volume of waste generated (tons)/Sales (¥ billion) 3. Biodiversity (Base year: Fiscal 2005) Triple the biodiversity index by fiscal 2020 Note: Among the GHG emissions in Japan, CO2 emissions generated through electricity usage are calculated using the following two types of coefficients: (1) A coefficient of 0.330 kg-CO2/kWh is used to calculate results needed to evaluate progress against the Environmental Action Plan and make investment decisions and implement countermeasures to bridge the gap between results and targets. The figures shown in the table above represent the results calculated using this coefficient. (2) GHG emissions (actual emissions) for each fiscal year presented in series are calculated using the Electric Power Council for a Low Carbon Society’s actual end-use GHG emissions coefficient (hereinafter, “the electricity CO2 emissions coefficient”) for the previous fiscal year. The figures for the GHG emissions shown in this report represent results calculated using this coefficient. (A coefficient of 0.531 kg-CO2/kWh was used in fiscal 2016.) 77 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 In accordance with GHG Protocol Scope 2 Guidance, an international guideline for the calculation of GHG emissions, Astellas has adopted the market-based method as the calculation method for actual emissions and for Scope 2 emissions (indirect emissions) in the CDP Climate Change 2017 questionnaire. Astellas is now able to monitor GHG emissions from almost all of its activities. However, given that the coefficient for the calculation of CO2 emissions due to electricity use in Japan has diverged from actual conditions, Astellas plans to formulate an Environmental Action Plan based on actual emissions in fiscal 2017. Remaining mindful of the international community’s vision for 2050, Astellas intends to set numerical targets as milestones for realizing this vision. Breakdown of Greenhouse Gas Emissions (Actual Emissions) (kilotons) Overseas manufacturing 11 Regional headquarters 6 Overseas sales affiliates 2 Total 216 kilotons Breakdown of Others Others 38 Action plan boundary Japan 168 Overseas sales fleets 23 Overseas R&D centers 7 Note: The above graph is based on the energy consumption data disclosed on the URL below. “Others” represents items outside the scope of the Environmental Action Plan, and includes principal office buildings, R&D centers, and office buildings of sales affiliates and sales fleets outside Japan. https://www.astellas.com/en/csr/environment/energy_sub_01.html Greenhouse Gas Emissions (Actual Emissions) Japan: All Japanese facilities and sales fleets / Overseas: All five production facilities Japan Five production facilities overseas Ratio to FY2005 level (kilotons) 400 100 200 234 57 177 0 57 2006.3 86.9 89.5 82.5 78.9 76.3 193 203 210 185 179 157 168 173 170 168 36 36 2013.3 2014.3 2015.3 2016.3 2017.3 14 35 11 (%) 100 50 66.7 156 128 * 23 0 28 2016.3 Based on Action Plan Monitoring Greenhouse Gas Emissions in the Supply Chain In recent years, it has become increasingly important to monitor and announce not only GHG emissions by the Company, but also GHG emissions in the supply chain, including transportation of employees, raw materials purchasing, product distribution, and waste disposal. Recognizing these social implications, we started making efforts in fiscal 2011 to ascertain our GHG emissions associated with the use of transportation systems by employees in Japan for commuting or for overseas business trips, and transportation of products and wastes. Going forward, we intend to continue taking effective steps to expand the reporting boundary. Monitoring Status of Greenhouse Gas Emissions Scope 3 Other indirect emissions Upstream activities Purchased goods and services 111,352 tons Capital goods 67,645 tons Fuel- and energy-related activities (not included in Scope 1 or Scope 2) 27,464 tons Transportation and distribution*1 Raw materials transported by tanker trucks 237 tons Plant Warehouse 228 tons Distribution warehouse 955 tons Warehouse Wholesaler 2,620 tons Waste generated in operations 4,461 tons Commuting (Train) 671 tons Business travel (aircraft use) 37,933 tons Commuting (Bus) 122 tons Commuting (Car) 1,774 tons Scope 1*2 Direct emissions Scope 2*2*3 Indirect emissions 67,647 tons Sales fleets 27,287 tons 94,934 tons (total) 121,366 tons Scope 3 Other indirect emissions Downstream activities Use of products sold No emissions End-of-life treatment of sold products 705 tons *1 Product shipments are handled by outside contractors. *2 Global basis (Japan: all business premises and sales fleets / Overseas: all production facilities, sales fleets, principal offices, R&D centers and sales affiliates) *3 Emissions refer to actual emissions. * The difference between the actual emissions and emissions evaluated in the Environmental Action Plan reflects differences in coefficients used in Japan (see the note on page 77) and changes in calculation methods used at overseas production sites. 78 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Using Renewable Energy The direct use of renewable energy such as solar and wind power is one of the most effective ways of addressing climate change. Therefore, we intend to actively incorporate technologies that can be feasibly introduced. We operate a wind turbine system with a maximum output of 800 kW at the Kerry Plant in Ireland, which generated 1,607 MWh in 2016. Furthermore, the Kerry Plant’s woodchip biomass boiler (maximum output of 1.8 MW) also used 34,984 GJ of heat. These two initiatives reduced our GHG emissions by 3,093 tons. In Japan, we have installed photovoltaic panel system at the Tsukuba Research Center. In fiscal 2016, the system generated 47 MWh of electricity, reducing our GHG emissions by 25 tons. Given that Astellas’ plants in Japan are not suitably located for wind power generation, we will consider introducing other forms of renewable energy in the country. Astellas’ overseas plants are taking initiatives to designate and purchase electricity generated from renewable energy such as wind and hydroelectric power. Of the electricity purchased in fiscal 2016, renewable energy comprised 12,237 MWh at the Norman Plant, 12,603 MWh at the Meppel Plant, 6,200 MWh at the Dublin Plant, and 6,815 MWh at the Kerry Plant. In addition, we are using geothermal heat in certain parts of the Yaizu Pharmaceutical Research Center as well as at our U.S. regional headquarters and Leiden (Netherlands) base. The Leiden base, which can quantify geothermal energy, used 1,236 GJ of geothermal heat, resulting in a reduction of 146 tons in GHG emissions. Initiatives for Resource Recycling Astellas seeks to contribute solutions to the social issues involved in establishing a recycling-oriented society. We have therefore been striving to reduce water withdrawal and landfill waste. As a result, we were able to achieve our numerical targets for these items whose final target year is fiscal 2015. From fiscal 2016 onward, we will evaluate our progress using two new targets added to the Environmental Action Plan: water resources productivity and waste generated per unit of sales. The Astellas Group on a global basis does not currently draw water from river systems in areas where depletion of water resources is a concern, but as water shortages may become a problem in the future, owing to climate change, we are taking steps to minimize our dependence on such resources, and also regard this as an effective means of ensuring business continuity. New Targets Added to the Environmental Action Plan Water resources productivity (For research and production sites) Indicator Sales (¥ billion)/Water resources withdrawn (1,000 m3) Numerical Targets Enhance water resources productivity by around 2.5 times the fiscal 2005 result by the end of fiscal 2020 Waste generated per unit of sales (For research and production sites) Indicator Volume of waste generated (tons)/Sales (¥ billion) Numerical Targets Improve the waste generated per unit of sales to around 20% of the fiscal 2005 result by the end of fiscal 2020 Water Resources Productivity* Achieved 0.15 2.89 Result 2017.3 0.13 2.5 or over Target 2021.3 0.05 1 Base 2006.3 * Water Resource Productivity (WRP) = Sales (billion yen) Volume of water resource used (1,000m3) Waste Generated Per Unit of Sales* 50.9 100% Base 2006.3 almost achieved 10.2 20% or below Target 2021.3 10.5 21% Result 2017.3 * Waste Generated per unit of Sales (WGS) = Volume of waste generated (tons) Sales (billion yen) 79 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Initiatives for Biodiversity Astellas works to preserve biodiversity by proactively reducing the impact of its business activities in all fields on the ecosystem. At the same time, we actively contribute to the creation of a society that coexists with the natural world, enabling the preservation of biodiversity and the sustainable use of the benefits of healthy ecosystems. Astellas has created a Biodiversity Index* by assessing the three main factors responsible for the deterioration of biodiversity, namely environmental pollution, resource consumption and climate change. Going forward, we will continue improving in each category while working toward achieving the target set for fiscal 2020, which is three times the fiscal 2005 level. The Biodiversity Index for fiscal 2016 was 3.12 times that of fiscal 2005, reaching the target. The denominator components such as pollution load and resource consumption declined, in addition to a decrease in GHG emissions. At the same time, the numerator of net sales decreased in fiscal 2016. As a result, the overall Biodiversity Index decreased 0.06 points from the previous year. Since we only recently revised the Environmental Action Plan, we have decided to continue our activities without revising the Biodiversity Index target. * For details on the calculation method, please visit the following website: https://www.astellas.com/jp/csr/environment/biodiversity_sub_02.html 3.18 3.12 Target 3.00 Biodiversity Index Ratio to FY2005 level 4.00 3.00 2.68 2.27 2.00 1.97 1.00 1.00 0 2006.3 2013.3 2014.3 2015.3 2016.3 2017.3 2021.3 For details on environmental preservation, please visit the following website: WEB https://www.astellas.com/en/sustainability/environment/ Message from Environment, Health and Safety Management We will steadily address laws and regulations and implement Environment, Health and Safety measures. It is a great honor to be appointed as the Executive Director Environment, Health & Safety in EMEA, Astellas B.V., which was established in 2016. Astellas has an Astellas Environment, Health & Safety Policy, which sets forth our basic approach to the environment and the health & safety of our employees, and the Astellas Environment, Health & Safety Guidelines, which articulate our medium- to long-term vision. This policy and the guidelines are implemented according to conditions in each region under the leadership of General Affairs at Head Office. In the EMEA, a region with many different languages and cultures as well as laws and regulations, my primary role is to work in close coordination with General Affairs to steadily implement regulatory responses, strengthen EHS-related governance and conduct EHS impact evaluations and improvements. In summer 2016, I attended EHS audits of Astellas’ European plants that were implemented by General Affairs at Head Office. In these audits, we evaluated each plant’s status of compliance with laws and regulations and the implementation status of voluntary activities based on guidelines. Through this opportunity, I recognized anew that the Astellas Group is required to implement a high level of EHS management, not just in EMEA but also throughout the world. Going forward, I would like to take our EHS activities to an even higher level by strengthening governance from my standpoint as a promoter of EHS activities in EMEA, thereby meeting the expectations of stakeholders. Sibo de Jong EHS in EMEA, Astellas B.V. Executive Director 80 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Dialogue with Stakeholders Astellas conducts business activities within a diverse network of relationships, including with patients and many others, and our activities are supported by these relationships. We regard stakeholders such as patients and healthcare professionals, employees, and shareholders and investors as particularly important stakeholders because they are significantly impacted by our business activities. Interacting with these stakeholders who support our business activities in good faith and understanding their expectations and needs is essential to acquiring their trust and sustainably Main Opportunities for Communication with Stakeholders Patients and Healthcare Professionals • Provision of product information to healthcare professionals through MRs • Provision and collection of medical and scientific information to healthcare professionals through MSLs • Responding to product inquiries increasing our enterprise value. We therefore use various opportunities to communicate with stakeholders. In addition, to promote constructive dialogue with our stakeholders, we appropriately disclose information to all groups in a way that is both timely and impartial. By continuing to conduct communication through disclosure and dialogue, we will further raise our transparency as a company and strive to sustainably increase enterprise value while simultaneously raising the overall sustainability of society. Business Partners • Supplier surveys based on the Astellas Business Partner Code of Conduct • Regular dialogue between management and Employees employees • Internal and external compliance helplines Local Communities • Roundtable talks with neighboring residents and local government bodies • Volunteer activities by employees Shareholders and Investors • General Shareholders’ Meeting, investor briefings on announcement of financial results, management plans, etc. • Responding to inquiries about business conditions Other • Exchange of opinions with government agencies • Participation in various external activities such as economic groups and industry associations For details, please visit the following website: WEB https://www.astellas.com/en/sustainability/stakeholder-communications/ Dialogue with Patients Patient Advocates Advisory Committee Providing Critical Guidance to Inform Decision-Making Astellas is committed to ensuring the voices of patients are reflected in all that we do. As part of our efforts to better understand and meet the needs of patients and caregivers, we established the Astellas Patient Advocates Advisory Committee in 2016 in the United States. Comprised of leaders from 13 patient advocacy organizations, the committee provides feedback regarding our existing and emerging healthcare services, and helps us identify needs, priorities and interests of patients and caregivers. The advisory committee contributes critical insight to help ensure that we are appropriately considering the needs of patients and caregivers at each stage of drug development. In addition, the committee members have been providing insightful feedback to our Medical Affairs leadership on ways to best convey medical information to patients, and have been helping inform program decisions within our real-world informatics function. 81 Business ReviewAstellas Pharma Inc. ANNUAL REPORT 2017 Financial Information and Data 11-Year Financial Summary Financial Review Consolidated Financial Statements Consolidated Statement of Income Consolidated Statement of Comprehensive Income Consolidated Statement of Financial Position Consolidated Statement of Changes in Equity Consolidated Statement of Cash Flows Notes to Consolidated Financial Statements Independent Auditor’s Report Investor Information Corporate Data/ Principal Subsidiaries and Affiliates 83 85 94 99 154 155 156 82 Astellas Pharma Inc. ANNUAL REPORT 2017 11-Year Financial Summary Astellas has adopted the International Financial Reporting Standards (IFRS), effective from fiscal 2013 (March 2014). Results for each category and earnings per share are presented on a core basis for the fiscal years since March 2014. For the year Sales Cost of sales SG&A expenses*2 R&D expenses*2 R&D ratio (%) Operating income/profit Operating margin (%) Net income/Profit for the year At year-end Total assets Total net assets/Total equity Per share data*3 Net income/Profit for the year Total net assets/Total equity Dividends Major indicators ROE (%) DOE (%) Equity ratio (%) Free cash flow (¥ billion, US$ million) Average exchange rate (US$/¥) (€/¥) 2007.3 J-GAAP 2008.3 J-GAAP 2009.3 J-GAAP 2010.3 J-GAAP (¥ billion) 2011.3 J-GAAP 2012.3 J-GAAP 2013.3 J-GAAP 2014.3 IFRS 2015.3 IFRS 2016.3 IFRS 2017.3 IFRS 2017.3 IFRS (¥ billion) (US$ million)*1 ¥920.6 ¥972.6 ¥965.7 ¥974.9 ¥953.9 ¥969.4 ¥1,005.6 ¥1,139.9 ¥1,247.3 ¥1,372.7 ¥1,311.7 $11,711 284.1 446.0 167.9 18.2 190.5 20.7 131.3 279.3 417.3 134.5 13.8 275.9 28.4 177.4 264.4 450.9 159.1 16.5 250.4 25.9 171.0 289.2 499.2 195.6 20.1 186.4 19.1 122.3 296.0 538.8 217.3 22.8 119.2 12.5 67.7 1,470.7 1,099.0 1,439.2 1,110.9 1,348.4 1,030.2 1,364.2 1,053.9 1,335.1 1,021.1 1,400.6 1,018.1 1,445.6 1,062.0 1,653.1 1,268.5 1,793.6 1,317.9 1,799.3 1,259.2 1,820.9 1,271.8 ¥244.07 2,135.34 80.00 11.3 3.7 74.7 200.4 117 150 ¥349.89 2,228.34 110.00 16.1 5.0 77.1 178.5 114 162 ¥356.11 2,189.26 120.00 16.0 5.4 76.3 168.8 101 143 ¥261.84 2,278.77 125.00 11.7 5.6 77.1 118.6 93 131 (¥) ¥146.49 2,207.70 125.00 6.5 5.6 76.4 (142.0) 86 113 318.6 519.2 189.8 19.6 131.5 13.6 78.2 ¥169.38 2,200.64 125.00 7.7 5.7 72.6 146.7 79 109 324.1 527.6 182.0 18.1 153.9 15.3 82.9 ¥36.08 469.92 130.00 8.0 5.7 73.3 95.5 83 107 330.6 397.0 191.5 16.8 186.3 16.3 132.8 ¥59.11 568.53 135.00 7.4 5.0 76.7 187.4 100 134 333.2 452.5 206.6 16.6 216.5 17.4 153.2 ¥69.37 600.93 30.00 10.5 5.1 73.5 116.2 110 139 335.6 500.4 225.7 16.4 267.5 19.5 198.8 ¥92.12 592.58 32.00 15.0 5.4 70.0 166.7 120 133 320.5 470.8 208.1 15.9 274.6 20.9 213.3 ¥101.15 615.89 34.00 17.3 5.6 69.8 162.2 108 119 2,862 4,203 1,858 2,451 — — 1,905 16,258 11,355 $0.90 5.50 0.30 — — — — — 1,448 (¥) (US$) *1 US dollars have been converted at the rate of ¥112 to US$1, the approximate exchange rate on March 31, 2017. *2 SG&A expenses under J-GAAP (from fiscal 2006 to fiscal 2012) include R&D expenses. *3 Astellas conducted a stock split of common stock at a ratio of 5 for 1 with an effective date of April 1, 2014. Net income/profit for the year per share and total net assets/total equity per share are calculated based on the number of shares issued after the stock split (excluding treasury shares) on the assumption that the stock split was conducted at the beginning of fiscal 2012. Moreover, the number of shares outstanding has also been calculated on the assumption that the stock split was conducted at the beginning of fiscal 2012. 83 Financial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 For the year Sales Cost of sales SG&A expenses*2 R&D expenses*2 R&D ratio (%) Operating income/profit Operating margin (%) Net income/Profit for the year At year-end Total assets Total net assets/Total equity Per share data*3 Net income/Profit for the year Total net assets/Total equity Dividends Major indicators ROE (%) DOE (%) Equity ratio (%) Free cash flow (¥ billion, US$ million) Average exchange rate (US$/¥) (€/¥) 284.1 446.0 167.9 18.2 190.5 20.7 131.3 ¥244.07 2,135.34 80.00 11.3 3.7 74.7 200.4 117 150 279.3 417.3 134.5 13.8 275.9 28.4 177.4 ¥349.89 2,228.34 110.00 16.1 5.0 77.1 178.5 114 162 264.4 450.9 159.1 16.5 250.4 25.9 171.0 ¥356.11 2,189.26 120.00 16.0 5.4 76.3 168.8 101 143 289.2 499.2 195.6 20.1 186.4 19.1 122.3 ¥261.84 2,278.77 125.00 11.7 5.6 77.1 118.6 93 131 (¥ billion) 2011.3 J-GAAP 296.0 538.8 217.3 22.8 119.2 12.5 67.7 (¥) ¥146.49 2,207.70 125.00 6.5 5.6 76.4 (142.0) 86 113 2007.3 J-GAAP 2008.3 J-GAAP 2009.3 J-GAAP 2010.3 J-GAAP 2012.3 J-GAAP 2013.3 J-GAAP 2014.3 IFRS 2015.3 IFRS 2016.3 IFRS 2017.3 IFRS 2017.3 IFRS (¥ billion) (US$ million)*1 ¥920.6 ¥972.6 ¥965.7 ¥974.9 ¥953.9 ¥969.4 ¥1,005.6 ¥1,139.9 ¥1,247.3 ¥1,372.7 ¥1,311.7 $11,711 318.6 519.2 189.8 19.6 131.5 13.6 78.2 324.1 527.6 182.0 18.1 153.9 15.3 82.9 330.6 397.0 191.5 16.8 186.3 16.3 132.8 333.2 452.5 206.6 16.6 216.5 17.4 153.2 335.6 500.4 225.7 16.4 267.5 19.5 198.8 320.5 470.8 208.1 15.9 274.6 20.9 213.3 1,470.7 1,099.0 1,439.2 1,110.9 1,348.4 1,030.2 1,364.2 1,053.9 1,335.1 1,021.1 1,400.6 1,018.1 1,445.6 1,062.0 1,653.1 1,268.5 1,793.6 1,317.9 1,799.3 1,259.2 1,820.9 1,271.8 2,862 4,203 1,858 — 2,451 — 1,905 16,258 11,355 (¥) (US$) ¥169.38 2,200.64 125.00 7.7 5.7 72.6 146.7 79 109 ¥36.08 469.92 130.00 8.0 5.7 73.3 95.5 83 107 ¥59.11 568.53 135.00 7.4 5.0 76.7 187.4 100 134 ¥69.37 600.93 30.00 10.5 5.1 73.5 116.2 110 139 ¥92.12 592.58 32.00 15.0 5.4 70.0 166.7 120 133 ¥101.15 615.89 34.00 17.3 5.6 69.8 162.2 108 119 $0.90 5.50 0.30 — — — 1,448 — — 84 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Financial Review Overview of the Year Ended March 31, 2017 (Fiscal 2016) In its consolidated operating results (core basis) for fiscal 2016 Astellas posted a decrease in sales and increases in core operating profit and core profit for the year. Consolidated Financial Results (Core Basis) Sales Operating profit Profit for the year (¥ billion) 2016.3 2017.3 1,372.7 267.5 198.8 1,311.7 274.6 213.3 Astellas discloses financial results on a core basis as an indicator of its recurring profitability. Certain items reported in financial results on a full basis that are deemed to be non-recurring items by Astellas are excluded as non-core items from these financial results on a core basis. These adjusted items include impairment losses, gain (loss) on sales of property, plant and equipment, restructuring costs, loss on disaster, a large amount of losses on compensation or settlement of litigation and other legal disputes, and other items that we judge should be excluded. Foreign Exchange Impact for Fiscal 2016 The exchange rates for yen in fiscal 2016 are shown in the table below. Movements in the rates led to a ¥94.7 billion decrease in the value of sales and a ¥36.3 billion decrease in core operating profit. Foreign Exchange Rates (Average) US$1 €1 (¥) 2016.3 2017.3 120 133 108 119 Fluctuation in Foreign Exchange Rates from April to March 2016.3 2017.3 ¥7 (Strengthening of yen) ¥0 (Strengthening of yen) ¥3 (Strengthening of yen) ¥8 (Strengthening of yen) US$1 €1 85 Sales In fiscal 2016, consolidated sales decreased 4.4% year on year to ¥1,311.7 billion. Sales decreased mainly due to the impact of NHI drug price revisions implemented in Japan in April 2016, in addition to the impact of foreign exchange rates, despite steady growth in sales of core products. In terms of global products, due to the impact of foreign exchange rates, sales of XTANDI for the treatment of prostate cancer increased slightly, while combined sales of overactive bladder (OAB) treatments Vesicare and Betanis/Myrbetriq/BETMIGA decreased. However, excluding the impact of foreign exchange rates, sales of each product grew steadily. Additionally, sales of Prograf, an immunosuppressant, decreased. Sales by Region Sales in Japan decreased 3.3% year on year to ¥480.8 billion. Of these, sales in the Japanese market decreased by 6.3% to ¥452.7 billion. In addition to the OAB treatments Vesicare and Betanis, products such as the anti-inflammatory and anti-pain treatment Celecox, Symbicort for the treatment of adult bronchial asthma and Suglat for the treatment of type 2 diabetes achieved sales growth. On the other hand, sales contracted for XTANDI due to the impact of NHI drug price revisions. Sales of vaccines declined mainly due to the continued impact of shipment restraints by the manufacturer in fiscal 2015 (shipments of some products have already recommenced). In addition, sales of products including Lipitor for the treatment of hypercholesterolemia and Gaster for the treatment of peptic ulcer and gastritis declined, mainly due to the impact of generics. Sales in the Americas decreased 9.4% year on year to ¥412.4 billion. Sales on a U.S. dollar basis increased 0.5% to US$3,805 million. Sales of XTANDI, the OAB treatments VESIcare and Myrbetriq, and the pharmacologic stress agent Lexiscan increased on a U.S. dollar basis, while the sales of each product decreased due to the impact of foreign exchange rates. Sales of Prograf decreased, but the azole antifungal CRESEMBA contributed to sales. Sales in EMEA increased 0.5% year on year to ¥330.8 billion. Sales on a euro basis increased 12.1% to €2,785 million. Sales of XTANDI grew. Sales of the OAB treatments Vesicare and BETMIGA, as well as sales of Prograf, decreased, mainly due to the impact of foreign exchange rates. Sales in Asia & Oceania decreased 3.8% year on year to ¥87.7 billion. Financial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 XTANDI and the OAB treatments Vesicare and BETMIGA showed growth in sales. Sales of Prograf and Harnal for the treatment of functional symptoms of benign prostatic hyperplasia declined due partly to the impact of foreign exchange rates. Sales by Region Consolidated Japan Americas EMEA Asia & Oceania (¥ billion) 2016.3 2017.3 1,372.7 1,311.7 497.2 455.1 329.3 91.1 480.8 412.4 330.8 87.7 Selling, General and Administrative (SG&A) Expenses, Research and Development (R&D) Expenses and Amortisation of Intangible Assets SG&A expenses decreased 5.9% to ¥470.8 billion and R&D expenses decreased 7.8% to ¥208.1 billion, mainly due to the impact of foreign exchange rates. The ratio of R&D expenses to sales fell 0.6 of a percentage point to 15.9%. Amortisation of intangible assets was ¥35.8 billion, down 15.5% year on year. SG&A Expenses, R&D Expenses and Amortisation of Intangible Assets Note: Sales by geographical area are calculated according to the location of sellers. Americas•EMEA (Foreign Currency) Americas (US$ million) EMEA (€ million) 2016.3 2017.3 3,788 2,484 3,805 2,785 SG&A expenses SG&A ratio (%) Advertising and sales promotional expenses Personnel expenses Other R&D expenses R&D ratio (%) Cost of Sales and Gross Profit Amortisation of intangible assets Cost of sales decreased 4.5% to ¥320.5 billion. The cost of sales ratio stood at 24.4%, mostly unchanged from the previous fiscal year. Gross profit decreased by 4.4% to ¥991.2 billion in line with the decrease in sales. Cost of Sales and Gross Profit Sales Cost of sales Cost of sales ratio (%) Gross profit Gross profit ratio (%) (¥ billion) 2016.3 2017.3 1,372.7 335.6 24.4 1,037.1 75.6 1,311.7 320.5 24.4 991.2 75.6 (¥ billion) 2016.3 2017.3 500.4 36.5 169.1 186.1 145.1 225.7 16.4 42.4 470.8 35.9 144.1 177.0 149.7 208.1 15.9 35.8 86 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Operating Profit (Core Basis) Profit for the Year (Core Basis) As a result of the above mentioned factors, core operating profit increased 2.7% to ¥274.6 billion. The operating margin increased 1.4 percentage points to 20.9%. Core profit for the year increased by 7.3% to ¥213.3 billion. Basic core earnings per share increased by 9.8% year on year to ¥101.15. Operating Profit (Core Basis) Profit for the Year (Core Basis) Sales Operating profit Operating margin (%) (¥ billion) 2016.3 2017.3 1,372.7 267.5 19.5 1,311.7 274.6 20.9 (¥ billion) 2016.3 2017.3 Profit before tax Income tax expense Profit for the year Ratio of profit for the year to sales (%) 268.6 69.8 198.8 14.5 274.9 61.6 213.3 16.3 (¥ billion) Reconciliation of Full Basis to Core Basis Account item Sales Cost of sales Gross profit SG&A expenses R&D expenses Amortisation of intangible assets Share of losses of associates and joint ventures Other income*1 Other expense*1 Operating profit Finance income*2 Finance expense*2 Profit before tax Income tax expense Profit for the year 2016.3 2017.3 Full basis Adjustment Core basis Full basis Adjustment Core basis 1,372.7 335.6 1,037.1 500.4 225.7 42.4 (1.2) 1.7 20.2 249.0 14.4 1.6 261.8 68.1 193.7 — — — — — — — (1.7) (20.2) 18.5 (12.3) (0.6) 6.8 1.7 5.1 1,372.7 335.6 1,037.1 500.4 225.7 42.4 (1.2) — — 267.5 2.1 1.0 268.6 69.8 198.8 1,311.7 320.5 991.2 470.8 208.1 35.8 (1.9) 9.6 23.3 260.8 22.9 2.0 281.8 63.1 218.7 — — — — — — — (9.6) (23.3) 13.7 (21.3) (0.7) (6.9) (1.5) (5.4) 1,311.7 320.5 991.2 470.8 208.1 35.8 (1.9) — — 274.6 1.7 1.3 274.9 61.6 213.3 *1 “Other income” and “other expense” are excluded from full basis results. “Other income” and “other expense” include gain (loss) on sale and disposal of property, plant and equipment, impairment losses for other intangible assets, loss on restructuring and foreign exchange gains (losses), etc. *2 Gain (loss) on sale of available-for-sale (AFS) financial assets and impairment losses on AFS financial assets included in “finance income” and “finance expense” are excluded from core results as non-core items. 87 Financial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Consolidated Financial Results (Full Basis) Average exchange rate (US$) (€) Consolidated Financial Results (Full Basis) In its consolidated operating results on a full basis for fiscal 2016, Astellas posted a decrease in sales and increases in operating profit, profit before tax and profit for the year. The full basis financial results include “other income” (including net foreign exchange gains), “other expense” (including impairment losses, loss on sales of property, plant and equipment, restructuring costs, and net foreign exchange losses), and gain on sales of available-for-sale financial assets (included in “finance income”) which are excluded from the core basis financial results. “Other income” for FY2016 was ¥9.6 billion (¥1.7 billion in the previous fiscal year). “Other expense” for FY2016 was ¥23.3 billion (¥20.2 billion in the previous fiscal year). Gain on sales of available-for-sale financial assets for FY2016 was ¥21.3 billion (¥12.3 billion in the previous fiscal year). Sales Operating profit Profit before tax Profit for the year (¥ billion) 2016.3 2017.3 1,372.7 1,311.7 249.0 261.8 193.7 260.8 281.8 218.7 Business Combinations Astellas is investing proactively to capture new business opportunities and working to create innovation, as we are enhancing our capabilities to deliver innovative medicines. As part of these efforts, Astellas acquired 100% of the equity in Ganymed Pharmaceuticals AG (“Ganymed”), a biopharmaceutical company in Germany, for €422 million in December 2016 to further enhance its oncology franchise. In addition, Ganymed shareholders will become eligible to receive up to €860 million in further contingent payments based on progress in the development of IMAB362, Ganymed’s clinical program. Moreover, in May 2017, Astellas acquired 100% of the equity in Ogeda SA (“Ogeda”), a drug discovery company in Belgium, for €0.5 billion to further expand its pipeline. Ogeda shareholders will be eligible to receive up to €0.3 billion in further contingent payments based on progress in the development of fezolinetant, Ogeda’s clinical program. P57 Reference R&D Topics during the Year Consolidated Forecasts for the Year Ending March 31, 2018 (Fiscal 2017) (Announced in April 2017) Consolidated business forecasts for fiscal 2017 are presented on a core basis in the table below. Fiscal 2017 Forecasts (Core Basis) Sales Operating profit Profit for the year 2017.3 1,311.7 274.6 213.3 (¥ billion) 2018.3 (Forecast) 1,279.0 254.0 195.0 (¥) 2017.3 2018.3 (Forecast) 108 119 110 120 We project decreases in sales, core operating profit and core profit for the year, compared with fiscal 2016. In fiscal 2017, we expect negative impacts on sales and profits from the transfer of the global dermatology business implemented in April 2016, and the transfer of long-listed products in Japan for which an agreement was concluded in March 2017. Excluding the factors associated with these business transfers and the impact of foreign exchange rates, core operating profit is projected to increase year on year. We assume the yen will weaken against the U.S. dollar and the euro compared with fiscal 2016. Accordingly, we expect foreign exchange factors to have a ¥10.8 billion positive impact on sales and a ¥1.3 billion positive impact on core operating profit. Sales In fiscal 2017, we forecast a 2.5% year-on-year decrease in sales to ¥1,279.0 billion. Negative impacts due to the transfer of the dermatology business and the transfer of long-listed products in Japan are anticipated, although continuous sales growth is expected for our core products XTANDI and the OAB treatments Vesicare and Betanis/ Myrbetriq/BETMIGA. Sales of Micardis (including Micombi and Micamlo) are also expected to decrease following the expiry of its patent period in Japan in January 2017. Reference Review of Operations by Therapeutic Area P43 88 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Forecast by Region Forecast by Region Sales in Japan are forecast to decrease 11.2% year on year to ¥426.9 billion. Of these, sales in the Japanese market are forecast to decrease 13.6% to ¥391.0 billion. 2017.3 (¥ billion) 2018.3 (Forecast) In addition to sales of XTANDI and the OAB treatments Consolidated 1,311.7 1,279.0 Vesicare and Betanis, sales of mainstay products such as Suglat and Symbicort are anticipated to continue to grow. However, sales in the Japanese market are projected to decrease mainly based on the expiry of the patent period for Micardis (including Micombi and Micamlo) and the impact of the transfer of long-listed products in Japan. Sales in the Americas are forecast to increase 4.4% to ¥430.7 billion on a yen basis and to increase 2.9% year on year to US$3,915 million on a U.S. dollar basis. Although sales of XTANDI in the U.S. are expected to remain mostly unchanged, XTANDI sales are projected to increase in the Americas as a whole, driven by sales growth outside the U.S. In addition, sales of the OAB treatments VESIcare and Myrbetriq, as well as CRESEMBA, are projected to increase. On the other hand, sales of the candin-type antifungal agent MYCAMINE are projected to decrease. Sales in EMEA are forecast to decrease 3.5% to ¥319.3 billion on a yen basis and to decrease 4.4% year on year to €2,661 million on a euro basis. However, excluding the impact of the transfer of the dermatology business, sales are expected to increase from fiscal 2016. Sales of XTANDI and the OAB treatments Vesicare and BETMIGA are expected to increase. Meanwhile, sales of MYCAMINE are projected to decrease. Sales in Asia & Oceania are forecast to increase 16.4% year on year to ¥102.1 billion. Besides sales of XTANDI, sales of products such as the OAB treatments Vesicare and BETMIGA, as well as MYCAMINE, are expected to continue increasing. In addition, sales of Prograf and Harnal are anticipated to increase. Japan Americas EMEA Asia & Oceania 480.8 412.4 330.8 87.7 426.9 430.7 319.3 102.1 Note: Sales by geographical area are calculated according to the location of sellers. Americas•EMEA (Foreign Currency) Americas (US$ million) EMEA (€ million) 2017.3 2018.3 (Forecast) 3,805 2,785 3,915 2,661 Operating Profit and Profit for the Year (Core Basis) Although the cost of sales ratio is expected to fall as a result of changes in the product mix and other factors, gross profit is anticipated to decrease owing to a decrease in sales. Looking at SG&A expenses, although the ratio of SG&A expenses to sales is expected to increase, SG&A expenses are expected to remain mostly unchanged from fiscal 2016 mainly based on continuing efforts to streamline expenses. We project a 4.7% increase in R&D expenses to ¥218.0 billion, mainly based on investment in late-stage development programs and the development expenses of the acquired companies. The ratio of R&D expenses to sales is projected at 17.0% (compared with 15.9% in fiscal 2016). As a result, we forecast a 7.5% decrease in core operating profit to ¥254.0 billion. However, excluding the negative impact on profit from the transfer of the dermatology business, the transfer of long-listed products and foreign exchange rates, we expect core operating profit to increase from fiscal 2016. Core profit for the year is expected to decrease 8.6% year on year to ¥195.0 billion. Basic core earnings per share is projected to decrease 6.6% year on year to ¥94.43. 89 Financial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Sales of Main Products by Region Japan EMEA 2016.3 2017.3 (¥ billion) 2018.3 (Forecast) 2016.3 2017.3 (€ million) 2018.3 (Forecast) Sales in the Japanese market*1 483.0 452.7 391.0 XTANDI Vesicare Betanis Harnal Prograf Funguard Micardis Micombi Micamlo Celecox Symbicort Bonoteo Geninax Vaccines ARGAMATE Gonax Cimzia Suglat Lipitor Myslee Gaster*2 Seroquel Americas 26.2 26.5 21.2 12.7 49.8 11.7 97.2 10.1 26.0 46.6 37.4 14.1 10.8 41.1 6.2 3.9 6.6 7.3 30.9 17.9 14.7 10.5 23.4 25.6 25.9 9.2 48.8 11.2 93.2 9.4 26.2 47.6 39.3 13.8 10.1 34.5 5.8 4.5 7.7 9.5 23.2 14.7 10.7 7.5 25.8 24.5 31.9 6.9 48.5 11.3 52.2 48.3 41.3 13.3 10.2 28.9 5.9 4.8 9.3 12.8 18.0 13.0 5.5 2016.3 2017.3 3,788 1,272 1,235 3,805 1,286 1,215 37 389 281 108 530 380 288 634 109 91 22 71 325 238 87 490 510 252 660 113 97 53 (US$ million) 2018.3 (Forecast) 3,915 1,304 1,212 92 478 618 256 657 88 96 77 Sales in the Americas XTANDI US Outside of the US Tarceva US Outside of the US VESIcare Myrbetriq Prograf Scan*3 MYCAMINE AmBisome CRESEMBA Sales in EMEA 2,484 2,785 2,661 XTANDI Eligard Vesicare BETMIGA Omnic Sales by Astellas Bulk and royalties Prograf and Advagraf Sales by Astellas Advagraf Exports to third parties MYCAMINE Asia & Oceania Sales in Asia & Oceania Prograf Harnal Vesicare BETMIGA MYCAMINE XTANDI Eligard 533 131 300 101 139 116 23 609 588 234 21 85 718 132 270 119 138 118 19 612 590 252 22 91 846 143 261 147 140 124 15 588 572 16 70 2016.3 2017.3 (¥ billion) 2018.3 (Forecast) 91.1 38.4 21.5 5.3 1.4 5.7 2.4 0.2 87.7 37.3 21.1 5.0 3.5 6.0 4.0 0.2 102.1 39.6 23.4 5.8 5.2 6.8 7.0 0.4 *1 Sales of products in Japan are shown on a gross sales basis. *2 Products covered by the Asset Purchase Agreement entered into with LTL Pharma Co., Ltd. in March 2017 *3 Sales of Adenoscan and Lexiscan 90 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Current assets decreased ¥20.9 billion to ¥876.7 billion at the fiscal year-end. Cash and cash equivalents were ¥340.9 billion, down ¥19.1 billion from the previous fiscal year-end. Equity Total equity as of March 31, 2017 was ¥1,271.8 billion, an increase of ¥12.6 billion from a year earlier. While profit for the year stood at ¥218.7 billion, Astellas paid ¥70.1 billion in dividends of surplus and acquired ¥92.2 billion in treasury shares. We cancelled treasury shares worth ¥110.2 billion (68 million shares) in June 2016. Liabilities Total liabilities as of March 31, 2017 amounted to ¥549.1 billion, up ¥9.0 billion from a year earlier. Total non-current liabilities rose ¥22.5 billion to ¥149.2 billion. Current liabilities decreased ¥13.5 billion to ¥399.9 billion. Liquidity and Financing Astellas is strengthening its global business foundations with a focus on the strategic initiatives of “Maximizing the Product Value,” “Creating Innovation,” and “Pursuing Operational Excellence.” In addition, Astellas will actively introduce new products and otherwise pursue strategic business investment opportunities to further reinforce its product lineup. In regard to the liquidity of funds, liquidity is maintained to enable Astellas to target a certain amount of strategic investment opportunities, while also supplying working capital and funding capital expenditures. As outlined in the section on business risks, Astellas’ operations face a varied set of risks that are particular to the ethical pharmaceutical business. The Group’s financial policy is to maintain a healthy balance sheet at all times so that it can finance smoothly at low costs, particularly in the event that funding requirements exceed Astellas’ internal funding capacity in the course of developing business. Number of Employees As of March 31, 2017, Astellas employed 17,202 people worldwide, a year-on-year decrease of 15. The total number of Medical Representatives (MRs) was approximately 5,750. In Japan, the number of employees was 7,029, down 27 from the previous fiscal year-end. In the Americas, the regional head count was 3,016 employees, down 46 from the previous fiscal year-end. In EMEA, we had 4,672 employees, down 54 year on year. In Asia & Oceania, we had 2,485 employees, up 112 from the previous fiscal year-end. Number of Employees by Region Total Japan Americas EMEA Asia & Oceania Number of MRs Total (Global) (persons) 2016.3 2017.3 17,217 17,202 7,056 3,062 4,726 2,373 7,029 3,016 4,672 2,485 (persons) 2016.3 2017.3 6,000 5,750 Assets, Liabilities and Equity An overview of the consolidated statement of financial position as of March 31, 2017 and the main changes from the end of the previous fiscal year are shown below. Assets Total assets as of March 31, 2017 amounted to ¥1,820.9 billion, up ¥21.6 billion from a year earlier. Non-current assets increased ¥42.4 billion to ¥944.2 billion at the fiscal year-end. Goodwill and other intangible assets increased ¥22.9 billion and ¥84.5 billion, respectively, due to the completion of the acquisition of Ganymed Pharmaceuticals AG of Germany in fiscal 2016. As a result, goodwill was ¥175.3 billion, up ¥22.2 billion from the previous fiscal year-end, and other intangible assets were ¥387.4 billion, up ¥51.2 billion from the previous fiscal year-end. 91 Financial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Cash Flows Net cash flows from operating activities amounted to ¥235.6 billion, a decrease of ¥78.1 billion in year-on-year terms. The main components included income tax paid of ¥72.0 billion. Cash Flows from Investing Activities Net cash flows used in investing activities totaled ¥73.4 billion, down ¥73.7 billion from the previous fiscal year. Looking at the main outflows, acquisition of subsidiaries used cash of ¥50.9 billion due to the acquisition of Ganymed, purchases of property, plant and equipment used cash of ¥29.0 billion, and purchases of intangible assets used cash of ¥19.6 billion. On the other hand, proceeds from sales of available-for-sale financial assets provided cash of ¥28.6 billion. Cash Flows from Financing Activities Net cash flows used in financing activities totaled ¥166.2 billion, down ¥27.3 billion from the previous fiscal year. Dividends paid to owners of the parent totaled ¥70.1 billion, an increase in outflow of ¥0.5 billion year on year. Other outflows included ¥92.2 billion used for the acquisition of Astellas’ own shares. As a result of the above, the balance of cash and cash equivalents as of March 31, 2017 amounted to ¥340.9 billion, a decrease of ¥19.1 billion compared with the previous fiscal year-end. Capital Expenditures Astellas made capital expenditures with the aim of augmenting and renewing its research facilities and equipment as well as production facilities and equipment. Capital expenditures in fiscal 2016 totaled ¥23.9 billion, down 29.8% year on year (accrual basis). Earnings per Share, Dividends and Equity Attributable to Owners of the Parent Per Share Data Earnings per share Basic Diluted Basic (core basis) Dividends Equity per share attributable to owners of the parent 2016.3 2017.3 (¥) 89.75 89.62 92.12 32.00 592.58 103.69 103.55 101.15 34.00 615.89 Policy on Shareholder Returns Astellas is working to boost shareholder returns through sustained growth in enterprise value. While prioritizing the reinvestment of funds in the business to foster growth, Astellas strives to achieve stable and sustained growth in dividends, based on medium- to long-term consolidated earnings growth and taking dividend on equity attributable to owners of the parent (DOE) into consideration. Furthermore, Astellas will flexibly purchase treasury stock as necessary to improve capital efficiency and the level of returns to shareholders. Common Stock Common Stock (thousands of shares) 2016.3 2017.3 Total number of issued shares* 2,221,823 2,153,823 Treasury shares* 96,844 88,817 Treasury Shares Number of shares bought back* 2016.3 2017.3 68,000 thousand 60,000 thousand Acquisition cost ¥119.3 billion ¥91.4 billion In fiscal 2017, capital expenditures are forecast to Cancellation of treasury shares* 38,000 thousand 68,000 thousand increase 4.6% to ¥25.0 billion. * Excludes purchases of shares constituting less than a trading unit As a part of profit distribution to its shareholders and as measures of its capital policy, Astellas implemented acquisition of its own shares from the stock market, purchasing 60 million shares, worth ¥91.4 billion, during the fiscal year ended March 31, 2017. Furthermore, we cancelled 85 million shares of treasury stock in May 2017. 92 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 While the Astellas Group strives to ensure that its actions do not infringe the IP rights of other parties, there is a risk of litigation in the event of any inadvertent violations. Such litigation could also impact the Astellas Group’s business results significantly. Risks Relating to Product Side Effects and Safety Any problems arising due to serious side effects or other safety issues that are caused by the Astellas Group’s products could impact the Astellas Group’s business results significantly. Environment-Related Risks The Astellas Group is careful to observe laws and regulations relating to environmental or health and safety issues and has instituted internal standards that aim to exceed most statutory requirements. Despite such precautions, the costs involved in the unlikely event of a business-related incident causing a serious breach of compliance in this area could impact the Astellas Group’s business results significantly. Foreign Exchange Rate Fluctuations The Astellas Group’s business results and financial position are subject to the impact of exchange rate fluctuations due to the Astellas Group’s extensive international operations. In addition to the risks outlined above, the Astellas Group is exposed to a wide range of business-related risks, including but not limited to (1) general commercial litigation, (2) delays or suspension of manufacturing activities due to natural disasters or other factors, and (3) partial dependence on licensing or sales agreements relating to pharmaceuticals developed by other companies. ROE and DOE Return on equity (ROE) was 17.3%, up 2.3 percentage points from fiscal 2015. DOE was 5.6%, up 0.2 of a percentage point from fiscal 2015. Business Risks The main risks that could significantly impact the business results and financial position of the Astellas Group are outlined below. Inherent Uncertainties in Pharmaceutical R&D In general, the probability of discovering a promising compound through drug discovery research is not high. Further, it takes a large amount of investments and a great deal of time to successfully launch a new product after discovery of a new compound. However, it may be necessary to discontinue clinical development if the effectiveness of a drug is not proven as initially expected, or if safety issues arise. In addition, pharmaceuticals are subject to legal restrictions in each country, so that authorization from local regulatory authorities is a prerequisite for a product launch in each country. It is difficult to accurately foresee if and when approvals for new products can be obtained. The Astellas Group’s R&D activities are subject to these inherent risks. Sales-Related Risk The pharmaceutical industry operates in a highly competitive environment characterized by rapid technological innovation. The Astellas Group faces fierce competition from drug makers and generics manufacturers based in Japan or overseas. The launch of competitive products by rivals could impact the Astellas Group’s business results significantly. Intellectual Property (IP) Risk The Astellas Group’s ethical pharmaceuticals business benefits from the protection of many patents. Although the Astellas Group manages IP rights properly and is vigilant against third-party violation of such rights, the adverse impact on the Astellas Group’s business results of actual IP violations may still be substantial. The Astellas Group’s business results are also subject to the outcome of litigation undertaken by the Astellas Group to protect patents where infringement has occurred. 93 Financial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Consolidated Financial Statements Consolidated Statement of Income Astellas Pharma Inc. and Subsidiaries For the year ended 31 March 2017 Sales Cost of sales Gross profit Selling, general and administrative expenses Research and development expenses Amortisation of intangible assets Share of losses of associates and joint ventures Other income Other expense Operating profit Finance income Finance expense Profit before tax Income tax expense Profit for the year Profit attributable to: Owners of the parent Earnings per share Basic Diluted (Millions of yen) (Millions of U.S. dollars) Note 6 2016 2017 2017 ¥1,372,706 ¥1,311,665 $11,711 (335,596) 1,037,110 (500,359) (225,665) (42,387) (1,243) 1,689 (20,159) 248,986 14,411 (1,627) 261,770 (68,083) (320,503) 991,162 (470,777) (208,129) (35,837) (1,864) 9,594 (23,318) 260,830 22,916 (1,976) 281,769 (63,069) (2,862) 8,850 (4,203) (1,858) (320) (17) 86 (208) 2,329 205 (18) 2,516 (563) ¥ 193,687 ¥ 218,701 $ 1,953 ¥ 193,687 ¥ 218,701 $ 1,953 (Yen) (U.S. dollars) ¥ 89.75 ¥ 103.69 89.62 103.55 $ 0.93 0.92 17 7 8 10 11 12 13 13 Consolidated Statement of Comprehensive Income Astellas Pharma Inc. and Subsidiaries For the year ended 31 March 2017 (Millions of yen) (Millions of U.S. dollars) Note 2016 2017 2017 ¥193,687 ¥218,701 $1,953 Profit for the year Other comprehensive income Items that will not be reclassified subsequently to profit or loss Remeasurements of defined benefit plans Subtotal Items that may be reclassified subsequently to profit or loss Foreign currency translation adjustments Fair value movements on available-for-sale financial assets 14 14 Subtotal Other comprehensive income, net of tax Total comprehensive income Total comprehensive income attributable to: Owners of the parent (6,276) (6,276) (45,172) (11,358) (56,529) (62,806) ¥130,881 2,962 2,962 (32,544) (14,474) (47,018) (44,056) ¥174,644 26 26 (291) (129) (420) (393) $1,559 ¥130,881 ¥174,644 $1,559 94 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Consolidated Statement of Financial Position Astellas Pharma Inc. and Subsidiaries As of 31 March 2017 (Millions of yen) (Millions of U.S. dollars) Note 2016 2017 2017 Assets Non-current assets Property, plant and equipment Goodwill Other intangible assets Trade and other receivables Investments in associates and joint ventures Deferred tax assets Other financial assets Other non-current assets Total non-current assets Current assets Inventories Trade and other receivables Income tax receivable Other financial assets Other current assets Cash and cash equivalents Subtotal Assets held for sale Total current assets 15 16 17 22 18 19 20 21 22 19 20 23 24 ¥ 200,955 ¥ 191,115 153,121 336,261 24,103 2,435 80,733 89,424 14,769 175,350 387,419 22,263 2,988 90,349 61,597 13,154 $ 1,706 1,566 3,459 199 27 807 550 117 901,801 944,235 8,431 161,691 327,599 16,403 14,394 17,221 360,030 897,337 200 897,537 182,537 309,817 10,986 13,554 18,849 340,923 876,665 — 876,665 1,630 2,766 98 121 168 3,044 7,827 — 7,827 Total assets ¥1,799,338 ¥1,820,901 $16,258 95 Financial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Equity and liabilities Equity Share capital Capital surplus Treasury shares Retained earnings Other components of equity Total equity attributable to owners of the parent Total equity Liabilities Non-current liabilities Trade and other payables Deferred tax liabilities Retirement benefit liabilities Provisions Other financial liabilities Other non-current liabilities Total non-current liabilities Current liabilities Trade and other payables Income tax payable Provisions Other financial liabilities Other current liabilities Total current liabilities Total liabilities 25 25 25 25 32 18 28 29 30 31 32 29 30 31 (Millions of yen) (Millions of U.S. dollars) Note 2016 2017 2017 ¥ 103,001 ¥ 103,001 $ 920 176,903 (157,111) 973,054 163,363 1,259,209 1,259,209 177,091 (138,207) 1,013,923 116,002 1,271,810 1,271,810 149,235 1,332 1,599 — 39,797 7,083 722 77,569 126,769 181,559 19,312 89,858 1,505 121,126 413,359 540,129 440 25,343 36,614 4,921 28,389 53,528 182,826 10,900 96,589 2,992 106,548 399,856 549,091 Total equity and liabilities ¥1,799,338 ¥1,820,901 1,581 (1,234) 9,053 1,036 11,355 11,355 4 226 327 44 253 478 1,632 97 862 27 951 3,570 4,903 $16,258 96 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Consolidated Statement of Changes in Equity Astellas Pharma Inc. and Subsidiaries For the year ended 31 March 2017 (Millions of yen) Equity attributable to owners of the parent Note Share capital Capital surplus Treasury shares Retained earnings Subscription rights to shares Other components of equity Foreign currency translation adjustments Fair value movements on available-for-sale financial assets Remeasurements of defined benefit plans Total Total Total equity ¥103,001 ¥176,822 ¥ (86,997) ¥ 905,083 ¥2,241 ¥177,306 ¥40,461 ¥ — ¥220,007 ¥1,317,916 ¥1,317,916 As of 1 April 2015 Comprehensive income Profit for the year Other comprehensive income Total comprehensive income Transactions with owners of the parent Acquisition of treasury shares Disposals of treasury shares Cancellation of treasury shares Dividends Share-based payments Transfers Total transactions with owners of the parent As of 31 March 2016 Comprehensive income Profit for the year Other comprehensive income Total comprehensive income Transactions with owners of the parent Acquisition of treasury shares Disposals of treasury shares Cancellation of treasury shares Dividends Share-based payments Transfers Total transactions with owners of the parent 25 25 25 26 27 25 25 25 26 27 103,001 176,903 (157,111) 973,054 2,126 132,134 29,103 — — — — — — — — — — — — — — — — — 81 — 81 — — — (120,127) 436 49,577 — — — 193,687 — 193,687 — (248) (49,577) (69,615) — (6,276) — — — — (187) — — 73 — (70,114) (125,717) (115) — — — — — — — — — — — — — — (78) — — 266 — 188 — — — 218,701 — 218,701 (92,193) 877 — (456) 110,219 (110,219) — — — (70,119) — 2,962 — — — — (342) — — — — 18,903 (177,831) (342) — (45,172) (45,172) — (11,358) (11,358) — (6,276) (6,276) — 193,687 193,687 (62,806) (62,806) (62,806) (62,806) 130,881 130,881 — — — — — — — — — — — — — — — — — — — — — 6,276 6,276 — — — (120,127) (120,127) (187) — — 73 6,276 1 — 1 — (69,615) (69,615) 154 — 154 — 6,161 (189,588) (189,588) 163,363 1,259,209 1,259,209 — 218,701 218,701 (32,544) (14,474) (32,544) (14,474) 2,962 2,962 (44,056) (44,056) (44,056) (44,056) 174,644 174,644 — — — — — — — — — — — — — — — — — — — — (92,193) (92,193) (342) — — — 1 — 1 — (70,119) (70,119) 266 — 266 — (2,962) (2,962) (2,962) (3,304) (162,044) (162,044) As of 31 March 2017 ¥103,001 ¥177,091 ¥(138,207) ¥1,013,923 ¥1,784 ¥ 99,590 ¥14,629 ¥ — ¥116,002 ¥1,271,810 ¥1,271,810 (Millions of U.S. dollars) Equity attributable to owners of the parent Note Share capital Capital surplus Treasury shares Retained earnings Subscription rights to shares Other components of equity Foreign currency translation adjustments Fair value movements on available-for-sale financial assets Remeasurements of defined benefit plans Total Total Total equity As of 31 March 2016 Comprehensive income Profit for the year Other comprehensive income Total comprehensive income Transactions with owners of the parent Acquisition of treasury shares Disposals of treasury shares Cancellation of treasury shares Dividends Share-based payments Transfers Total transactions with owners of the parent 25 25 25 26 27 $920 $1,579 $(1,403) $8,688 $19 $1,180 $260 $ — $1,459 $11,243 $11,243 — — — — — — — — — — — — — — (1) — — 2 — 2 — — — (823) 8 984 — — — 1,953 — 1,953 — (4) (984) (626) — 26 169 (1,588) — — — — (3) — — — — (3) — (291) (291) — (129) (129) — — — — — — — — — — — — — — — 26 26 — — — — — (26) (26) — (393) (393) — (3) — — — (26) (30) 1,953 (393) 1,559 1,953 (393) 1,559 (823) (823) 0 — 0 — (626) (626) 2 — 2 — (1,447) (1,447) As of 31 March 2017 $920 $1,581 $(1,234) $9,053 $16 $ 889 $131 $ — $1,036 $11,355 $11,355 97 Financial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Consolidated Statement of Cash Flows Astellas Pharma Inc. and Subsidiaries For the year ended 31 March 2017 Cash flows from operating activities Profit before tax Depreciation and amortisation Impairment losses and reversal of impairment losses Finance income and expense (Increase) decrease in inventories (Increase) decrease in trade and other receivables Increase (decrease) in trade and other payables Other Cash generated from operations Income tax paid Net cash flows from operating activities Cash flows from investing activities Purchases of property, plant and equipment Proceeds from sales of property, plant and equipment Purchases of intangible assets Purchases of available-for-sale financial assets Proceeds from sales of available-for-sale financial assets Acquisition of subsidiaries, net of cash acquired Interest and dividends received Other Net cash flows used in investing activities Cash flows from financing activities Acquisition of treasury shares Dividends paid to owners of the parent Other Net cash flows used in financing activities Effect of exchange rate changes on cash and cash equivalents Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year (Millions of yen) (Millions of U.S. dollars) Note 2016 2017 2017 ¥261,770 ¥281,769 $2,516 69,188 9,310 (12,784) (11,873) (15,649) (32,391) 136,578 404,149 (90,412) 313,737 (33,512) 1,753 (84,605) (749) 16,747 (42,653) 2,797 (6,827) (147,050) (120,127) (69,615) (3,736) (193,478) (9,609) (36,401) 396,430 ¥360,030 63,791 16,340 (20,940) (26,644) 5,057 15,651 (27,409) 307,616 (72,004) 235,612 (29,010) 1,262 (19,638) (484) 28,642 (50,915) 1,618 (4,858) (73,383) (92,193) (70,119) (3,841) (166,153) (15,183) (19,107) 360,030 ¥340,923 37 25 26 23 23 570 146 (187) (238) 45 140 (245) 2,747 (643) 2,104 (259) 11 (175) (4) 256 (455) 14 (43) (655) (823) (626) (34) (1,484) (136) (171) 3,215 $3,044 98 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Notes to Consolidated Financial Statements Astellas Pharma Inc. and Subsidiaries For the year ended 31 March 2017 ■ 1. Reporting Entity Astellas Pharma Inc. and its subsidiaries (collectively, Company are publicly traded on the Tokyo Stock the “Group”) are engaged in the manufacture and sales Exchange (First Section). of pharmaceutical products. The parent company of the The Group’s consolidated financial statements for Group, Astellas Pharma Inc. (the “Company”), is the year ended 31 March 2017 were authorised for incorporated in Japan, and the registered address of issue on 19 June 2017 by Yoshihiko Hatanaka, headquarters and principal business offices are Representative Director, President and Chief Executive available on the Company’s website Officer, and Chikashi Takeda, Corporate Executive and (https://www.astellas.com/en/). Also, shares of the Chief Financial Officer. ■ 2. Basis of Preparation (1) Compliance with IFRS also presented in U.S. dollars by translating Japanese The consolidated financial statements of the Group have yen amounts at the exchange rate of ¥112 to U.S. $1, been prepared in accordance with International the approximate rate of exchange at the end of 31 Financial Reporting Standards (“IFRS”) issued by the March 2017. Such translations should not be construed International Accounting Standards Board. as representations that the Japanese yen amounts could be converted into U.S. dollars at the above or any (2) Basis of measurement other rate. The Group’s consolidated financial statements have been prepared on a historical cost basis, except for financial instruments measured at fair value. (4) New or amended IFRS standards and interpretations not yet adopted The following is a list of new or amended IFRS (3) Presentation currency standards and interpretations that the Group has not The Group’s consolidated financial statements are adopted among those issued by the date of the approval presented in Japanese yen, which is also the of the Group’s consolidated financial statements. Also, Company’s functional currency, and figures are rounded the effects on the Group due to the application of the to the nearest million yen, except as otherwise standards or interpretations listed below are still under indicated. consideration and cannot be estimated at this time. For the convenience of readers outside Japan, the accompanying consolidated financial statements are Effective date (fiscal years The Group’s application date Summaries of new or amended IFRS IFRSs beginning on or after) (fiscal year ending) standards and interpretations 1 January 2018 31 March 2019 measurement of financial assets and financial Amendments related to classification and IFRS 9 Financial Instruments Revenue from IFRS 15 Contracts with 1 January 2018 31 March 2019 Customers IFRS 16 Leases 1 January 2019 31 March 2020 99 liabilities, impairment, and hedge accounting Comprehensive framework for revenue recognition Amendments related to accounting treatment for leases ■ 3. Significant Accounting Policies The significant accounting policies of the Group set forth interest in the joint venture using the equity method below are applied continuously to all periods indicated in in the same way as associates. the consolidated financial statements. (1) Basis of consolidation (i) Subsidiaries (2) Business combinations Business combinations are accounted for using the acquisition method. Subsidiaries are entities controlled by the Group. The The consideration transferred is measured at fair Group controls an entity when the Group has power value and calculated as the aggregate of the fair values over the entity, is exposed to, or has rights, to variable of the assets transferred, liabilities assumed, and the returns from its involvement with the entity, and has the equity interests issued by the Group. The consideration ability to affect those returns through its power over the transferred also includes any assets or liabilities entity. Subsidiaries are fully consolidated from the date resulting from a contingent consideration arrangement. on which control is transferred to the Group, and they The identifiable assets acquired, the liabilities and are deconsolidated from the date on which the Group contingent liabilities assumed that meet the recognition loses control. All intragroup assets and liabilities, transactions and unrealised gains or losses arising from intragroup transactions are eliminated on consolidation. (ii) Associates principles of IFRS 3 “Business Combinations” are measured at their acquisition-date fair values, except: Deferred tax assets or liabilities, liabilities (or assets, if any) related to employee benefits, and liabilities related to share-based payment transactions are Associates are entities over which the Group has recognised and measured in accordance with IAS 12 significant influence on their financial and operating “Income Taxes”, IAS 19 “Employee Benefits”, and policies but does not have control or joint control. If the IFRS 2 “Share-based Payment”, respectively; and Group owns between 20% and 50% of the voting power Non-current assets and disposal groups classified as of an entity, it is presumed that the Group has significant held for sale are measured in accordance with IFRS influence over the entity. The Group accounts for 5 “Non-current Assets Held for Sale and investments in associates using the equity method. (iii) Joint arrangements A joint arrangement is an arrangement in which the Group has joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the activities that significantly affect the returns of the arrangement Discontinued Operations”. The excess of the aggregate of the consideration transferred and the amount recognised for non- controlling interest in the acquiree over the acquisition- date fair value of the identifiable net assets acquired is recorded as goodwill. If the excess is negative, then a gain from a bargain purchase is immediately recognised require the unanimous consent of the parties sharing in profit or loss. control. Joint arrangements in which the Group has an interest are classified and accounted for as follows: Joint operation—when the Group has rights to the assets and obligations for the liabilities relating to an arrangement, it accounts for each of its assets, liabilities, revenue and expenses, in relation to its interest in the joint operation. Joint venture—when the Group has rights only to the net assets of the arrangement, it accounts for its Acquisition-related costs incurred in connection with business combinations, such as finder’s fees and advisory fees, are expensed when incurred. (3) Foreign currency translation (i) Functional and presentation currency The financial statements of an entity of the Group are prepared using the functional currency of the entity. The consolidated financial statements of the Group are 100 presented in Japanese yen, which is the functional delivery of goods to customers. Sales discounts, currency of the Company. (ii) Transactions in foreign currencies charge-backs and other rebates are recognised as accounts payable, provisions or as deductions from Foreign currency transactions are translated into the functional currency using the exchange rates prevailing accounts receivable. (ii) Royalty income at the dates of the transactions or an approximation of Some of the Group’s revenues are generated from the the rate. agreements under which third parties have been At the end of each reporting period, monetary assets granted rights to produce or market products or rights to and liabilities denominated in foreign currencies are use technologies. Royalty income is recognised on an translated into the functional currency using the accrual basis in accordance with the substance of the exchange rates at the closing date and exchange relevant agreement. Revenue associated with milestone differences arising from translation are recognised in agreements is recognised upon achievement of the profit or loss. (iii) Foreign operations milestones defined in the respective agreements. Upfront payments and license fees received for Assets and liabilities of foreign operations are translated agreements where the rights or obligations still exist are into Japanese yen using the exchange rate at the end of initially recognised as deferred income and then fiscal year. Income and expenses are translated into recognised in income as earned over the period of the Japanese yen using the average exchange rate for the development collaboration or the manufacturing period. obligation. Exchange differences arising on translating the financial statements of foreign operations are (5) Research and development expenses recognised in other comprehensive income. On the Expenditure on research and development of an internal disposal of the interest in a foreign operation, the project is fully expensed as “Research and development cumulative amount of the exchange differences is expenses” in the consolidated statement of income reclassified to profit or loss. when incurred. (4) Sales (i) Sale of goods Internally generated development expenses are recognised as an intangible asset only if the capitalisation criteria under IAS 38 are satisfied. Sales are measured at the fair value of the Therefore, internal expenditure incurred for ongoing consideration received or receivable, less discounts, internal development projects is not capitalised until charge-backs and other rebates, excluding sales taxes marketing approval is obtained from the regulatory and value added taxes. Also, the Group recognises the authorities in a major market, which is considered the sales amount of transactions in which the Group is time at which the criteria of capitalisation under IAS 38 acting as an agent on a net basis. are met. Revenue from the sale of goods is recognised when In addition to the Group’s internal research and all of the following conditions have been satisfied, development activities, the Group has entered into namely, the significant risks and rewards of ownership research and development collaboration agreements of the goods have been transferred to the buyers, the with some alliance partners. The expenses and income Group retains neither continuing managerial associated with the settlement of the expenditure involvement nor effective control over the goods sold, it incurred for the research and development collaboration is probable that the economic benefits will flow to the activities are accounted for as research and Group, and the amount of revenue and costs associated development expenses on an accrual basis in the same with the transaction can be reliably measured. way as research and development expenses incurred Therefore, revenue is usually recognised at the time of within the Group. 101 (6) Finance income and finance expense difference and it is probable that the temporary Finance income mainly comprises interest income, difference will not reverse in the foreseeable future. dividend income, and gain on sales of financial Deferred tax assets are recognised to the extent that instruments. Interest income is recognised using the it is probable that taxable profits will be available against effective interest method. Dividend income is recognised which deductible temporary differences, unused tax when the right to receive payment is established. losses, and unused tax credits can be utilised. Financial expenses mainly comprise interest Deferred tax assets and deferred tax liabilities are expense, fees, loss on sales of financial instruments, measured at the tax rates that are expected to apply to and impairment losses for financial assets. the period when the asset is realised or the liability is (7) Income tax settled, based on tax rates and tax laws that have been enacted or substantively enacted by the end of the fiscal Income tax expense is comprised of current and year. deferred taxes, and recognised in profit or loss, except Deferred tax assets and deferred tax liabilities are for taxes related to business combinations and to items offset if the Group has a legally enforceable right to that are recognised in other comprehensive income or offset current tax assets against current tax liabilities, directly in equity. and they are related to income taxes levied by the same Current taxes are calculated at the amount expected taxation authority on either the same taxable entity or to be paid to or recovered from the taxation authority by different taxable entities which intend to settle current applying the statutory tax rate and tax laws enacted or tax assets and current tax liabilities on a net basis. substantially enacted at the end of the fiscal year. Deferred tax assets and deferred tax liabilities are (8) Earnings per share recognised for temporary differences between the Basic earnings per share are calculated by dividing carrying amounts of certain assets or liabilities in the profit for the year attributable to owners of the parent by consolidated statement of financial position and their tax the weighted-average number of ordinary shares base. However, deferred tax assets and liabilities are outstanding during the year, adjusting treasury shares. not recognised for: taxable temporary differences arising from the initial recognition of goodwill. For the purpose of calculating diluted earnings per share, profit for the year attributable to owners of the parent and the weighted average number of shares taxable or deductible temporary differences arising outstanding, adjusting treasury shares, is calculated for from the initial recognition of assets and liabilities in the effects of all dilutive potential ordinary shares. a transaction other than a business combination that affects neither accounting profit nor taxable profit (9) Property, plant and equipment (tax loss). Property, plant and equipment is measured by using the deductible temporary differences associated with cost model and is stated at cost less accumulated investments in subsidiaries, associates and interests depreciation and accumulated impairment losses. The in joint arrangements when it is not probable that the cost of items of property, plant and equipment includes temporary difference will reverse in the foreseeable costs directly attributable to the acquisition and the initial future or there will not be sufficient taxable profits estimate of costs of dismantling and removing the items against which the deductible temporary differences and restoring the site on which they are located. can be utilised. Costs incurred after initial recognition are recognised taxable temporary differences associated with as an asset, as appropriate, only when it is probable that investments in subsidiaries, associates, and interests future economic benefits associated with the asset will in joint arrangements when the Group is able to flow to the Group and its cost can be reliably measured. control the timing of the reversal of the temporary Costs of day-to-day servicing for items of property, plant 102 and equipment, such as repairs and maintenance, arrangement at the date of commencement of the lease. expensed when incurred. The substance of the arrangement is determined based When an item of property, plant and equipment has on the following factors: a significant component, such component is accounted (a) whether the fulfillment of the arrangement is for as a separate item of property, plant and equipment. dependent on the use of a specific asset or assets Depreciation of an asset begins when it is available for and, use. The depreciable amount of items of property, plant (b) whether the arrangement conveys a right to use the and equipment is depreciated on a straight-line basis asset. over the estimated useful lives of each component. The depreciable amount of an asset is determined by (11) Goodwill deducting its residual value from its cost. Measurement of goodwill on initial recognition is described in “(2) Business combinations”. After initial The estimated useful lives of major classes of property, recognition, goodwill is carried at cost less any plant and equipment are as follows: accumulated impairment losses. Buildings and structures Machinery and vehicles Tools, furniture and fixtures 2 to 60 years 2 to 20 years 2 to 20 years The useful lives, residual values, and depreciation methods of property, plant and equipment are reviewed at the end of fiscal year, and changed, if any. (10) Leases Leases are classified as finance leases whenever substantially all the risks and rewards incidental to Impairment of goodwill is described in “(13) Impairment of property, plant and equipment, goodwill, and other intangible assets”. (12) Other intangible assets Other intangible assets are identifiable non-monetary assets without physical substance, other than goodwill, including patents and technologies, marketing rights, and in-process research and development (IPR&D) acquired in a business combination or acquired ownership of an asset are transferred to the Group. All separately. other leases are classified as operating leases. Under finance lease transactions, leased assets and lease obligations are initially recognised at the lower of the fair value of the leased property or the present value of the minimum lease payments, each determined at the inception of the lease. Leased assets are depreciated on a straight-line basis over the shorter of their estimated useful lives or lease terms. Minimum lease payments made under finance leases are allocated to finance expense and the repayment amount of the lease obligations. The finance expense is allocated to each period during the lease term so as to produce a constant periodic rate of interest on the remaining balance of liabilities. Under operating lease transactions, lease payments are recognised as an expense on a straight-line basis over the lease term. Other intangible assets acquired separately are measured at cost upon initial recognition, and those acquired in a business combination are measured at fair value at the acquisition date. After initial recognition, the Group applies the cost model and other intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Other intangible assets are amortised over their estimated useful lives (2-25 years) on a straight-line basis beginning at the time when they are available for use. Amortisation of other intangible assets acquired through business combinations or through the in- licensing of products or technologies is presented in the consolidated statement of income under “Amortisation of intangible assets”. The estimated useful life of other intangible assets is the shorter of the period of legal protection or its economic life, and it is also regularly The Group determines whether an arrangement is, reviewed. or contains a lease, based on the substance of the Among rights related to products or research and 103 development through the in-licensing of products or The recoverable amount is the higher of fair value technologies or acquired through business less costs of disposal and value in use. In measuring the combinations, those that are still in the research and value in use, the estimated future cash flows are development stage or have not yet obtained marketing discounted to the present value using a discount rate approval from the regulatory authorities are recognised that reflects the time value of money and the risks under “Other intangible assets” as IPR&D. specific to the asset. The discount rate used for Subsequent expenditure, including initial upfront and calculating the recoverable amount is set at a rate milestone payments to the third parties, on an acquired appropriate to each geographical area of operations. IPR&D is capitalised if, and only if, it is probable that the If the recoverable amount of an asset or a cash- expected future economic benefits that are attributable generating unit is less than its carrying amount, the to the asset will flow to the Group and the asset is carrying amount of the asset or the cash-generating unit identifiable. An intangible asset recognised as IPR&D is not amortised because it is not yet available for use, but is reduced to its recoverable amount, and the reduction is recognised in profit or loss as an impairment loss. (ii) Impairment of goodwill instead, it is tested for impairment whenever there is an Goodwill is allocated to each of the cash-generating indication of impairment or at least on an annual basis units, or groups of cash-generating units, that is irrespective of whether there is any indication. expected to benefit from the synergies of the business Once marketing approval from the regulatory combination, and it is tested for impairment annually and authorities is obtained and the asset is available for use, whenever there is an indication that the cash-generating IPR&D is transferred to “Patents and technologies” or unit may be impaired. If, at the time of the impairment “Marketing rights” and amortisation begins from that test, the recoverable amount of a cash-generating unit is time on a straight-line basis over its useful life. less than its carrying amount, the carrying amount of the cash-generating unit is reduced to its recoverable (13) Impairment of property, plant and amount, and the reduction is recognised in profit or loss equipment, goodwill, and other intangible assets (i) Impairment of property, plant and equipment and other intangible assets as an impairment loss. Impairment loss is allocated to reduce the carrying amount of any goodwill allocated to the cash-generating unit or group of cash-generating units and then to the At the end of each quarter, the Group assesses whether other assets on a pro rata basis of the carrying amount there is any indication that its property, plant and of each asset in the cash-generating unit or group of equipment and other intangible assets may be impaired. If there is an indication of impairment, the cash-generating units. (iii) Reversal of impairment loss recoverable amount of the asset is estimated. Other At the end of each quarter, the Group assesses whether intangible assets not yet available for use or with there is any indication that an impairment loss indefinite useful lives are tested for impairment annually recognised in prior years for other intangible assets may irrespective of whether there is any indication of no longer exist or may have decreased. If such impairment. indication exists, the recoverable amount of the asset or When it is not possible to estimate the recoverable the cash-generating unit is estimated. If the recoverable amount of an individual asset, the Group estimates the amount of the asset or the cash-generating unit is recoverable amount of the cash-generating unit to which greater than its carrying amount, a reversal of an the asset belongs. A cash-generating unit is the smallest impairment loss is recognised, to the extent the identifiable group of assets that generates cash inflows increased carrying amount does not exceed the lower of that are largely independent of the cash inflows from the recoverable amount or the carrying amount (net of other assets or groups of assets. depreciation or amortisation) that would have been 104 determined had no impairment loss been recognised in investments are measured at amortised cost using the prior years. effective interest method, less any impairment loss. Any impairment loss recognised for goodwill is not Interest income using the effective interest method is reversed in a subsequent period. (14) Financial instruments (i) Initial recognition recognised in profit or loss. (c) Loans and receivables Non-derivative financial assets with fixed or determinable payments not quoted in an active market Financial assets and financial liabilities are recognised are classified as loans and receivables. on the trade date when the Group becomes a party to Subsequent to initial recognition, loans and the contractual provisions of the instrument. receivables are measured at amortised cost using the Financial assets and financial liabilities are effective interest method, less any impairment loss. measured at fair value at initial recognition. Transaction Amortisation incurred under the effective interest costs directly attributable to the acquisition of financial method is recognised in profit or loss. assets or issuance of financial liabilities, other than (d) Available-for-sale financial assets financial assets measured at fair value through profit or Non-derivative financial assets designated as available- loss (“financial assets at FVTPL”) and financial liabilities for-sale financial assets or not classified as FVTPL, measured at fair value through profit or loss (“financial held-to-maturity investments or loans and receivables liabilities at FVTPL”), are added to the fair value of the are classified as available-for-sale financial assets. financial assets or deducted from the fair value of Subsequent to initial recognition, available-for-sale financial liabilities on initial recognition. financial assets are measured at fair value, and any gain Transaction costs directly attributable to the or loss resulting from changes in fair value is recognised acquisition of financial assets at FVTPL and financial in other comprehensive income. Dividends on available- liabilities at FVTPL are recognised in profit or loss. (ii) Non-derivative financial assets for-sale financial assets are recognised in profit or loss. When available-for-sale financial assets are Non-derivative financial assets are classified into derecognised or determined to be impaired, the “financial assets at FVTPL”, “held-to-maturity cumulative gain or loss that had been recognised in investments”, “loans and receivables” and “available-for- other comprehensive income is reclassified to profit or sale financial assets”. The classification is determined based on the nature and purpose of the financial assets loss. (iii) Impairment of financial assets other than FVTPL at the time of initial recognition. (a) Financial assets at FVTPL Financial assets, other than those at FVTPL, are assessed for any objective evidence of impairment at The Group classifies financial assets as FVTPL when the end of each quarter. Financial assets are impaired the financial assets are either held for trading or when there is objective evidence of impairment as a designated as FVTPL at initial recognition. result of one or more events that occurred after the Financial assets at FVTPL are measured at fair initial recognition of the financial assets and these value, and any gain or loss resulting from changes in fair events have adversely affected the estimated future value, dividends, and interest income are recognised in cash flows of the financial assets that can be reliably profit or loss. estimated. (b) Held-to-maturity investments Non-derivative financial assets with fixed or determinable payments and fixed maturity dates that the Group has the positive intent and ability to hold to Objective evidence of impairment of financial assets includes: ・significant financial difficulty of the issuer or obligor; ・breach of contract, such as a default or delinquency in maturity are classified as held-to-maturity investments. interest or principal payments; Subsequent to initial recognition, held-to-maturity 105 ・probability that the borrower will enter bankruptcy or (v) Non-derivative financial liabilities other financial reorganisation; or Non-derivative financial liabilities are classified into ・disappearance of an active market for the financial “Financial liabilities at FVTPL” and “Financial liabilities assets. measured at amortised cost”. The classification is In the case of equity instruments classified as determined based on the nature and purpose of the available-for-sale, a significant or prolonged decline in financial liabilities at the time of initial recognition. the fair value of the equity instrument below its cost (a) Financial liabilities at FVTPL would be considered as objective evidence of The Group classifies financial liabilities as FVTPL when impairment. the financial liabilities are designated as FVTPL at initial The Group assesses the existence of objective recognition. evidence of impairment for loans and receivables and Financial liabilities at FVTPL are measured at fair held-to-maturity financial assets, individually for value, and any gain or loss resulting from changes in fair separately significant assets or collectively for assets value and interest expense are recognised in profit or with no individual significance. When there is objective loss. evidence of impairment on those financial assets, the (b) Financial liabilities measured at amortised cost difference between the asset’s carrying amount and the Non-derivative financial liabilities not classified as present value of estimated future cash flows discounted FVTPL are classified as financial liabilities measured at at the financial asset’s original effective interest rate is amortised cost. recognised in profit or loss as an impairment loss. Subsequent to initial recognition, financial liabilities The impairment loss for loans and receivables are measured at amortised cost are measured at amortised recognised through the allowance for doubtful accounts, and the carrying amount of a loan and receivable is cost using the effective interest method. (vi) Derecognition of financial liabilities written off against the allowance account when it is The Group derecognises financial liabilities when the subsequently considered uncollectible. When an event obligations of the financial liabilities are extinguished or occurring after the impairment was recognised causes when the obligations are discharged, cancelled, or the amount of the impairment loss to decrease, a reversal of the impairment loss is recognised in profit or expired. (vii) Derivatives loss. The Group is engaged in derivative transactions and When there is objective evidence that an available- mainly uses forward foreign exchange contracts to for-sale financial asset is impaired, the cumulative loss manage its exposure to risks from changes in foreign that had been recognised in other comprehensive exchange rates. income is transferred to profit or loss. Any subsequent Derivatives are initially recognised at fair value of the recovery in the fair value of impaired equity instruments date when the derivative contracts are entered into and classified as available-for-sale financial assets is are subsequently measured at their fair values at the recognised in other comprehensive income. (iv) Derecognition of financial assets end of each quarter. Changes in the fair value of derivatives are When the contractual rights with respect to the cash recognised in profit or loss, except for the following. If flows from a financial asset expire or the contractual the hedging relationship qualifies for hedge accounting, rights to receive the cash flows from a financial asset the gain or loss on the hedging instrument of cash flow have been transferred and substantially all the risks and hedges or hedges of a net investment in a foreign rewards of ownership of the financial asset are operation that are determined to be effective hedges are transferred, the Group derecognises the financial asset. recognised in other comprehensive income. The amounts that had been recognised in other comprehensive income for cash flow hedges and 106 hedges of a net investment in a foreign operation shall be reclassified from equity to profit or loss in the same (18) Equity (i) Ordinary shares period or periods during which the hedged items affect Proceeds from the issuance of ordinary shares by the profit or loss and on the disposal or partial disposal of Company are included in share capital and capital the foreign operation, respectively. surplus. Transaction costs of issuing ordinary shares Financial assets and financial liabilities arising from derivatives are classified as either financial assets at (net of tax) are deducted from capital surplus. (ii) Treasury shares FVTPL or financial liabilities at FVTPL. When the Company reacquires its own ordinary shares, the amount of the consideration paid including (15) Cash and cash equivalents transaction costs is deducted from equity. When the Cash and cash equivalents comprise cash on hand, Company sells treasury shares, the difference between demand deposits, and highly liquid short-term the carrying amount and the consideration received from investments with maturities of three months or less from the sale is recognised in equity. the date of acquisition which are subject to an insignificant risk of changes in value. (19) Share-based payment (16) Inventories The Group operates an equity-settled share-based payment plan and a cash-settled share-based payment Inventories are measured at the lower of cost and net realisable value. The cost of inventories includes costs plan as share-based payment plans. (i) Equity-settled share-based payment plan of purchase, costs of conversion and all other costs Under the equity-settled share-based payment plan, incurred in bringing the inventories to their present services received are measured at the fair value of the location and condition. Net realisable value is calculated equity instruments at the grant date, and are recognised as the estimated selling price in the ordinary course of as expenses from the grant date over the vesting period, business less the estimated costs of completion and estimated costs necessary to sell. Cost of inventories is with a corresponding increase in equity. (ii) Cash-settled share-based payment plan calculated mainly using the first-in, first-out (FIFO) Under the cash-settled share-based payment plan, method. (17) Assets held for sale services received are measured at the fair value of the liabilities incurred and recognised as expenses over the vesting period, with a corresponding increase in Non-current assets or disposal groups are classified as liabilities. Until the liabilities are settled, the fair value of “Assets held for sale” if their carrying amounts will be liabilities are remeasured at the end of each quarter and recovered principally through a sale transaction rather at the settlement date, with changes in fair value than through continuing use. To be classified as assets recognised in profit or loss. held for sale, the asset must be available for immediate sale in its present condition, and the sale must be highly probable. Specifically, management of the Group must (20) Employee benefits (i) Retirement benefits have a firm commitment to execute the plan to sell the The Group operates defined benefit and defined asset and the sale is expected to be completed within contribution retirement plans for its employees. one year from the date of classification, as a general (a) Defined benefit plans rule. Assets held for sale are measured at the lower of Net defined benefit assets or liabilities are calculated as their carrying amounts and fair values less costs to sell, the present value of the defined benefit obligation less and they are not depreciated or amortised while they are the fair value of plan assets and they are recognised in classified as held for sale. 107 the consolidated statement of financial position as assets or liabilities. The defined benefit obligation is calculated by using the projected unit credit method. obligations can be made. The present value of the defined benefit obligation is calculated by the expected future payments using (21) Provisions discount rate. The discount rate is determined by Provisions are recognised when the Group has present reference to market yield on high-quality corporate legal or constructive obligations as a result of past bonds having maturity terms consistent with the events, it is probable that outflows of resources estimated term of the related pension obligations. embodying economic benefits will be required to settle Service cost and net interest expense (income) on the obligations, and reliable estimates of the obligations the net defined benefit liabilities (assets) are recognised can be made. in profit or loss. When the effect of the time value of money is Actuarial gains and losses, the return on plan material, provisions are measured at the present value assets, excluding amounts included in net interest, and of the expenditures expected to be required to settle the any change in the effect of the asset ceiling are obligations. recognised immediately in other comprehensive income under “Remeasurements of defined benefit plans”, and (22) Government grants transferred from other components of equity to retained Government grants are recognised and measured at fair earnings immediately. (b) Defined contribution plans value, if there is reasonable assurance that the Group will comply with the conditions attached to them and that Contributions paid for defined contribution plans are the grants will be received. expensed in the period in which the employees provide Government grants that are intended to compensate the related service. (ii) Short-term employee benefits for specific costs are recognised as income in the period in which the Group recognises the corresponding Short-term employee benefits are expensed when the expenses. Government grants related to assets are related service is provided. Bonus accrual is recognised recognised as deferred income and then recognised in as a liability when the Group has present legal or profit over the expected useful life of the relevant asset constructive obligations resulting from past service on a regular basis. rendered by the employees and reliable estimates of the ■ 4. Significant Accounting Estimates, Judgments and Assumptions The preparation of the consolidated financial statements carrying amounts of assets and liabilities in the next requires management of the Group to make estimates, judgments and assumptions that affect the application of fiscal year are as follows: Impairment of property, plant and equipment, accounting policies and the reported amounts of assets, goodwill and other intangible assets (Notes 15, 16 liabilities, income, and expenses. and 17) Given their nature, actual results may differ from Provisions (Note 29) those estimates. Retirement benefits (Note 28) The estimates and underlying assumptions are Recoverability of deferred tax assets (Note 18) reviewed on an ongoing basis, and the effects resulting Income tax expense (Note 12) from revisions of accounting estimates are recognised in Financial instruments measured at fair value which the period in which the estimates are revised and in have no market price in active markets (Notes 33 future periods affected by the revision. and 37) Estimates and underlying assumptions representing a significant risk of causing a material adjustment to the 108 ■ 5. Segment Information The main activities of the Group are the manufacture and sale of pharmaceutical products, and there are no separate operating segments. Therefore, the Group has a single reporting segment, “Pharmaceutical”. Information about products and services Sales by type of product and service are as follows: XTANDI Prograf Vesicare Other Total Information about geographical areas Sales and non-current assets by geographical areas are as follows: Sales by geographical areas Japan Americas U.S.A. (included in Americas) EMEA Asia and Oceania Total (Millions of yen) 2016 2017 ¥ 252,075 ¥ 252,078 203,556 135,638 781,438 186,156 116,075 757,356 ¥1,372,706 ¥1,311,665 (Millions of yen) 2016 2017 ¥ 489,969 ¥ 464,082 452,697 429,518 334,572 95,467 412,625 388,539 343,401 91,558 ¥1,372,706 ¥1,311,665 (Note) Sales by geographical areas are categorised by country or areas based on the geographical location of customers. Non-current assets by geographical areas (Property, plant and equipment, goodwill and other intangible assets) Japan Americas U.S.A. (included in Americas) EMEA Asia and Oceania Total (Millions of yen) 2016 2017 ¥370,894 ¥356,907 281,063 280,831 34,505 3,874 253,277 252,943 139,544 4,155 ¥690,336 ¥753,883 (Note) Due to the completion of the purchase price allocation for the acquisition of Ocata Therapeutics, Inc. (The company name was changed to Astellas Institute for Regenerative Medicine in May 2016.), the Group retrospectively revised the corresponding balances in the above non-current assets by geographical areas table as of 31 March, 2016. For details, please refer to Note “37. Business Combinations”. 109 Information about major customers External customer that accounts for 10% or more of consolidated sales of the Group is as follows: McKesson Corporation ■ 6. Sales The breakdown of sales is as follows: Sales of pharmaceutical products Royalty income Other Total sales ■ 7. Other Income The breakdown of other income is as follows: Net foreign exchange gains Other Total other income Segment 2016 2017 Pharmaceutical ¥156,245 ¥150,184 (Millions of yen) (Millions of yen) 2016 2017 ¥1,314,247 ¥1,225,070 24,560 33,899 57,433 29,162 ¥1,372,706 ¥1,311,665 (Millions of yen) 2016 2017 ¥ － 1,689 ¥1,689 ¥6,946 2,649 ¥9,594 (Note) The amount of “Net foreign exchange gains” for the year ended 31 March 2017 includes foreign exchange losses resulting from forward foreign exchange contracts (¥10,285 million). 110 ■ 8. Other Expense The breakdown of other expense is as follows: Impairment losses for property, plant and equipment Impairment losses for other intangible assets Net foreign exchange losses Other Total other expense (Millions of yen) 2016 2017 ¥ 8,837 681 6,996 3,645 ¥ 7,877 10,188 － 5,253 ¥20,159 ¥23,318 (Note) 1. The main item of “Impairment losses for property, plant and equipment” for the year ended 31 March 2016 was due to the closure of the Kashima R&D Center (Osaka Prefecture). 2. “Impairment losses for property, plant and equipment” for the year ended 31 March 2017 mainly resulted from the recognition of impairment losses for buildings and certain other assets held by a U.S. subsidiary in connection with the sale of shares of this subsidiary to another company. 3. “Impairment losses for other intangible assets” for the year ended 31 March 2017 were principally due to an impairment loss on patents due to lower-than-expected profitability and to the discontinuation of development activities for projects. 4. The amount of “Net foreign exchange losses” for the year ended 31 March 2016 includes foreign exchange losses resulting from forward foreign exchange contracts (¥9,585 million). ■ 9. Employee Benefit Expenses The breakdown of employee benefit expenses is as follows: Rewards and salaries Bonuses Social security and welfare expenses Retirement benefit expenses—Defined contribution plan Retirement benefit expenses—Defined benefit plan Restructuring and termination benefits Other employee benefit expenses Total employee benefit expenses (Millions of yen) 2016 2017 ¥154,695 ¥143,538 58,069 32,290 14,934 6,611 3,792 2,684 56,341 30,600 14,243 6,804 8,064 2,821 ¥273,075 ¥262,411 (Note) Employee benefit expenses are included in “Cost of sales”, “Selling, general and administrative expenses”, “Research and development expenses” and “Other expense” in the consolidated statement of income. 111 ■ 10. Finance Income The breakdown of finance income is as follows: Interest income Cash and cash equivalents Other Dividend income Available-for-sale financial assets Gain on sales Available-for-sale financial assets Other Other Total finance income ■ 11. Finance Expense The breakdown of finance expense is as follows: Impairment losses Available-for-sale financial assets Other Total finance expense ■ 12. Income Tax Expense The breakdown of income tax expense recognised in profit or loss is as follows: Current income tax expense Deferred income tax expense Income tax expense reported in the consolidated statement of income (Millions of yen) 2016 2017 ¥ 785 ¥ 906 200 1,067 72 618 12,278 21,265 19 61 13 41 ¥14,411 ¥22,916 (Millions of yen) 2016 2017 ¥ 370 1,257 ¥1,627 ¥ 642 1,334 ¥1,976 (Millions of yen) 2016 2017 ¥ 85,402 (17,319) ¥ 68,083 ¥68,322 (5,253) ¥63,069 (Note) Deferred income tax expense increased by ¥1,627 million for the year ended 31 March 2016, due to the effect of changes in the tax rate in Japan. 112 Income tax recognised in other comprehensive income is as follows: 2016 Tax benefit (expense) Net of tax 2017 Tax benefit (expense) Net of tax Before tax Before tax (Millions of yen) Remeasurements of defined benefit plans ¥ (9,714) ¥ 3,437 ¥ (6,276) ¥ 4,211 ¥(1,249) ¥ 2,962 Foreign currency translation adjustments Fair value movements on (45,172) － (45,172) (32,544) － (32,544) available-for-sale financial assets (17,933) 6,575 (11,358) (20,931) 6,457 (14,474) Total other comprehensive income ¥(72,818) ¥10,012 ¥(62,806) ¥(49,264) ¥ 5,208 ¥(44,056) Reconciliation of effective tax rate The Company is subject mainly to corporate tax, were 32.8% and 30.7%, respectively. Foreign inhabitant tax, and enterprise tax on its income and the subsidiaries are subject to income taxes on their income effective statutory tax rates calculated based on those in their respective countries of domicile. taxes for the years ended 31 March 2016 and 2017 Effective statutory tax rate Tax credit for research and development expenses Non-deductible expenses Difference in tax rates applied to foreign subsidiaries Undistributed earnings of foreign subsidiaries Effect of change in tax rate in Japan Other Actual tax rate 2016 2017 32.8% (3.6) 2.5 (5.2) 0.9 0.6 (2.0) 26.0% 30.7% (1.7) 2.6 (7.8) 0.3 － (1.8) 22.4% 113 ■ 13. Earnings per Share The basis of calculation of basic earnings per share and diluted earnings per share is as follows: Basis of calculating basic earnings per share Profit attributable to owners of the parent Profit not attributable to ordinary shareholders of the parent Profit used to calculate basic earnings per share (Millions of yen, except as otherwise indicated) 2016 2017 ¥ 193,687 － ¥ 218,701 － 193,687 218,701 Weighted average number of shares during the year (Thousands of shares) 2,158,131 2,109,149 Basis of calculating diluted earnings per share Profit used to calculate basic earnings per share Adjustment Profit used to calculate diluted earnings per share ¥ 193,687 － ¥ 218,701 － 193,687 218,701 Weighted average number of shares during the year (Thousands of shares) 2,158,131 2,109,149 Subscription rights to shares (Thousands of shares) 3,175 2,830 Weighted average number of diluted ordinary shares during the year (Thousands of shares) 2,161,306 2,111,979 Earnings per share (attributable to owners of the parent): Basic (Yen) Diluted (Yen) ¥ 89.75 ¥ 103.69 89.62 103.55 ■ 14. Other Comprehensive Income Reclassification adjustments of other comprehensive income are as follows: Other comprehensive income that may be reclassified subsequently to profit or loss Foreign currency translation adjustments Amount arising during the year Reclassification adjustment Subtotal Fair value movements on available-for-sale financial assets Amount arising during the year Reclassification adjustment Subtotal Other comprehensive income that may be reclassified subsequently to profit or loss before tax effect Tax effect (Millions of yen) 2016 2017 ¥(45,172) － ¥(32,615) 71 (45,172) (32,544) (6,012) (11,920) (17,933) (94) (20,836) (20,931) (63,104) (53,475) 6,575 6,457 Other comprehensive income that may be reclassified subsequently to profit or loss, net of tax ¥(56,529) ¥(47,018) 114 ■ 15. Property, Plant and Equipment Movement of cost, accumulated depreciation and impairment losses for property, plant and equipment The movement of property, plant and equipment for the year ended 31 March 2016 is as follows: Buildings and structures Machinery and vehicles Tools, furniture and fixtures Land Construction in progress Total (Millions of yen) Cost Balance at 1 April 2015 ¥195,798 ¥ 150,128 ¥ 82,560 Acquisitions Business combinations Disposals Reclassification from 10,347 38 4,989 109 5,966 4 (1,038) (2,928) (7,767) ¥18,848 － － (704) ¥ 24,793 ¥ 472,127 12,725 － 34,027 151 (114) (12,550) construction in progress 10,541 6,827 685 398 (18,451) － Reclassification to assets held for sale Other (883) (3,638) (2,569) (2,506) Balance at 31 March 2016 211,164 154,051 Accumulated depreciation and accumulated impairment losses (1,527) (687) 79,235 (331) (188) － (829) (5,310) (7,849) 18,023 18,124 480,597 Balance at 1 April 2015 (80,771) (120,435) Depreciation Impairment losses (7,360) (8,412) (or reversal of impairment losses) (7,174) Disposals Reclassification to assets held for sale Other 817 883 1,188 (1,240) 2,591 2,394 1,742 (67,688) (5,180) 91 7,380 1,156 430 Balance at 31 March 2016 (92,416) (123,360) (63,811) Carrying amounts (306) － (305) 306 305 － － (58) － (269,258) (20,952) － － － 4 (8,629) 11,094 4,740 3,364 (54) (279,642) Balance at 1 April 2015 115,027 29,693 14,872 18,543 24,735 202,869 Balance at 31 March 2016 ¥118,748 ¥ 30,691 ¥ 15,423 ¥18,023 ¥ 18,069 ¥ 200,955 (Note) 1. The increase due to business combinations reflected the acquisition of Ocata Therapeutics, Inc. (The company name was changed to Astellas Institute for Regenerative Medicine in May 2016.) For details on this business combination, please refer to Note “37. Business Combinations”. 2. “Other” mainly includes exchange differences. 115 The movement of property, plant and equipment for the year ended 31 March 2017 is as follows: Buildings and structures Machinery and vehicles Tools, furniture and fixtures Land Construction in progress Total (Millions of yen) Cost Balance at 1 April 2016 ¥211,164 ¥ 154,051 ¥ 79,235 Acquisitions Business combinations Disposals Loss of control of subsidiaries Reclassification from construction in progress Other 2,599 － (1,302) (8,775) 3,228 (2,193) 2,712 258 (3,658) (8,696) 12,481 (2,456) 4,591 14 (5,383) (289) 1,083 (565) ¥18,023 － － (0) (144) － (116) ¥ 18,124 ¥ 480,597 14,001 － (65) (1,457) 23,903 272 (10,408) (19,360) (16,792) － (485) (5,816) Balance at 31 March 2017 204,722 154,692 78,687 17,762 13,325 469,188 Accumulated depreciation and accumulated impairment losses Balance at 1 April 2016 (92,416) (123,360) Depreciation Impairment losses (7,520) (8,753) (or reversal of impairment losses) (4,375) (2,030) Disposals Loss of control of subsidiaries Other 1,228 8,249 927 3,062 8,448 1,894 (63,811) (5,598) (46) 5,297 283 449 Balance at 31 March 2017 (93,907) (120,739) (63,427) Carrying amounts － － (54) － (279,642) (21,872) (128) (1,298) (7,877) － 128 － － 52 1,298 2 － 9,639 18,407 3,272 (278,073) Balance at 1 April 2016 118,748 30,691 15,423 18,023 18,069 200,955 Balance at 31 March 2017 ¥110,815 ¥ 33,953 ¥ 15,260 ¥17,762 ¥ 13,325 ¥ 191,115 (Note) 1. The increase due to business combinations reflected the acquisition of Ganymed Pharmaceuticals AG. For details on this business combination, please refer to Note “37. Business Combinations”. 2. “Other” mainly includes exchange differences. The Group recognised impairment losses (or reversal of Impairment losses (or reversal of impairment losses) impairment losses) of ¥8,629 million for the year ended of ¥7,877 million for the year ended 31 March 2017 31 March 2016 and ¥7,877 million for the year ended 31 mainly resulted from the transfer of a U.S. subsidiary to March 2017, and they are mainly included in “Other another company. The recoverable amount of the expense” in the consolidated statement of income. assets, including buildings, is deemed to be ¥944 Impairment losses (or reversal of impairment losses) million, calculated at fair value based on the price of ¥8,629 million for the year ended 31 March 2016 agreed upon for the transfer. mainly resulted from the closure of the Kashima R&D Center (Osaka Prefecture) owned by the Company. The assets, including buildings, are planned to be disposed of, and the recoverable amount is therefore deemed to be zero. 116 The carrying amounts of the assets held under finance leases included in “Property, plant and equipment” are as follows: Buildings and Machinery and Tools, furniture and structures vehicles fixtures Total (Millions of yen) Balance at 1 April 2015 Balance at 31 March 2016 Balance at 31 March 2017 ¥－ ¥－ ¥37 ¥－ ¥95 ¥ 6 ¥ 991 ¥1,133 ¥1,630 ¥ 991 ¥1,228 ¥1,672 ■ 16. Goodwill The movement of cost and accumulated impairment losses for goodwill is as follows: Balance at 1 April 2015 Business combinations Exchange differences Balance at 31 March 2016 Business combinations Exchange differences Balance at 31 March 2017 Accumulated Cost impairment losses Carrying amount (Millions of yen) ¥136,337 26,955 (10,171) 153,121 23,313 (1,084) ¥175,350 ¥－ － － － － － ¥－ ¥136,337 26,955 (10,171) 153,121 23,313 (1,084) ¥175,350 (Note) 1. The increase due to business combinations in the year ended 31 March 2016 reflected the acquisition of Ocata Therapeutics, Inc. (The company name was changed to the Astellas Institute for Regenerative Medicine in May 2016.) The movement in the year ended 31 March 2016 was retrospectively revised due to the completion of the purchase price allocation in the year ended 31 March 2017. For details on this business combination, please refer to Note “37. Business Combinations”. 2. The increase due to business combinations in the year ended 31 March 2017 reflected the acquisition of Ganymed Pharmaceuticals AG. For details on this business combination, please refer to Note “37. Business Combinations”. Goodwill recognised in the consolidated statement of The Group uses a weighted average cost of capital financial position mainly resulted from the acquisition of (WACC) determined for each geographical area as a OSI Pharmaceuticals, Inc. in 2010. discount rate. The after-tax WACC used for the The Group, in principle, regards the geographical impairment test is 8.0% and the pre-tax WACC 12.7%. business units, which are managed for internal reporting Also, a growth rate of 2.0% is reflected in calculating purposes, as cash-generating units. the terminal value after the three-year business plan. For the years ended 31 March 2016 and 2017, the The growth rate reflects the status of the country and majority of goodwill is mainly allocated to the Americas the industry to which the cash-generating unit belongs. cash-generating unit, and the carrying amounts of The value in use sufficiently exceeds the carrying goodwill were ¥153,121 million and ¥152,455 million, amount of the cash-generating unit. Therefore, even if respectively. For the impairment test, the value in use, the key assumptions used in the calculation of the value which is calculated based on the three-year business in use fluctuate within a reasonable range, the Group plan approved at the board of directors meeting, is used assumes that the possibility that the value in use will be as the recoverable amount. lower than the carrying amount is remote. 117 ■ 17. Other Intangible Assets Movement of cost, accumulated amortisation and impairment losses for other intangible assets The movement of other intangible assets for the year ended 31 March 2016 is as follows: Patents and Marketing technologies rights IPR&D Software Other Total (Millions of yen) Cost Balance at 1 April 2015 ¥ 315,401 ¥ 88,125 ¥ 98,693 ¥ 36,128 ¥ 396 ¥ 538,743 Acquisitions Business combinations Disposals Reclassification Other Balance at 31 March 2016 Accumulated amortisation and accumulated impairment losses 31,848 － － 5,926 (11,804) 341,371 15 － (30,288) － (770) 39,742 14,321 － (5,926) (954) 9,123 － (769) － (785) 57,081 145,876 43,697 2 － (7) － (72) 319 80,730 14,321 (31,064) － (14,386) 588,344 Balance at 1 April 2015 (140,655) (63,799) (15,593) (22,600) (253) (242,899) Amortisation Impairment losses Disposals Other (32,775) － － 7,237 (9,612) － 30,288 629 － (680) － 14 (5,825) － 664 829 (25) (1) 6 64 (48,236) (681) 30,959 8,774 Balance at 31 March 2016 (166,192) (42,493) (16,258) (26,931) (208) (252,083) Carrying amounts Balance at 1 April 2015 174,746 24,326 83,100 13,528 144 295,844 Balance at 31 March 2016 ¥ 175,179 ¥ 14,588 ¥129,617 ¥ 16,766 ¥ 111 ¥ 336,261 (Note) 1. The increase due to business combinations reflected the acquisition of Ocata Therapeutics, Inc. (The company name was changed to the Astellas Institute for Regenerative Medicine in May 2016.) The table above was retrospectively revised due to the completion of the purchase price allocation in the year ended 31 March 2017. For details on this business combination, please refer to Note “37. Business Combinations”. 2. “Other” mainly includes exchange differences. 118 The movement of other intangible assets for the year ended 31 March 2017 is as follows: Patents and Marketing technologies rights IPR&D Software Other Total (Millions of yen) Cost Balance at 1 April 2016 ¥ 341,371 ¥ 57,081 ¥145,876 ¥ 43,697 ¥ 319 ¥ 588,344 Acquisitions Business combinations Disposals Reclassification Other 163 1 － 7,728 (770) Balance at 31 March 2017 348,492 Accumulated amortisation and accumulated impairment losses 99 － (5,127) － (1,599) 50,454 10,416 86,020 － (7,728) (1,636) 7,400 11 (2,184) － (404) 1,550 － (3) － (23) 19,628 86,033 (7,314) － (4,433) 232,949 48,520 1,843 682,258 Balance at 1 April 2016 (166,192) (42,493) (16,258) (32,304) (3,533) － (26,931) (6,073) (208) (252,083) (9) (41,919) Amortisation Impairment losses (or reversal of impairment losses) Disposals Other (6,054) － (224) 1,725 3,402 1,459 (4,064) － 8 (70) 2,140 829 － 3 10 (8,463) 5,545 2,082 Balance at 31 March 2017 (204,775) (39,441) (20,315) (30,104) (204) (294,839) Carrying amounts Balance at 1 April 2016 175,179 14,588 129,617 16,766 111 336,261 Balance at 31 March 2017 ¥ 143,717 ¥ 11,013 ¥212,634 ¥ 18,416 ¥1,639 ¥ 387,419 (Note) 1. The increase due to business combinations mainly reflected the acquisition of Ganymed Pharmaceuticals AG. For details on this business combination, please refer to Note “37. Business Combinations”. 2. “Other” mainly includes exchange differences. Amortisation of other intangible assets related to the Impairment losses (or reversal of impairment losses) rights of product or research and development arising for other intangible assets are recognised in the from in-licensing agreements is recognised in the consolidated statement of income under “Other consolidated statement of income under “Amortisation of expense” and “Other income.” intangible assets”. 119 Impairment test and impairment losses for other intangible assets For the intangible assets other than goodwill, the Group For the year ended 31 March 2017, impairment assesses the necessity of impairment by individual losses (or reversal of impairment losses) recognised for asset. Also, intangible assets not yet being amortised other intangible assets were ¥8,463 million, and details are tested for impairment annually whether or not there of the main items are as follows: is any indication of impairment. For the impairment test, (1) The Company recognised an impairment loss of the value in use is mainly used as the recoverable ¥6,054 million, deeming the recoverable amount as amount. The discount rate is calculated based on the zero, due to lower-than-expected profitability of WACC, and the range of post-tax discount rate used for patents for products sold in Japan. The recoverable the calculation of the value in use is 6.0% to 9.0%, and amount was the value in use, calculated based on that of the pre-tax discount rate is 7.9% to 13.6%. discounted future cash flows. As a result of the impairment test, the Group (2) The Company recognised an impairment loss of recognised the following impairment losses for the years ¥4,000 million, deeming the recoverable amount as ended 31 March 2016 and 2017. zero, due to the exercise of its right to terminate its For the year ended 31 March 2016, impairment agreement with UMN Pharma Inc. and the losses recognised for other intangible assets were ¥681 discontinuation of development activities with respect million due to the discontinuation of development to IPR&Ds for ASP7374 and ASP7373, cell culture activities for IPR&Ds. Significant intangible assets based influenza vaccine programs that had been licensed from UMN Pharma Inc. Significant intangible assets recognised in the acquired through the license agreement with consolidated statement of financial position as of 31 Medivation, Inc., the rights related to the research and March 2016 are mainly composed of the rights related to development of YM311/roxadustat acquired through the the research and development of enzalutamide license agreement with FibroGen, Inc., and the rights (XTANDI) acquired through the license agreement with related to “Tarceva” resulting from the acquisition of OSI Medivation, Inc., the rights related to “Tarceva” resulting Pharmaceuticals, Inc. in 2010. The carrying amounts of from the acquisition of OSI Pharmaceuticals, Inc. in those intangible assets were ¥84,476 million, ¥67,231 2010 and the rights related to the research and million, ¥51,656 million, and ¥44,698 million, development of YM311/roxadustat acquired through the respectively. The carrying amount of the rights related to license agreement with FibroGen, Inc. The carrying IMAB362 resulting from the acquisition of Ganymed amounts of those intangible assets were ¥73,532 Pharmaceuticals AG reflects provisional fair value, as million, ¥65,003 million and ¥50,565 million, the allocation of the fair value of purchase consideration respectively. transferred had not been completed. For details, please Significant intangible assets recognised in the refer to Note “37. Business Combinations”. consolidated statement of financial position as of 31 For intangible assets already starting amortisation, March 2017 are mainly composed of the rights related to the remaining amortisation period was 3 to 13 years in IMAB362 resulting from the acquisition of Ganymed the year ended 31 March 2016 and 2 to 12 years in the Pharmaceuticals AG in 2016, the rights related to the year ended 31 March 2017. The intangible assets not research and development of enzalutamide (XTANDI) yet being amortised are tested for impairment annually. 120 ■ 18. Deferred Taxes The breakdown and movement of deferred tax assets and deferred tax liabilities are as follows: For the year ended 31 March 2016 Recognised in As of Recognised other 1 April in profit or comprehensive Business (Millions of yen) As of 31 March 2015 loss income combinations Other 2016 Available-for-sale financial assets ¥(17,423) ¥ (207) ¥ 6,575 Retirement benefit assets and liabilities Property, plant and equipment Intangible assets Accrued expenses Inventories Tax loss carry-forwards Other Total 6,993 1,324 (49,257) 29,059 49,272 3,554 27,641 77 1,042 4,608 (2,157) 3,321 (2,583) 13,217 3,437 － － － － － － ¥ － － (12) (4,577) － － 8,179 ¥ (12) ¥(11,067) (59) 152 10,448 2,506 1,687 (47,540) (1,110) (477) (513) 25,792 52,116 8,637 39,841 90 (1,108) ¥ 51,162 ¥17,319 ¥10,012 ¥ 3,679 ¥(1,439) ¥ 80,733 (Note) The increase in deferred tax assets and deferred tax liabilities due to business combinations reflected the acquisition of Ocata Therapeutics, Inc. (The company name was changed to Astellas Institute for Regenerative Medicine in May 2016.) The movement in the year ended 31 March 2016 was retrospectively revised due to the completion of the purchase price allocation in the year ended 31 March 2017. For details on this business combination, please refer to Note “37. Business Combinations”. For the year ended 31 March 2017 Recognised in As of Recognised other 1 April in profit or comprehensive Business (Millions of yen) As of 31 March 2016 loss income combinations Other 2017 Available-for-sale financial assets ¥(11,067) ¥ (263) ¥ 6,457 Retirement benefit assets and liabilities Property, plant and equipment Intangible assets Accrued expenses Inventories Tax loss carry-forwards Other Total 10,448 2,506 (47,540) 25,792 52,116 8,637 39,841 315 (1,249) (1,469) 2,881 (1,572) 3,843 (270) 1,788 － － － － － － ¥ － － － (25,806) － － － － ¥ 66 ¥ (4,807) (172) (40) 9,343 996 1,199 (69,266) (214) (736) (795) 310 24,007 55,223 7,572 41,939 ¥80,733 ¥ 5,253 ¥ 5,208 ¥(25,806) ¥ (382) ¥ 65,007 (Note) The increases in deferred tax assets and deferred tax liabilities due to business combinations reflected the acquisition of Ganymed Pharmaceuticals AG. For details on this business combination, please refer to Note “37. Business Combinations”. 121 Deductible temporary differences, tax loss carry-forwards, and unused tax credits for which no deferred tax asset is recognised are as follows: Deductible temporary differences Tax loss carry-forwards Unused tax credits Total (Millions of yen) 2016 2017 ¥33,600 6,330 1,877 ¥41,808 ¥31,527 27,036 2,182 ¥60,745 The expiration date and amount of tax loss carry-forwards for which no deferred tax asset is recognised are as follows: Year 1 Year 2 Year 3 Year 4 Year 5 or later Total ■ 19. Other Financial Assets The breakdown of other financial assets is as follows: Other financial assets (non-current) Financial assets at FVTPL Loans and other financial assets Allowance for doubtful accounts Available-for-sale financial assets Total other financial assets (non-current) Other financial assets (current) Financial assets at FVTPL Loans and other financial assets Total other financial assets (current) Total other financial assets (Millions of yen) 2016 2017 ¥ 180 ¥ 632 68 630 158 5,295 ¥6,330 62 378 471 25,493 ¥27,036 (Millions of yen) 2016 2017 ¥ 8,092 11,528 (52) 69,856 89,424 290 14,104 14,394 ¥103,818 ¥10,762 10,421 (14) 40,428 61,597 － 13,554 13,554 ¥75,151 122 ■ 20. Other Assets The breakdown of other assets is as follows: Other non-current assets Long-term prepaid expenses Retirement benefit assets Other Total other non-current assets Other current assets Prepaid expenses Other Total other current assets ■ 21. Inventories The breakdown of inventories is as follows: Raw materials and supplies Work in progress Merchandise and finished goods Total (Millions of yen) 2016 2017 ¥12,145 ¥10,063 1,784 840 14,769 10,213 7,008 ¥17,221 2,372 720 13,154 10,763 8,087 ¥18,849 (Millions of yen) 2016 2017 ¥ 28,165 ¥ 36,225 14,239 119,287 15,389 130,922 ¥161,691 ¥182,537 The carrying amounts of inventories are measured at The write-down of inventories recognised as an the lower of cost and net realisable value. expense for the years ended 31 March 2016 and 2017 The cost of inventories recognised as an expense in amounted to ¥3,912 million and ¥3,414 million, “Cost of sales” for the years ended 31 March 2016 and respectively. 2017 amounted to ¥288,841 million and ¥274,048 million, respectively. ■ 22. Trade and Other Receivables The breakdown of trade and other receivables is as follows: Notes and accounts receivable Other accounts receivable Allowance for doubtful accounts Total trade and other receivables Non-current assets Current assets 123 (Millions of yen) 2016 2017 ¥313,099 ¥297,094 41,423 (2,820) 351,702 24,103 44,792 (9,806) 332,080 22,263 ¥327,599 ¥309,817 ■ 23. Cash and Cash Equivalents The breakdown of cash and cash equivalents is as follows: Cash and deposits Short-term investments (cash equivalents) Cash and cash equivalents in the consolidated statement of financial position Cash and cash equivalents in the consolidated statement of cash flows ■ 24. Assets Held for Sale The breakdown of assets held for sale is as follows: Assets Property, plant and equipment Total (Millions of yen) 2016 2017 ¥346,879 ¥331,801 13,151 360,030 ¥360,030 9,122 340,923 ¥340,923 (Millions of yen) 2016 2017 ¥200 ¥200 ¥－ ¥－ ■ 25. Equity and Other Components of Equity (1) Share capital and capital surplus The movement of the number of issued shares and share capital is as follows: Number of Number of ordinary authorised shares issued shares Share capital Capital surplus (Thousands of shares) (Thousands of shares) (Millions of yen) (Millions of yen) 9,000,000 － － 9,000,000 － － 9,000,000 2,259,823 － (38,000) 2,221,823 － (68,000) 2,153,823 ¥103,001 － － 103,001 － － ¥103,001 ¥176,822 81 － 176,903 266 (78) ¥177,091 As of 1 April 2015 Increase Decrease As of 31 March 2016 Increase Decrease As of 31 March 2017 (Note) Decrease in the number of ordinary issued shares during the years ended 31 March 2016 and 2017 resulted from the cancellation of treasury shares. 124 (2) Treasury shares The movement of treasury shares is as follows: As of 1 April 2015 Increase Decrease As of 31 March 2016 Increase Decrease As of 31 March 2017 (3) Other components of equity Subscription rights to shares Number of shares Amount (Thousands of shares) (Millions of yen) 66,681 68,445 (38,282) 96,844 60,513 (68,540) 88,817 ¥ 86,997 120,127 (50,013) 157,111 92,193 (111,096) ¥ 138,207 The Company had adopted share option plans through the year ended 31 March 2015, and has issued subscription rights to shares under the former Commercial Code and the Companies Act of Japan. Contract conditions and amounts are described in Note “27. Share-based Payment”. Foreign currency translation adjustments This is a foreign currency translation difference that occurred when consolidating financial statements of foreign subsidiaries prepared in a foreign currency. Fair value movements on available-for-sale financial assets This is a valuation difference between the fair value and acquisition cost of available-for-sale financial assets, which are measured at fair values. ■ 26. Dividends For the year ended 31 March 2016 (1) Dividends paid Amount of Dividends dividends per share Resolution Class of shares (Millions of yen) (Yen) Record date Effective date Ordinary general meeting of Ordinary 31 March 18 June shareholders held on 17 June 2015 shares ¥35,090 ¥16.00 2015 2015 Board of directors meeting held on 30 October 2015 Ordinary shares 34,532 16.00 2015 2015 30 September 1 December (Note) The amount of dividends approved by resolution of the board of directors meeting on 30 October 2015 includes dividends of ¥7 million corresponding to the Company’s shares held in the executive compensation BIP trust. 125 (2) Dividends whose record date is in the fiscal year ended 31 March 2016 but whose effective date is in the following fiscal year are as follows: Amount of Dividends dividends per share Resolution Class of shares (Millions of yen) (Yen) Record date Effective date Ordinary general meeting of Ordinary 31 March shareholders held on 20 June 2016 shares ¥34,007 ¥16.00 2016 21 June 2016 (Note) The amount of dividends above includes dividends of ¥7 million corresponding to the Company’s shares held in the executive compensation BIP trust. For the year ended 31 March 2017 (1) Dividends paid Amount of Dividends dividends per share Resolution Class of shares (Millions of yen) (Yen) Record date Effective date Ordinary general meeting of Ordinary 31 March 21 June shareholders held on 20 June 2016 shares ¥34,007 ¥16.00 2016 2016 Board of directors meeting held on 28 October 2016 Ordinary shares 36,134 17.00 2016 2016 30 September 1 December (Note) 1.The amount of dividends approved by resolution of the board of directors meeting on 20 June 2016 includes dividends of ¥7 million corresponding to the Company’s shares held in the executive compensation BIP trust. 2.The amount of dividends approved by resolution of the board of directors meeting on 28 October 2016 includes dividends of ¥15 million corresponding to the Company’s shares held in the executive compensation BIP trust. (2) Dividends whose record date is in the fiscal year ended 31 March 2017 but whose effective date is in the following fiscal year are as follows: Amount of Dividends dividends per share Resolution Class of shares (Millions of yen) (Yen) Record date Effective date Ordinary general meeting of Ordinary 31 March 20 June shareholders held on 19 June 2017 shares ¥35,120 ¥17.00 2017 2017 (Note) The amount of dividends above includes dividends of ¥15 million corresponding to the Company’s shares held in the executive compensation BIP trust. 126 ■ 27. Share-based Payment (1) Share option plans (i) Outline of share option plans The Company had adopted share option plans through rights to shares to individuals approved at the the year ended 31 March 2015, and has granted share Company’s board of directors meeting. options to directors and corporate executives of the Holders of subscription rights to shares can exercise Company. The purpose of share option plans is to their share subscription rights only from the day improve the sensitivity to the share price and the following the date of resignation from their position as Group’s financial results and also increase the value of director or corporate executive of the Company. the Group by motivating the members to whom share Share options not exercised during the exercise options are granted. period defined in the allocation contract will be forfeited. After obtaining approval at the meeting of The Company accounts for those share option plans shareholders, share options are granted as subscription as equity-settled share-based payment transactions. (ii) Expenses recognised in the consolidated statement of income Total expenses recognised for share options granted (Millions of yen) 2016 2017 ¥73 ¥－ (iii) Movement of the number of share options outstanding and their weighted average exercise price 2016 2017 Weighted average Weighted average exercise price Number of exercise price Number of (Yen) shares (Yen) Outstanding, beginning of the period Granted Exercised Forfeited or expired Outstanding, end of the period Options exercisable, end of the period ¥1 － 1 － 1 ¥1 3,305,400 － (282,500) － 3,022,900 3,022,900 shares 3,022,900 － (491,400) － 2,531,500 2,531,500 ¥1 － 1 － 1 ¥1 (Note) 1. The number of share options is presented as the number of underlying shares. 2. The weighted average share prices of share options at the time of exercise during the years ended 31 March 2016 and 2017 are ¥1,675 and ¥1,525, respectively. 127 (iv) Expiration dates and exercise prices of share options outstanding at the end of the period Granted on August 2005 Granted on February 2007 Granted on August 2007 Granted on September 2008 Granted on July 2009 Granted on July 2010 Granted on July 2011 Granted on July 2012 Granted on July 2013 Granted on July 2014 Total Exercise price Number of shares Expiration per share date (Yen) 2016 2017 24 June 2025 27 June 2026 26 June 2027 24 June 2028 23 June 2029 23 June 2030 20 June 2031 20 June 2032 19 June 2033 18 June 2034 ¥1 1 1 1 1 1 1 1 1 1 − 46,000 123,500 169,500 173,000 348,500 489,000 557,500 557,500 331,500 226,900 46,000 56,500 121,500 129,000 263,500 396,000 485,000 498,000 318,500 217,500 3,022,900 2,531,500 (Note) There are vesting conditions in which share subscription rights are vested according to the service record over approximately one year from the grant date of the share option to the vesting date. (2) Performance-linked Stock Compensation Scheme (i) Outline of the Performance-linked Stock Compensation Scheme From the fiscal year ended 31 March 2016, the Group based on the level of attainment of the medium-term has introduced a Performance-linked Stock management targets. The Performance-linked Stock Compensation Scheme for directors and corporate Compensation Scheme under which the Company’s executives (excluding outside directors) for the purpose shares are delivered from the BIP Trust is accounted for of increasing their awareness of contributing to the as an equity-settled share-based payment transaction. sustainable growth in business results and corporate In addition, the Company will provide cash benefits value. determined based on stock price of the Company to The Scheme employs a framework referred to as the corporate executives residing overseas based on the executive compensation BIP (Board Incentive Plan) trust level of attainment of the medium-term management (hereinafter the “BIP Trust”) for directors and corporate targets. The Performance-linked Stock Compensation executives other than those residing overseas. Scheme that provides cash benefits from the Company The BIP Trust acquires the Company’s shares and is accounted for as a cash-settled share-based payment delivers those shares to directors and other executives transaction. (ii) Expenses recognised in the consolidated statement of income Total expenses recognised for the Performance-linked Stock Compensation Scheme (Millions of yen) 2016 2017 ¥88 ¥290 128 (iii) Measurement approach for the fair value of the Company’s shares granted during the fiscal year based on the Performance-linked Stock Compensation Scheme The weighted average fair value of the Company’s shares granted during the period is calculated based on the following assumptions. Share price at the grant date Vesting period (Note 1) Expected annual divided (Note 2) Discount rate (Note 3) Weighted average fair value (Note) 1. Refers to the number of years from the grant date until the shares are expected to be delivered. 2. Calculated based on the latest dividends paid. 3. Based on the yield on Japanese government bonds corresponding to the vesting period. 2016 2017 1,695.5 yen 1,603.5 yen 3 years 3 years 32 yen/share 0.0％ 34 yen/share (0.3)％ 1,600 yen 1,501 yen ■ 28. Retirement Benefits The Group, excluding a part of foreign subsidiaries, benefit plans offered, the defined benefit plan adopted in offers post-employment benefits such as defined benefit Japan is a major one, accounting for approximately 80% plans and defined contribution plans. Among the defined of the total defined benefit obligations. (i) Defined benefit plan adopted in Japan as post-employment benefit The Company and its domestic subsidiaries offer Contributions of the employer are made monthly and corporate pension plans and retirement lump-sum also determined as 4.0% of standard salary, which is payment plans as defined benefit plans. calculated based on the estimate of the points granted The benefits of the defined benefit plan are during a year to each participant. When the plan assets determined based on the base compensation calculated are lower than the minimum funding standard at the end by accumulated points earned by the time of retirement of the period, the employer will make additional and promised rate of return based on the yield of 10 contributions. year government bonds. Also, the option of receiving Defined benefit plans are exposed to actuarial risks. benefits in the form of a pension is available for plan The Astellas Corporate Pension Fund assigns staff with participants with 15 years or more enrollments. professional knowledge and expertise about the Defined benefit plans are administered by the composition of plan asset to determine the asset mix Astellas Corporate Pension Fund. Directors of the ratio and manages risks by monitoring on a quarterly pension fund are jointly liable for damages to the fund basis. due to their neglect of duties about management of the funds. (ii) Defined benefit plans of overseas subsidiaries as post-employment benefits Among foreign subsidiaries, ones located in the United Kingdom, Germany, Ireland, and some other countries offer defined benefit plans as post-employment benefits. 129 Assets and liabilities of defined benefit plans recognised in the consolidated statement of financial position are as follows: As of 31 March 2016 Pension and lump-sum payment Japan Overseas Total Other (Millions of yen) Present value of defined benefit obligations ¥ 125,717 ¥31,128 ¥ 156,845 Fair value of plan assets (111,799) (9,820) (121,620) Net defined benefit liability (asset) ¥ 13,918 ¥21,308 ¥ 35,226 ¥2,788 － ¥2,788 Amounts in the consolidated statement of financial position Assets (other non-current assets) Liabilities (retirement benefit liabilities) ¥ (1,784) 15,702 ¥ － 21,308 ¥ (1,784) 37,010 ¥ － 2,788 As of 31 March 2017 Pension and lump-sum payment Japan Overseas Total Other (Millions of yen) Present value of defined benefit obligations ¥ 123,118 ¥ 30,816 ¥ 153,934 ¥2,608 Fair value of plan assets (111,926) (10,374) (122,300) － Net defined benefit liability (asset) ¥ 11,192 ¥ 20,442 ¥ 31,634 ¥2,608 Amounts in the consolidated statement of financial position Assets (other non-current assets) ¥ (2,372) ¥ － ¥ (2,372) Liabilities (retirement benefit liabilities) 13,564 20,442 34,006 ¥ － 2,608 130 The movement of the present value of defined benefit obligations is as follows: Balance at 1 April 2015 Current service cost Interest cost Remeasurements of defined benefit obligations −actuarial (gains)/losses arising from changes in (Millions of yen) Pension and lump-sum payment Japan Overseas Total Other ¥117,128 ¥33,950 ¥151,078 ¥2,938 4,687 1,009 1,165 622 5,852 1,630 284 65 demographic assumptions 2,033 (180) 1,853 (3) −actuarial (gains)/losses arising from changes in financial assumptions −other Past service cost, and gains and losses arising from settlements Contributions to the plan by plan participants Payments from the plan Effect of changes in foreign exchange rates Balance at 31 March 2016 Current service cost Interest cost Remeasurements of defined benefit obligations −actuarial (gains)/losses arising from changes in 6,543 257 － － (5,940) － 125,717 5,110 558 (2,760) 217 (12) 83 (1,041) (916) 31,128 919 637 3,784 474 (12) 83 (6,981) (916) 156,845 6,029 1,195 (173) (31) － － (87) (204) 2,788 255 59 demographic assumptions (5) (360) (365) (6) −actuarial (gains)/losses arising from changes in financial assumptions −other Past service cost, and gains and losses arising from settlements Contributions to the plan by plan participants Payments from the plan Effect of changes in foreign exchange rates (1,722) (139) － － (6,400) － 850 271 (28) 72 (768) (1,905) (873) 131 (28) 72 (7,168) (1,905) 1 (100) － － (51) (337) Balance at 31 March 2017 ¥123,118 ¥30,816 ¥153,934 ¥2,608 131 The movement of fair value of plan assets is as follows: Balance at 1 April 2015 Interest income Remeasurements of the fair value of the plan assets (Millions of yen) Pension and lump-sum payment Japan Overseas Total Other ¥116,457 ¥10,044 ¥126,501 1,002 206 1,208 ¥－ － −return on plan assets (2,777) (510) (3,287) −actuarial losses arising from changes in financial assumptions Contributions to the plan −by employer −by plan participants Payments from the plan Effect of changes in foreign exchange rates Balance at 31 March 2016 Interest income Remeasurements of the fair value of the plan assets (487) (36) (523) 2,758 － (5,154) － 111,799 494 719 83 (394) (291) 9,820 211 3,477 83 (5,548) (291) 121,620 706 −return on plan assets 2,080 525 2,605 −actuarial gains/(losses) arising from changes in financial assumptions Contributions to the plan −by employer −by plan participants Payments from the plan Effect of changes in foreign exchange rates 411 (17) 394 2,756 － (5,614) － 648 63 (198) (679) 3,404 63 (5,812) (679) － － － － － － － － － － － － － － Balance at 31 March 2017 ¥111,926 ¥10,374 ¥122,300 ¥－ The Group expects to contribute ¥3,653 million to its defined benefit plans in the fiscal year ending 31 March 2018. 132 The breakdown of the fair value of plan assets is as follows: Japan Equity Bonds Cash and other investments Total Overseas Equity Bonds Cash and other investments Total Total fair value of plan assets (i) Japanese plan assets (Millions of yen) 2016 2017 ¥ 22,508 ¥ 22,724 37,104 52,188 111,799 4,277 2,381 3,161 9,820 37,396 51,806 111,926 4,337 2,420 3,617 10,374 ¥121,620 ¥122,300 Equity comprises mainly investment trust funds and it is not active, and they are categorised as Level 2 within categorised as Level 2 within the fair value hierarchy. the fair value hierarchy. Cash and other investments The fair values of bonds are measured using quoted include alternative investments. prices for identical or similar assets in markets that are (ii) Overseas plan assets Equity is mainly composed of investments with quoted fair values of bonds are measured using quoted prices prices in active markets or with measured value using for identical or similar assets in markets that are not quoted prices for identical or similar assets in markets active, and they are categorised as Level 2 within the that are not active, and they are mainly categorised as fair value hierarchy. Cash and other investments include Level 1 or Level 2 within the fair value hierarchy. The alternative investments. Significant actuarial assumptions and sensitivity analysis for each significant actuarial assumption are as follows: Discount rate (%) Japan Overseas 2016 2017 0.4%-0.5% 0.6%-0.8% 1.5%-3.4% 1.8%-2.5% The impact of a 0.5% increase or decrease in the other assumptions are held constant. In practice, discount rate as significant actuarial assumption used changes in some of the assumptions may occur in a on the defined benefit obligations as of 31 March 2017 correlated manner. When calculating the sensitivity of would result in a ¥11,236 million decrease and ¥12,715 the defined benefit obligations, the same method has million increase, respectively, in the defined benefit been applied as calculating the defined benefit obligation. obligations recognised in the consolidated statement of The sensitivity analysis does not consider financial position. correlations between assumptions, assuming that all 133 The weighted-average duration of the defined benefit obligations is as follows: Japan Overseas 2016 2017 13.1 years 13.7 years 19.4 years 18.6 years ■ 29. Provisions The movement of provisions for the year ended 31 March 2016 is as follows: Trade-related Asset retirement provisions obligations Other Total ¥ 79,107 ¥1,946 ¥ 9,188 ¥ 90,241 (Millions of yen) Balance at 1 April 2015 Increase during the year Decrease due to intended use Reversal during the year Other Balance at 31 March 2016 Non-current Current Total provisions 79,850 (60,614) (10,889) (3,922) 83,531 4,582 78,949 ¥ 83,531 45 (35) － (8) 1,948 1,948 － ¥1,948 5,122 (1,512) (653) (683) 11,462 553 10,909 ¥11,462 The movement of provisions for the year ended 31 March 2017 is as follows: 85,016 (62,162) (11,542) (4,612) 96,941 7,083 89,858 ¥ 96,941 (Millions of yen) Trade-related Asset retirement provisions obligations Other Total ¥ 83,531 ¥1,948 ¥11,462 ¥ 96,941 81,742 (71,488) (2,429) 2,378 93,734 2,214 91,520 ¥ 93,734 7 (7) － (11) 1,938 1,938 － ¥1,938 3,648 (9,282) (634) 646 5,839 769 5,070 85,397 (80,777) (3,063) 3,013 101,511 4,921 96,589 ¥ 5,839 ¥101,511 Balance at 1 April 2016 Increase during the year Decrease due to intended use Reversal during the year Other Balance at 31 March 2017 Non-current Current Total provisions Details of provisions are as follows: (i) Trade-related provisions The Group recognises provisions for expenditures adjustments to customers, based on the conditions of expected to be incurred after the end of the period contracts and past experience. related to sales rebates, discounts, Medicare and The outflow of economic benefits is expected within Medicaid of the United States, and other price one year from the end of the reporting period. 134 (ii) Asset retirement obligations The Group recognises asset retirement obligations The outflow of economic benefits is expected after based on past performance in order to provide for the one year from the end of the reporting period. restoration of rented offices. ■ 30. Other Financial Liabilities The breakdown of other financial liabilities is as follows: Other financial liabilities (non-current) Financial liabilities at FVTPL Contingent consideration Financial liabilities measured at amortised cost Finance lease liabilities Total other financial liabilities (non-current) Other financial liabilities (current) Financial liabilities at FVTPL Forward foreign exchange contracts Contingent consideration Financial liabilities measured at amortised cost Finance lease liabilities Other Total other financial liabilities (current) Total other financial liabilities The maturity and the present value of finance lease liabilities are as follows: Minimum lease payments Not later than one year Later than one year and not later than five years Later than five years Present value of finance lease liabilities (Millions of yen) 2016 2017 ¥ － ¥27,253 722 ¥ 722 1,136 ¥28,389 ¥ 351 － 505 649 ¥1,505 ¥2,227 ¥ 626 1,196 499 671 ¥ 2,992 ¥31,381 (Millions of yen) 2016 2017 ¥ 505 719 3 ¥1,226 ¥ 499 1,110 26 ¥1,635 135 ■ 31. Other Liabilities The breakdown of other liabilities is as follows: Other non-current liabilities Other long-term employee benefits Deferred income Other Total other non-current liabilities Other current liabilities Accrued bonuses Accrued paid absences Other accrued expenses Deferred income Other Total other current liabilities (Millions of yen) 2016 2017 ¥15,316 61,689 564 ¥77,569 ¥17,727 34,153 1,648 ¥53,528 ¥30,199 ¥30,665 10,517 46,804 28,779 4,827 11,792 43,493 16,443 4,156 ¥121,126 ¥106,548 (Note) Deferred income under other non-current liabilities and deferred income under other current liabilities include deferred income of ¥57,787 million and ¥28,411 million, respectively, in the year ended 31 March 2016, and ¥30,593 million and ¥14,877 million, respectively, in the year ended 31 March 2017, in connection with the transfer of the global dermatology business to LEO Pharma A/S. ■ 32. Trade and Other Payables The breakdown of trade and other payables is as follows: Accounts payable-trade Other payables Total trade and other payables Non-current Current ■ 33. Financial Instruments (1) Capital management (Millions of yen) 2016 2017 ¥110,852 ¥115,188 72,305 ¥183,157 ¥ 1,599 181,559 68,078 ¥183,266 ¥ 440 182,826 The Group’s capital management principle is to maintain The Group monitors financial indicators in order to an optimal capital structure by improving capital maintain an optimal capital structure. Credit ratings are efficiency and ensuring sound and flexible financial monitored for financial soundness and flexibility, and so conditions in order to achieve sustained improvement in is return on equity attributable to owners of the parent the enterprise value, which will lead to improved return (ROE) for capital efficiency. to shareholders. The Group is not subject to material capital regulation. 136 (2) Classification of financial assets and financial liabilities The breakdown of financial assets and financial liabilities is as follows: Financial assets Financial assets at FVTPL Forward foreign exchange contracts Other Loans and receivables Trade and other receivables Loans and other financial assets Available-for-sale financial assets Cash and cash equivalents Total financial assets Financial liabilities Financial liabilities at FVTPL Forward foreign exchange contracts Contingent consideration Financial liabilities measured at amortised cost Trade and other payables Other Total financial liabilities (Millions of yen) 2016 2017 ¥ 290 8,092 351,702 25,579 69,856 360,030 ¥815,549 ¥ － 10,762 332,080 23,961 40,428 340,923 ¥748,153 ¥ 351 － ¥ 626 28,450 183,157 1,875 183,266 2,306 ¥185,384 ¥214,647 (Note) 1. Financial assets at FVTPL, loans and other financial assets, and available-for-sale financial assets are included in “Other financial assets” in the consolidated statement of financial position. 2. Financial liabilities at FVTPL and financial liabilities at amortised cost are included in “Other financial liabilities” in the consolidated statement of financial position. 137 (3) Financial risk management policy The Group is exposed to financial risks such as The Group limits the use of derivatives to credit risks, liquidity risks, and foreign exchange risks in transactions for the purpose of hedging financial risks operating businesses, and it manages risks based on its and does not use derivatives for speculation purposes. policy to mitigate them. (i) Credit risk (a) Credit risk management (c) Maximum exposure to credit risk Receivables, such as trade receivables, resulting from Other than guaranteed obligations, the Group’s the business activities of the Group are exposed to the maximum exposure to credit risks without taking into customer’s credit risk. This risk is managed by grasping account any collateral held or other credit the financial condition of the customer and monitoring enhancements is the carrying amount of financial the trade receivables balance. Also, the Group reviews instruments less impairment losses in the consolidated collectability of trade receivables depending on the statement of financial position. The Group’s maximum credit conditions of customers and recognises an exposure to credit risks of guaranteed obligations as of allowance for doubtful accounts as necessary. 31 March 2016 and 2017 were ¥1,379 million and ¥444 Securities held by the Group are exposed to the million, respectively. issuer’s credit risk, and deposits are exposed to the credit risk of banks. Also, derivative transactions that the (d) Collateral Group conducts in order to hedge financial risks are The Group has securities and deposits received as exposed to the credit risk of the financial institutions collateral for certain trade receivables and other which are counterparties of those transactions. In regard receivables. The carrying amount of securities held as to securities transactions and deposit transactions in collateral is ¥1,088 million at 31 March 2017 (¥1,478 fund management, the Group only deals with banks and million at 31 March 2016), and the carrying amount of issuers with certain credit ratings and manages deposits received is ¥72 million at 31 March 2017 (¥85 investments within the defined period and credit limit, in million at 31 March 2016). accordance with Global Cash Investment Policy. In addition, regarding derivative transactions, the Group only deals with financial institutions with certain credit ratings in accordance with Astellas Global Treasury Policy. (b) Concentrations of credit risk In Japan, like other pharmaceutical companies, the Group sells its products through a small number of wholesalers. Sales to the four largest wholesalers amounted to approximately 75% of the Group’s sales in Japan, and the amount of trade receivables due from those four wholesalers are ¥121,505 million at 31 March 2016 and ¥106,464 million at 31 March 2017. 138 The analysis of aging of financial assets that are past due but not impaired is as follows: Past due but not impaired Neither past due nor impaired Within three months Between three months and six months Between six months and one year Allowance for doubtful accounts Over one year Total (Millions of yen) Balance at 31 March 2016 Trade and other receivables ¥331,749 ¥17,740 ¥2,080 ¥1,889 ¥934 ¥(2,689) ¥351,702 Loans and other financial assets Total Balance at 31 March 2017 Trade and other 25,572 1 － 6 － － 25,579 ¥357,321 ¥17,740 ¥2,080 ¥1,895 ¥934 ¥(2,689) ¥377,281 receivables ¥296,263 ¥12,563 ¥1,187 ¥1,076 ¥858 ¥(1,250) ¥310,697 Loans and other financial assets Total 23,955 1 － － 6 － 23,961 ¥320,218 ¥12,564 ¥1,187 ¥1,076 ¥864 ¥(1,250) ¥334,658 Financial assets that are individually determined to be impaired are as follows: Trade and other receivables (gross) Allowance for doubtful accounts Trade and other receivables (net) Loans and other financial assets (gross) Allowance for doubtful accounts Loans and other financial assets (net) The movement of the allowance for doubtful accounts is as follows: Balance at the beginning of the year Increase during the year Decrease due to intended use Reversal during the year Other Balance at the end of the year 139 (Millions of yen) 2016 2017 ¥ 132 (132) ¥ － ¥ 52 (52) ¥ － ¥29,939 (8,556) ¥21,383 ¥ 14 (14) ¥ － (Millions of yen) 2016 2017 ¥2,509 477 (7) (33) (74) ¥2,873 ¥2,873 9,704 (229) (2,351) (176) ¥9,820 (ii) Liquidity risk Liquidity risk management The Group is exposed to liquidity risk that the Group of financial obligations and respond flexibly to strategic might have difficulty settling financial obligations. investment opportunities. Also, the balance is reported However, the Group is maintaining the liquidity on hand monthly to the Chief Financial Officer (CFO). that enables the Group to meet the assumed repayment Financial liabilities by maturity date are as follows: As of 31 March 2016 Between Between Between (Millions of yen) Carrying Contractual Within six six months one year and two years Over amount cash flows months and one year two years and five years five years Financial liabilities at FVTPL Forward foreign exchange contracts Subtotal ¥ 351 ¥ 351 ¥ － ¥ 351 351 351 － 351 ¥ － － ¥ － － Financial liabilities measured at amortised cost Trade and other payables 183,157 183,157 181,107 ¥－ － － 3 3 1,875 1,875 911 185,033 185,033 182,018 452 242 694 112 308 420 1,486 411 1,897 ¥185,384 ¥185,384 ¥182,018 ¥1,045 ¥420 ¥1,897 ¥ 3 Between Between Between (Millions of yen) Carrying Contractual Within six six months one year and two years Over amount cash flows months and one year two years and five years five years Other Subtotal Total As of 31 March 2017 Financial liabilities at FVTPL Forward foreign exchange contracts Subtotal ¥ 626 ¥ 626 ¥ － ¥ 626 626 626 － 626 ¥ － － ¥ － － Financial liabilities measured at amortised cost Trade and other payables 183,266 183,266 181,507 Other Subtotal Total 2,306 2,306 927 185,571 185,571 182,433 1,319 245 1,564 313 405 718 127 703 830 ¥186,197 ¥186,197 ¥182,433 ¥2,190 ¥718 ¥830 ¥－ － － 26 26 ¥26 140 (iii) Foreign exchange risk Foreign exchange risk management currencies. Also, the balance of derivative transactions The Group operates globally and the Group’s business is reported monthly the Chief Financial Officer (CFO). results and financial position are exposed to foreign exchange risks. Foreign exchange sensitivity analysis The Group’s long-term basic policy is to mitigate the The financial impact on profit before tax for the years foreign exchange risks by controlling the amount of the ended 31 March 2016 and 2017 in the case of a 10% Group’s net assets denominated in foreign currencies to appreciation of Japanese yen, which is the Company’s the level corresponding to the business scale of each functional currency, against the U.S. dollar and euro is area. In the short term, the Group uses derivatives such as follows. as forward foreign exchange contracts to reduce the Also, it is based on the assumption that currencies impact of exchange rate fluctuations arising from import other than the ones used for the calculation do not and export transactions denominated in foreign fluctuate and other change factors are held constant. Profit before tax U.S. dollar Euro (Millions of yen) 2016 2017 ¥ (190) (7,912) ¥ (34) (745) (Note) The above negative amounts represent the negative impact on profit before tax in the event of a 10% appreciation in Japanese yen. (4) Fair values of financial instruments (i) Fair value calculation of financial instruments Financial assets at FVTPL Financial liabilities at FVTPL Financial assets at FVTPL comprise mainly debt Financial liabilities at FVTPL comprise contingent securities and forward foreign exchange contracts. The consideration for business combinations and forward fair value of those financial instruments is measured foreign exchange contracts. based on prices provided by counterparty financial The fair value of contingent consideration for institutions. business combinations is calculated based on the estimated success probability of development activities Loans and receivables and the time value of money. The carrying amount approximates fair value due to the The fair value of forward foreign exchange contracts short period of settlement terms. is measured based on prices provided by counterparty financial institutions. Available-for-sale financial assets The fair value of marketable securities is based on Financial liabilities measured at amortised cost quoted market prices at the end of the period. The fair Financial liabilities measured at amortised cost comprise value of unquoted equity shares is measured mainly trade and other payables and other financial liabilities. based on the discounted cash flows. The carrying amount approximates fair value due to the short period of settlement terms. Cash and cash equivalents The carrying amount approximates fair value due to the short maturities of the instruments. 141 (ii) Financial instruments measured at fair value on a recurring basis Fair value hierarchy The levels of the fair value hierarchy are as follows: − Level 1: Fair value measured using quoted prices − Level 3: Fair value measured using significant unobservable inputs for the assets or liabilities. (unadjusted) in active markets for identical assets or liabilities; The level of the fair value hierarchy is determined − Level 2: Fair value measured using inputs other based on the lowest level of significant input used for than quoted prices included within Level 1 that are the measurement of fair value. observable for the assets or liabilities, either directly The Group accounts for transfers between levels of or indirectly; and the fair value hierarchy as if they occurred at the end of each quarter. The breakdown of financial assets and liabilities measured at fair value on a recurring basis, including their levels in the fair value hierarchy, is as follows: As of 31 March 2016 Financial assets Financial assets at FVTPL Forward foreign exchange contracts Other Subtotal Available-for-sale financial assets Quoted equity shares Unquoted equity shares Other equity securities Subtotal Total financial assets Financial liabilities Financial liabilities at FVTPL Forward foreign exchange contracts Subtotal Total financial liabilities Level 1 Level 2 Level 3 Total (Millions of yen) ¥ － － － 55,995 － － 55,995 55,995 － － ¥ 290 6,087 6,377 － － － － 6,377 351 351 ¥ － ¥ 290 2,005 2,005 － 13,861 0 13,861 15,866 8,092 8,382 55,995 13,861 0 69,856 78,238 － － 351 351 ¥ － ¥ 351 ¥ － ¥ 351 (Note) Financial assets at FVTPL and available-for-sale financial assets, and financial liabilities at FVTPL are included in “Other financial assets” and “Other financial liabilities” in the consolidated statement of financial position, respectively. 142 As of 31 March 2017 Financial assets Financial assets at FVTPL Other Subtotal Available-for-sale financial assets Quoted equity shares Unquoted equity shares Other equity securities Subtotal Total financial assets Financial liabilities Financial liabilities at FVTPL Forward foreign exchange contracts Subtotal Total financial liabilities Level 1 Level 2 Level 3 Total (Millions of yen) ¥ － － 26,170 － － 26,170 26,170 － － ¥7,864 7,864 ¥ 2,897 2,897 ¥10,762 10,762 － － － － 7,864 626 626 － 14,258 0 14,258 17,156 26,170 14,258 0 40,428 51,190 － － 626 626 ¥ － ¥ 626 ¥ － ¥ 626 (Note) 1.Financial assets at FVTPL and available-for-sale financial assets, and financial liabilities at FVTPL are included in “Other financial assets” and “Other financial liabilities” in the consolidated statement of financial position, respectively. 2. The above amounts do not include the contingent consideration for business combinations. For details on the contingent consideration, please refer to Note “37. Business Combinations”. 143 The movement of fair value of financial assets categorised within Level 3 of the fair value hierarchy is as follows: For the year ended 31 March 2016 Balance at 1 April 2015 Realised or unrealised gains (losses) Recognised in profit or loss (Note 1) Recognised in other comprehensive income Purchases, issues, sales, and settlements Purchases Sales Transfers to Investments in associates and joint ventures Transfers to/from Level 3 (Note 2) Other Balance at 31 March 2016 Gains or losses recognised during the year in profit or loss attributable to the change in unrealised gains or losses relating (Millions of yen) Financial assets at FVTPL Available-for- sale financial assets Total ¥ 750 ¥16,121 ¥16,871 (153) － 1,408 (1) － － － 240 (1,024) 744 (664) (576) (657) (322) 87 (1,024) 2,152 (664) (576) (657) (322) ¥2,005 ¥13,861 ¥15,866 to those assets held at the end of the period (Note 1) ¥(151) ¥ － ¥ (151) (Note) 1. This is included in “Finance income” and “Finance expense” of the consolidated statement of income. 2. These financial assets were transferred from Level 3, since a significant input that affects measurement of fair value became observable. For the year ended 31 March 2017 Balance at 1 April 2016 Realised or unrealised gains (losses) Recognised in profit or loss (Note) Recognised in other comprehensive income Purchases, issues, sales, and settlements Purchases Sales Other (Millions of yen) Financial assets at FVTPL Available-for- sale financial assets Total ¥2,005 ¥13,861 ¥15,866 (60) － 952 － 1 (150) 280 482 (10) (204) (211) 280 1,434 (10) (203) Balance at 31 March 2017 ¥2,897 ¥14,258 ¥17,156 Gains or losses recognised during the year in profit or loss attributable to the change in unrealised gains or losses relating to those assets held at the end of the period (Note) ¥ (60) ¥ (135) ¥ (196) (Note) This is included in “Finance income” and “Finance expense” of the consolidated statement of income. 144 The financial assets categorised within Level 3 are The fair value of unquoted equity shares is composed mainly of unquoted equity shares. measured by relevant departments of the Company and The fair value of significant unquoted equity shares each Group company in accordance with the Group is measured using discounted cash flows. The fair value accounting policy every quarter. The results with of unquoted equity shares is categorised within Level 3 evidences of changes in fair value are reported to a because unobservable inputs such as estimates of superior and, if necessary, to the Executive Committee future net operating profit after tax and WACC are used as well. for the measurement. The WACC used for the In regards to financial instruments categorised within measurement of fair value depends on region or Level 3, there would be no significant change in fair industry. In the years ended 31 March 2016 and 2017, value when one or more of the unobservable inputs is the WACC used for measurement was 8.0%. Generally, changed to reflect reasonably possible alternative the fair value would decrease if the WACC capital were assumptions. higher. ■ 34. Operating Leases Future minimum lease payments under non-cancellable operating leases are as follows: Not later than one year Later than one year and not later than five years Later than five years Total (Millions of yen) 2016 2017 ¥13,017 26,850 2,349 ¥42,217 ¥13,237 20,776 3,167 ¥37,179 Future minimum sublease payments expected to be received under non-cancellable subleases is as follows: Future minimum sublease payments expected to be received (Millions of yen) 2016 2017 ¥2,286 ¥1,819 Minimum lease payments and sublease payments received recognised as expenses are as follows: Minimum lease payments Sublease payments received Total (Millions of yen) 2016 2017 ¥17,634 ¥17,050 (229) (211) ¥17,405 ¥16,839 The Group leases buildings, vehicles and other assets terms of purchase options, and escalation clauses. In under operating leases. addition, there are no material restrictions imposed by The significant leasing arrangements have terms of the lease arrangements. renewal, but there exist no contingent rents payable, 145 ■ 35. Commitments The breakdown of commitments for the acquisition of property, plant and equipment and intangible assets is as follows: Intangible assets Research and development milestone payments Sales milestone payments Total Property, plant and equipment (Millions of yen) 2016 2017 ¥251,978 ¥299,099 153,833 405,812 290,749 589,848 ¥ 8,715 ¥ 5,114 Commitments for the acquisition of intangible assets The Group has entered into research and development “Sales milestone payments” represent obligations to collaborations and in-license agreements of products and pay the amount set out in an individual contract technologies with a number of third parties. These agreement upon achievement of a milestone determined agreements may require the Group to make milestone according to the target of sales. payments upon the achievement of agreed objectives or The amounts shown in the table above represent the when certain conditions are met as defined in the maximum payments to be made when all milestones are agreements. “Research and development milestone payments” achieved, and they are undiscounted and not risk adjusted. Since the achievement of the conditions for represent obligations to pay the amount set out in an payment is highly uncertain, it is unlikely that they will all individual contract agreement upon achievement of a fall due and the amounts of the actual payments may vary milestone determined according to the stage of research considerably from those stated in the table. and development. ■ 36. Related Party Transactions (1) Major companies the Group controls A list of major companies the Group controls is presented in “Principal Subsidiaries and Affiliates”. (2) Compensation of key management personnel The table below shows, by the type, the compensation of key management personnel: Rewards and salaries Share-based payment Other Total compensation (Millions of yen) 2016 2017 ¥1,253 ¥1,353 98 420 164 430 ¥1,771 ¥1,947 Key management personnel consist of 21 people (22 during 2016) including Directors, Corporate Audit & Supervisory Board Members and members of the Executive Committee. 146 ■ 37. Business Combinations For the year ended 31 March 2016 (1) Outline of business combination (i)Name and business description of the acquiree Name of the acquiree: Ocata Therapeutics, Inc. (“Ocata”) (The company name was changed to Astellas Institute for Regenerative Medicine in May 2016.) Business description: Research and development of new therapies for ophthalmic diseases in the field of regenerative medicine (ii) Acquisition date 10 February 2016 (iii) Percentage of voting equity interests acquired 100% (iv) Acquisition method Tender offer to purchase all issued and outstanding shares of common stock in cash (v) Primary reasons for the business combination The Group strives to create a solid and resilient Ocata has an advanced technology that can establish continuity of growth over the mid- to long-term through fully-differentiated cells from pluripotent stem cells. the pursuit of the three main strategies of Strategic Plan Ocata also has strengths in clinical studies for cell 2015-2017 (“the Strategic Plan”) – “Maximizing Product therapy. Value,” “Creating Innovation” and “Pursuing Operational The acquisition of Ocata represents the coming Excellence.” Especially in “Creating Innovation,” the together of two companies with significant Group recognises the importance of advancing into new accomplishments and a shared commitment to develop opportunities in addition to enhancing capabilities to innovative therapies that address the unmet medical deliver innovative medicines. The Group added muscle needs of patients suffering from severe ophthalmic diseases and ophthalmology to its focused disease diseases. The acquisition also represents a step toward areas for research and is promoting drug discovery achieving the Strategic Plan. Further, acquiring Ocata research in those areas. Further, the Group invests will enable the Group to establish a presence in proactively in regenerative medicine, particularly in cell ophthalmology and a leading position in cell therapy. therapy and next-generation vaccines as initiatives involving new technologies and new modalities. Ocata is a clinical stage biotechnology company focused on the development and commercialization of new therapies in the field of regenerative medicine. Strategic rationale behind the acquisition: Establish a presence in ophthalmology Establish a leading position in cell therapy by obtaining Ocata’s world-class capability 147 (2) The fair values of assets acquired, liabilities assumed and purchase consideration transferred as at the date of acquisition are as follows: Property, plant and equipment Other intangible assets Deferred tax assets Cash and cash equivalents Other assets Other liabilities Fair value of assets acquired and liabilities assumed (net) Goodwill Total Fair value of purchase consideration transferred (cash) (Millions of yen) ¥ 151 14,321 3,679 1,084 41 (2,494) 16,782 26,955 43,737 ¥43,737 Certain items had reflected provisional fair values as of a result, goodwill and deferred tax assets increased by 31 March 2016, however, the Group completed the ¥2,460 million and ¥481 million, respectively, while other purchase price allocation during the year ended 31 intangible assets decreased by ¥2,941 million. Goodwill March 2017. Along with this, the Group retrospectively mainly comprises the value of expected synergies revised the corresponding balances in the consolidated arising from the acquisition and future economic statement of financial position as of 31 March 2016. As benefits, which is not separately recognised. (3) Cash flow information Fair value of purchase consideration transferred Cash and cash equivalents held by the acquiree Acquisition of subsidiaries, net of cash acquired (4) Acquisition-related costs Acquisition-related costs: ¥939 million (Millions of yen) ¥43,737 (1,084) ¥42,653 Acquisition-related costs were recognised in selling, general and administrative expenses in the consolidated statement of income. (5) Effect on the consolidated statement of income (i) Profit (loss) before tax of the acquiree since the acquisition date included in the consolidated statement of income for the year ended 31 March 2016: ¥(638) million (ii) Profit (loss) before tax of the combined entity for the year ended 31 March 2016 assuming the acquisition date had been at the beginning of the fiscal year (unaudited): ¥(5,357) million (Note) This effect is calculated based on the business results of Ocata from 1 April 2015 to the acquisition date. 148 For the year ended 31 March 2017 (1) Outline of business combination (i) Name and business description of the acquiree Name of the acquiree: Ganymed Pharmaceuticals AG (“Ganymed”) Business description: Development of antibodies against cancer (ii) Acquisition date 20 December 2016 (iii) Percentage of voting equity interests acquired 100% (iv) Acquisition method Acquisition of all shares of common stock in cash with contingent consideration to be paid when certain milestones are achieved in the future. (v) Primary reasons for the business combination Ganymed is a formerly privately-held biopharmaceutical stages including IMAB362. Through the acquisition, company founded in 2001 and focuses on the Astellas will expand its oncology pipeline with antibody development of a new class of cancer drugs. Ganymed program in the late-stage to build upon its leading has several pipeline assets in pre-clinical and clinical oncology franchise as a platform for sustainable growth. (2) The fair values of assets acquired, liabilities assumed and purchase consideration transferred as at the acquisition date are as follows: (Millions of yen) Provisional fair Provisional fair Fair value value value adjustments (as adjusted) ¥ 272 ¥ － ¥ 272 62,275 629 1,103 (18,679) (5,066) 40,534 28,799 69,333 23,758 － － (7,127) － 16,631 (5,486) 11,145 86,033 629 1,103 (25,806) (5,066) 57,164 23,313 80,478 51,544 17,789 ¥ 69,333 － 11,145 ¥11,145 51,544 28,934 ¥ 80,478 Property, plant and equipment Other intangible assets Cash and cash equivalents Other assets Deferred tax liabilities Other liabilities Fair value of assets acquired and liabilities assumed (net) Goodwill Total Cash Contingent consideration Total fair value of purchase consideration transferred 149 During the year ended 31 March 2017, further facts incomplete as of 31 March 2017 as the Group is still in came to light and additional analysis was performed on the process of finalizing the fair value measurement. the fair value measurement of the assets acquired and Goodwill mainly comprises the value of expected liabilities assumed at the acquisition date. As a result, synergies arising from the acquisition and future the provisional fair values were adjusted as above. The economic benefits, which is not separately recognised. initial accounting for the business combination is (3) Contingent consideration The contingent consideration relates to certain The contingent consideration is classified as Level 3 milestones based on progress in the development of within the fair value hierarchy. For details on the fair IMAB362, Ganymed’s clinical program. Maximum value hierarchy, please refer to Note “33. Financial potential future cash outflows associated with the Instruments”. The fair value of the contingent contingent consideration total 860 million euros consideration increases if the estimate of the success (¥103,019 million). The fair value of the contingent probability of the clinical program, which is the consideration is calculated based on the estimated significant unobservable input, is raised. success probability of the clinical program adjusted for the time value of money. The movement of the contingent consideration for the year ended 31 March 2017 is as follows: Balance at 1 April 2016 Business combination Settlements Movement of fair value Exchange differences Balance at 31 March 2017 (Millions of yen) ¥ － 28,934 － 35 (519) ¥28,450 The balance of scheduled payments of the contingent consideration by maturity date as of 31 March 2017 is as follows: Not later than one year Later than one year and not later than five years Later than five years Total (Millions of yen) ¥ 1,198 14,543 13,241 ¥28,982 150 (4) Cash flow information Total fair value of purchase consideration transferred Fair value of contingent consideration included in purchase consideration transferred Cash and cash equivalents held by the acquiree Acquisition of subsidiaries, net of cash acquired (Millions of yen) ¥ 80,478 (28,934) (629) ¥ 50,915 (5) Acquisition-related costs Acquisition-related costs: ¥101 million Acquisition-related costs were recognised in selling, general and administrative expenses in the consolidated statement of income. (6) Effect on the consolidated statement of income (i) Profit (loss) before tax of the acquiree since the acquisition date included in the consolidated statement of income for the year ended 31 March 2017: ¥(1,151) million (ii) Profit (loss) before tax of the combined entity for the year ended 31 March 2017 assuming the acquisition date had been at the beginning of the fiscal year (unaudited): ¥(3,825) million (Note) This effect is calculated based on the business results of Ganymed from 1 April 2016 to the acquisition date. 151 ■ 38. Contingent Liabilities Legal Proceedings various state laws, APUS misused the Citizen Petition The Group is involved in various claims and legal process for the sole purpose of delaying the approval of proceedings of a nature considered common to the generic tacrolimus by the U.S. Food and Drug pharmaceutical industry. Administration, thereby injuring the plaintiffs. In June These proceedings are generally related to product 2011, the U.S. Judicial Panel on Multi- District Litigation liability claims, competition and antitrust law, intellectual ordered that the cases be consolidated before the U.S. property matters, employment claims, and government District Court for the District of Massachusetts. investigations. In January 2015, APUS settled all claims brought In general, since litigation and other legal against it by the direct purchaser plaintiffs. In May 2015, proceedings contain many uncertainties and complex the Court approved the settlement and dismissed the factors, it is often not possible to make reliable judgment case. regarding the possibility of losses nor to estimate In February 2016, APUS settled all claims brought expected financial effect if these matters are decided in against it by the indirect purchaser plaintiffs. In a manner that is adverse to the Group. November 2016, the Court approved the settlement and In these cases, disclosures would be made as dismissed the case. appropriate, but no provision would be made by the Group. Prograf Litigation Astellas Pharma US, Inc. (APUS), one of the Company’s indirect US subsidiaries, was named as a defendant in 2011 in several separate lawsuits brought by plaintiffs in various federal courts on behalf of themselves and proposed classes of all direct and indirect purchasers of Prograf. These lawsuits involve allegations that under the federal antitrust laws and 152 ■ 39. Events after the Reporting Period Acquisition of Ogeda SA (1) Outline of business combination (i) Name and business description of the acquiree Name of the acquiree: Ogeda SA Business description: Development of small molecule drugs targeting G-protein coupled receptors (GPCR) (ii) Acquisition date 16 May 2017 (iii) Percentage of voting equity interests acquired 100% (iv) Acquisition method Acquisition of all shares of common stock in cash with contingent consideration to be paid when certain milestones are achieved in the future. Cash 500 million euros Milestone payments Total 300 million euros based on the progress in the development of fezolinetant (v) Primary reasons for the business combination Ogeda SA is a privately owned drug discovery company development in multiple therapeutic areas including founded in 1994 and focuses on the discovery and inflammatory and autoimmune diseases. Through the development of small molecule drug candidates acquisition, the Group will expand its late stage pipeline, targeting GPCRs. Ogeda has fezolinetant in the clinical thereby further solidifying its medium- to long-term development stage. In addition, Ogeda has several growth prospects. small molecules targeting GPCRs in pre-clinical Detailed information on the accounting treatment is not disclosed as the initial accounting treatment for this business combination has not been completed by the approval date of the consolidated financial statements. 153 154 Investor Information Common Stock (as of March 31, 2017) Authorized: Issued: 9,000,000,000 2,153,823,175 (including 87,917,718 treasury stock) Number of shareholders: 114,997 Transfer Agent for Common Stock in Japan Sumitomo Mitsui Trust Bank, Limited 1-4-1, Marunouchi, Chiyoda-ku, Tokyo 100-8233, Japan Major Shareholders (as of March 31, 2017) The Master Trust Bank of Japan, Ltd. (trust account) Japan Trustee Services Bank, Ltd. (trust account) State Street Bank and Trust Company Nippon Life Insurance Company JP Morgan Chase Bank 385632 Japan Trustee Services Bank, Ltd. (trust account 5) State Street Bank West Client - Treaty 505234 JP Morgan Chase Bank 385147 Japan Trustee Services Bank, Ltd. (trust account 7) Japan Trustee Services Bank, Ltd. (trust account 1) Shares owned (Thousand shares) Percentage of total common shares outstanding 152,044 113,642 80,827 64,486 53,215 39,311 37,239 34,367 30,101 29,209 7.35 5.50 3.91 3.12 2.57 1.90 1.80 1.66 1.45 1.41 Notes: Shares owned are rounded down to the nearest thousand shares, while the percentage of total common shares outstanding is rounded down to two decimal places. Astellas holds 87,917 thousand shares of treasury stock, but it is not included in the above list of major shareholders. Breakdown of Shareholders (as of March 31, 2017) Other companies 3.4% Securities companies 3.5% Individuals and others 9.1% Financial institutions 30.7% Treasury stock 4.1% Foreign companies and others 49.3% 155 Financial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Corporate Data Company Name Astellas Pharma Inc. Head Office 2-5-1, Nihonbashi-Honcho, Chuo-ku, Tokyo 103-8411, Japan TEL: +81-3-3244-3000 https://www.astellas.com/en/ Capital (as of March 31, 2017) ¥103,001 million Representative Yoshihiko Hatanaka Representative Director, President and CEO Founded 1923 Professional Institution Affiliation International Federation of Pharmaceutical Manufacturers & Associations (IFPMA) Stock Exchange Listing Tokyo (Securities Code: 4503) Independent Auditors Ernst & Young ShinNihon LLC Hibiya Kokusai Building, 2-2-3 Uchisaiwai-cho, Chiyoda-ku, Tokyo 100-0011, Japan Principal Subsidiaries and Affiliates (as of March 2017) Astellas is a group of companies engaged solely in the pharmaceutical business. The Group consists of 92 companies, which include Astellas Pharma Inc., 81 consolidated subsidiaries and 10 affiliates accounted for by the equity method. Major Group companies are listed as follows: Japan Manufacturing Base - Astellas Pharma Tech Co., Ltd. R&D Bases - Astellas Research Technologies Co., Ltd. - Astellas Analytical Science Laboratories, Inc. Other - Astellas Business Service Co., Ltd. - Astellas Learning Institute Co., Ltd. - Astellas Marketing and Sales Support Co., Ltd. - Amgen Astellas BioPharma K.K. 156 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Americas Holding Company in North America • Astellas US Holding, Inc. 1 Astellas Way, Northbrook, IL 60062-6111, U.S.A. Regional Headquarters • Astellas US LLC 1 Astellas Way, Northbrook, IL 60062-6111, U.S.A. TEL: +1-800-888-7704 R&D Bases • Astellas Pharma Global Development, Inc. • Agensys, Inc. • Astellas Research Institute of America LLC • Astellas Institute for Regenerative Medicine Sales Bases • Astellas Pharma US, Inc. • Astellas Pharma Canada, Inc. (Canada) • Astellas Farma Brasil Importação e Distribuição de Medicamentos Ltda. (Brazil) • Astellas Farma Colombia S.A.S (Colombia) Other • Astellas US Technologies, Inc. • Astellas Venture Management LLC Note: All subsidiaries for which no country has been indicated are located in the U.S. EMEA Holding Company in EMEA • Astellas B.V. Sylviusweg 62, 2333, BE Leiden, The Netherlands TEL: +31-71-5455745 Regional Headquarters (Astellas EMEA Operations) • Astellas Pharma Europe Ltd. 2000 Hillswood Drive, Chertsey, Surrey, KT16 0RS, U.K. TEL: +44-203-379-8000 R&D and Manufacturing Bases • Astellas Pharma Europe B.V. (R&D and manufacturing, Netherlands) • Astellas Ireland Co., Limited (Development and manufacturing, Ireland) Sales Bases • Astellas Pharma Ges. mbH (Austria) • Astellas Pharma B.V. (Belgium) • Astellas Pharma s.r.o (Czech Republic) • Astellas Pharma A/S (Denmark) • Astellas Pharma S.A.S (France) • Astellas Pharma GmbH (Germany) • Astellas Pharmaceuticals AEBE (Greece) • Astellas Pharma Kft. (Hungary) • Astellas Pharma Co., Limited (Ireland) • Astellas Pharma S.p.A. (Italy) • Astellas Pharma B.V. (Netherlands) • Astellas Pharma International B.V. (Netherlands) • Astellas Pharma Sp.zo.o. (Poland) • Astellas Farma Limitada (Portugal) • JSC Astellas Pharma (Russia) • Astellas Pharma d.o.o (Slovenia) • Astellas Pharma (Proprietary) Ltd (South Africa) • Astellas Pharma S.A. (Spain) • Astellas Pharma A.G. (Switzerland) • Astellas Pharma ilac Ticaret ve Sanayi A.S. (Turkey) • Astellas Pharma DMCC (United Arab Emirates) • Astellas Pharma Ltd. (United Kingdom) Asia & Oceania Sales and Other Bases • Astellas Pharma China, Inc. (Sales and manufacturing, China) • Astellas Pharma Hong Kong Co., Ltd. (Hong Kong) • Astellas Pharma Taiwan, Inc. (Taiwan) • Astellas Pharma Korea, Inc. (Korea) • Astellas Pharma Philippines, Inc. (Philippines) • Astellas Pharma (Thailand) Co., Ltd. (Thailand) • P.T. Astellas Pharma Indonesia (Indonesia) • Astellas Pharma India Private Limited (India) • Astellas Pharma Australia Pty Ltd. (Australia) • Astellas Pharma Singapore Pte. Ltd. (Singapore) • Astellas Pharma Malaysia Sdn.Bhd. (Malaysia) 157 Financial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 Inclusion in SRI Indexes Astellas is included as a constituent stock in the following global socially responsible investment (SRI) indexes. Dow Jones Sustainability Asia Pacific Index (DJSI Asia Pacific), the Asia Pacific version of the Dow Jones Sustainability Index (DJSI) FTSE4Good Index, an equity index series that is designed to facilitate investment in companies that meet globally recognized corporate responsibility standards. 158 IntroductionCorporate Strategy and Corporate GovernanceBusiness ReviewFinancial Information and DataAstellas Pharma Inc. ANNUAL REPORT 2017 A N N U A L R E P O R T 2 0 1 7 A s t e l l a s P h a r m a I n c . For the Year Ended March 31, 2017 ANNUAL REPORT 2017 Astellas Pharma Inc. 2-5-1, Nihonbashi-Honcho, Chuo-ku, Tokyo 103-8411, Japan https://www.astellas.com/en/ Please direct inquiries concerning Annual Report 2017 to: Astellas Pharma Inc. Corporate Communications TEL: +81-3-3244-3202 FAX: +81-3-5201-7473 Issued in August 2017 This report is printed with environmentally friendly vegetable-based inks on FSCTM-certified paper made of wood sourced from responsibly managed forests, using a waterless printing process. Printed in Japan