2011

Striving to be a human health care company

Annual Report 2011 We’re Transforming Eisai supports the World Health Organization’s programme to eliminate lymphatic filariasis.

Corporate Philosophy

Corporate Objective

The Company’s corporate philosophy is to give first thought to patients and their families, and to increase the benefits that health care provides. Under this concept, the Company endeavors to become a human health care (hhc) company.

A human health care (hhc) company capable of making a meaningful contribution under any health care system while observing the highest legal and ethical standards in business activities

Eisai—a Human Health Care (hhc) Company The Eisai Group’s corporate philosophy is to “give first thought to patients and their families and to increasing the benefits health care provides.” Guided by this philosophy, all corporate officers and employees of the Eisai Group are working as one to meet diversified health care needs worldwide. By doing so, we aim to be a human health care (hhc ) company capable of making a meaningful contribution under any health care system. Our hhc script was designed based on the signature of Florence Nightingale (1820–1910)

Contents 02

To Our Stakeholders

06

Consolidated Financial Highlights

08

Feature: Embarking on the Medium-term Strategic Plan “Hayabusa” 08 10 12 14 18 20 28

Overview of Dramatic Leap Plan (DLP) Medium-term Strategic Plan “HAYABUSA” 1 Transformation in an Era of Great Globalization 2 Transforming the Regional Balance

3 4 5

Transforming the Franchise Portfolio Product Creation (R&D Activities) Investing for Future Growth and Creating Shareholder Value

30

Corporate Social Responsibility

34

Share Information and Return to Shareholders

35

Corporate Governance

40

Board of Directors and Executive Officers

43

Financial Section

70

Intellectual Property, Risk Factors

72

Japan and Overseas Operations

75

Corporate Data

Forward-Looking Statements and Risk Factors Materials and information provided in this annual report may contain “forward-looking statements” based on current expectations, forecasts, estimates, business goals, and assumptions that are subject to risks and uncertainties, which could cause actual outcomes and results to differ materially from these statements. Risks and uncertainties include general industry and market conditions and general domestic and international economic conditions, such as interest rate and currency exchange fluctuations. Risks that may cause significant fluctuations in the consolidated results of the Company or have a material effect on decisions of shareholders are described below. These are risk factors that have been identified and assessed as of the disclosure date of the Annual Report. Risk factors associated with our business include, but are not limited to, challenges arising out of global expansion, uncertainties in new drug development, risks related to dependence on specific products, risks related to strategic alliances with partners, health care cost-containment measures, intensified competition and lawsuits with generic products, intellectual properties, possible incidence of adverse events, compliance with laws and regulations, litigations, closure or shutdown of factories, safety and quality issues of raw materials used, outsourcing-related risks, environmental issues, IT security/information management, and conditions of financial markets, foreign exchange fluctuations, internal control systems and natural disasters.

Environmental and Social Report

Environmental and Social Report 2011 Our Universe of Tenderness

Eisai recognizes the importance of fulfilling its corporate social responsibilities as a good corporate citizen and of being recognized by society as a trustworthy organization. Since 2001, we have published an Environmental and Social Report that summarizes our activities in this area.

Please refer to http://www.eisai.com/responsibility/esreport/index.html for further details.

Eisai Co., Ltd. Annual Report 2011

01

Haruo Naito President and CEO

02


To Our Stakeholders

Our hearts and prayers go out to all those affected by the Great East Japan Earthquake. In accordance with our corporate mission duly stipulated in our Articles of Incorporation, Eisai Group strives to continue to make every effort to support patients affected by the disaster, their families and the wider public, as well as our commitment to ensuring the stable supply of pharmaceuticals when emergencies occur. The public at large expect the pharmaceutical industry to develop innovative therapeutic agents and provide information, services, and products of high q uality. Despite such expectation, due to the gloomy outlook caused by increasing healthcare costs and economic sluggishness, the growth rate in matured pharmaceutical markets around the world is forecasted to decelerate as healthcare reforms continue to focus on measures to contain pharmaceutical expenditures. In emerging markets, however, lie significant opportunities for growth owing to the rapid increase in middle-income groups. It is therefore mandatory for us to manage our business to meet the demands of a major globalization period that will transform pharmaceutical markets around the world. To more effectively respond to the rapidly changing market conditions in this era, the Eisai Group launched its new Mid-term Strategic Plan “HAYABUSA” in fiscal 2011, after having finished its 5th Mid-term Strategic Plan, entitled the Dramatic Leap Plan (DLP) one year earlier than scheduled. Under the plan, the Group built a corporate structure to further enhance efficiency and productivity in its global operations. Now under the “HAYABUSA” tenure, which will be carried out until fiscal 2015, the Eisai Group aims to contribute to an ever-greater number of patients, plans to wind down relationships with global partners particularly in Japan, the United States, and Europe, and ultimately transform itself into a global top-tier, high-performing company. The new strategic plan hereof is named after the Japanese asteroid probe, Hayabusa, which traveled six billion kilometers over a period of seven years before returning to Earth having overcome two major obstacles: once when the probe went missing, and again when one of its ion engines broke down. Going forward, the Eisai Group will strive to emulate the probe’s fulfillment of its m ission and return to Earth against all odds. In connection with the plan “HAYABUSA,” we will enhance our business in the East Asia region, which will serve as our main growth driver. This region comprises the markets of Japan, China, South Korea, Taiwan, and Hong Kong. By s haring knowledge provided by local employees in each of these markets, it is our intention to generate synergies that can bolster our competitiveness. We as a Group will also endeavor to promote discourse among key medical opinion leaders in the region as well as build a Eisai Co., Ltd. Annual Report 2011

03

common operational platform in an array of medical fields such as central nervous system diseases, oncology, rheumatism, and gastrointestinal and liver diseases. It is our firm belief that these initiatives will ensure that the East Asia region will lead the Group in our future global business expansion efforts, with Japan and China serving as dual growth drivers for the region. Thus the regional balance of our business is to be transformed as we shift our focus toward East Asia and the emerging markets and away from the U.S., which had played a central role in growth during the DLP. During the period of the plan “HAYABUSA,” we intend to provide more benefits to patients by entering all of the world’s 20 largest pharmaceutical markets, including Russia, Brazil, Mexico, and Turkey. Furthermore, our products will be made available in a total of 114 countries with a goal to serve over 500 million patients. It is imperative for us to improve access to medicine in emerging countries by providing c omprehensive disease solutions to ailments and engaging in public-private partnerships, and implementing our affordable pricing policy. In addition, we will supply with “price zero” up to 2.2 billion diethycarbamazine (DEC) tablets in cooperation with the WHO’s initiative to eliminate the neglected tropical disease, lymphatic filariasis, among the 250 million people who make up the population of 37 at-risk countries. Moreover, during the plan “HAYABUSA,” we will concentrate on enhancing our line-up of products in the women’s oncology field, encompassing breast cancer, ovarian cancer, thyroid cancer, and endometrial carcinoma, by leveraging our technological strengths and abundant pipeline of products in the oncology field, including Halaven®, a new anticancer agent discovered and developed in-house, as well as the monoclonal antibody farletuzumab and the molecular-targeting agent lenvatinib. In this way, we aim to be amongst the world’s top three companies in women’s oncology and emerge as a top-ten global oncology player by fiscal 2015. Defining our research and development efforts as “product creation,” we have adopted a more patient-oriented approach along with a management stance that emphasizes autonomy in our activities discovering therapeutic agents. In the future, the Eisai Group will seek to create lead compounds more efficiently through screening using a comprehensive compound library and targeting genetically defined or epigenetically identified diseases in a bid to clarify disease mechanisms. Furthermore, it is our intention to ameliorate the success rate of clinical research and shorten development times by proactively utilizing biomarkers that reflect clinical pathological conditions. Accordingly, we will strive to maximize the benefits provided to patients around the world. 04


Targeting net sales of more than 800 billion yen by fiscal 2015, our objective is to resume the growth track from fiscal 2013 by effectively handling the impact of expired patents for existing core products and expanding new product groups. With that, we look to optimize our capital efficiency and to achieve an ROE of 20% or more, thereby securing the status of a top-tier high-performer. In conjunction with shareholder returns, we have a policy of allocating and repatriating approximately one third of the cash income to be generated over the medium term as dividends to shareholders. This policy is in recognition of the catering effect and the signaling effect of dividends. With respect to corporate governance, Eisai operates under a Company with Committees System, with seven out of the eleven members of the Board of Directors being Outside Directors, including the Chairman of the Board. The CEO (President) is the only member of the Board to serve concurrently as an Executive Officer. Eisai’s Board of Directors represents the best interests of shareholders as a body independent of the Company’s executive functions, while the Executive Officers, including the CEO (President), are entrusted by the Board of Directors to execute business operations that bring the creation of value for patients to fruition, with the view to continually enhancing shareholder value. In accordance with our corporate mission, the Eisai Group will endeavor to reach the goals stipulated in our plan “HAYABUSA” in order to enhance corporate value on a sustained basis. In closing, we express our hopes for a swift recovery in the areas devastated by the earthquake and tsunami, and ask our shareholders and other stakeholders for their continued support. August 2011

Haruo Naito President and CEO


05

Consolidated Financial Highlights

3rd (’97–’01) Era of Soaring Growth 2001/3

2002/3

2003/3

2004/3

Net sales �� Japan �� Japanese Pharmaceuticals Business*1 �� North America �� U.S. Pharmaceuticals Business*1 �� Europe �� European Pharmaceuticals Business*1 �� China and Asia/Oceania/Middle East �� Asian Pharmaceuticals Business*1 �� New Market Pharmaceuticals Business*1 �� Others*2 �� Overseas sales ratio by geographic region (%) ��

361.7 241.0

431.7 246.6

466.6 250.6

500.2 260.9

101.8

157.0

179.5

194.5

14.3

21.1

27.3

34.8

4.6

7.0

9.1

9.9

33.4

42.9

46.3

47.8

Operating income �� Net income (loss) ��

59.0 23.3

72.7 36.5

75.9 41.0

83.1 50.1

Research and development (R&D) expenses �� Shareholders’ equity*3 �� Total assets �� Cash income*4 ��

49.6 345.9 549.4

55.0 362.1 557.6

59.7 388.2 591.7

69.0 419.5 615.8

Ratio of R&D expenses to net sales (%) �� Return on equity (ROE) (%) �� Return on assets (ROA) (%) �� Shareholders’ equity ratio (%) �� Dividends on equity (DOE)*5 (%) ��

13.7 6.9 4.5 63.0 2.0

12.8 10.3 6.6 64.9 2.4

12.8 10.9 7.1 65.6 2.5

13.8 12.4 8.3 68.1 2.6

Basic earnings per share (EPS) �� Cash dividends per share �� Cash income per share (Cash EPS)*6 ��

78.7 23.0

123.5 29.0

141.2 32.0

172.1 36.0

Eisai believes in cash-generating capability as the most intrinsic element that determines the true value of a company. With this basic way of thinking, to reflect the true earnings capacity, we indicate “cash income” and “cash EPS,” which are not affected by non-cash profit-and-loss items, such as depreciation of property, plant and equipment, amortization of goodwill, loss on impairment of long-lived assets (including loss on devaluation of investment securities), and in-process R&D expenses, which appear in the statements of operations. *1 From the fiscal year ended March 31, 2011, the Company has adopted the “Accounting Standard for Disclosures about Segments of an Enterprise and Related information” (Accounting Standards Board of Japan (ASBJ) Statement No. 17 released on March 27, 2009) and the “Guidance on the Accounting Standard for Disclosures about Segments of an Enterprise and Related information” (ASBG Guidance No. 20 released on March 21, 2008). *2 “Others” is a business segment not included in reporting segments. Pharmaceutical raw materials and machinery businesses are included in this segment. *3 Shareholders’ equity = net assets – minority shareholdings – share warrants *4 We consider “cash income” as the total amount of cash available for investments for growth, business development, dividend payment, and repayment of borrowings, etc. We also consider this as a measurement for evaluating corporate growth potential and strategic appropriateness. Cash income = Net income (loss) + Depreciation of PP&E and amortization of intangible assets + In-process R&D expenses + Amortization of goodwill + Loss on impairment of long-lived assets (including loss on devaluation of investment securities) *5 Dividend on equity (DOE) ratio = Dividend payout ratio (DPR) x Return on equity (ROE) 6 * Cash income per share (“cash EPS”) = cash income / number of shares issued and outstanding (after deducting treasury stock)

Net Sales

R&D Expenses and Ratio of R&D Expenses to Net Sales

(Billions of yen)

(Billions of yen)

800 734.3

781.7

803.2 803.2

(%)

250

768.9

674.1

200

179.1 156.1

150

100

30

90

20

60

108.3

10

30

20.0

0

’07/3 ’08/3 ’09/3 ’10/3 ’10/3 ’11/3

0

0

20

91.8

15.6

m R&D Expenses Ratio of R&D Expenses to Net Sales

86.4

14.7

15

11.7

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m

113.1

10.8

10

18.9

50

0

(%)

22.3 145.0

16.1 200


120 105.3

30.7

400

06

(Billions of yen)

40 225.4

600

Japan North America Europe Asia and others m Japanese Pharmaceuticals Business*1 m U.S. Pharmaceuticals Business*1 1 m European Pharmaceuticals Business* m Asian Pharmaceuticals Business*1 m New Market Pharmaceuticals Business*1 m Others*2

Operating Income and Ratio of Operating Income to Net Sales

5

2.4 17.7

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m Operating Income Ratio of Operating Income to Net Sales m

0

6th (’11–’15) Hayabusa 4th (’02–’05) Millennium Plan

5th (’06–’10) Dramatic Leap Plan Billions of yen

2005/3

2006/3

2007/3

2008/3

2009/3

2010/3

2011/3

533.0 268.3

601.3 285.1

674.1 292.2

734.3 312.7

781.7 332.5

214.5

253.1

303.4

339.4

369.9

38.3

45.5

54.8

54.4

51.0

11.9

17.6

23.7

27.8

28.4

49.7

52.6

56.7

57.4

57.5

803.2 359.7 322.2 361.2 358.8 50.7 49.5 31.6 31.1 0.8 40.7 55.2

768.9 — 350.4 — 303.0 — 44.4 — 31.3 1.0 38.9 49.6

86.8 55.5

95.7 63.4

105.3 70.6

17.7 (17.0)

91.8 47.7

86.4 40.3

113.1 67.4

78.3 459.6 662.7

93.2 519.2 747.2

108.3 552.5 792.1 97.6

225.4 448.9 1,123.9 106.9

156.1 428.0 1,148.2 119.0

179.1 415.9 1,101.9 126.4

145.0 404.2 1,046.3 120.0

14.7 12.6 8.7 69.4 3.7

15.5 13.0 9.0 69.5 5.3

16.1 13.2 9.2 69.7 6.4

30.7 (3.4) (1.8) 39.9 7.4

20.0 10.9 4.2 37.3 9.1

22.3 9.6 3.6 37.7 10.1

18.9 16.4 6.3 38.6 10.4 Yen

193.4 56.0

221.9 90.0

247.8 120.0 342.7

Net Income (Loss) and Ratio of Net Income (Loss) to Net Sales (Billions of yen)

(Billions of yen)

16 70.6

40.3 6.1

16.4

450

448.9 13.2

47.7

40

8.8

8

300

4

150

428.0 415.9

404.2

10.9

(%)

160

15

120

130.0

140.0

150.0 150.0

120.0 10.1

10.4

9.1

10 9.6

5.0

20

(Yen)

20 552.5

12 10.5

236.5 150.0 421.3

141.6 150.0 443.7

Cash Dividends per Share and DOE (%)

600

67.4

60

167.3 140.0 417.8

Shareholders’ Equity and ROE (%)

80

(59.8) 130.0 375.8

80 5

15

10

7.4 6.4 5

0

–20

–17.0

–2.3

0

0

–4

–150

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m Net Income (Loss) Ratio of Net Income (Loss) to Net Sales m

40

0 –3.4

–5

0

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m Shareholders’ Equity ROE m

0

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m Cash Dividends per Share DOE m


07

Feature: Embarking on the Medium-term Strategic Plan “Hayabusa”

Overview of Dramatic Leap Plan (DLP) Eisai completed the six-year Dramatic Leap Plan (DLP) a year ahead of schedule at the end of March 2011. DLP, which began in fiscal 2006 (ended in March 2007), was Eisai’s fifth medium-term s trategic plan. Effective fiscal 2011 (ending in March 2012), Eisai embarked on a new five-year plan to be finalized in fiscal 2015 (ending in March 2016) named “HAYABUSA.” Market Conditions in Fiscal 2010 and Eisai’s Response to Change The global pharmaceuticals market has been facing a turning point. While conditions toughened and growth slowed in mature markets, the emerging markets offered significantly enhanced opportunities for growth. In Europe and the U.S., the governments introduced measures to restrict spending on medicines in the face of sluggish economies and escalating healthcare costs. In contrast, it is estimated that the markets of China, South Korea, India, Brazil, Russia, Indonesia and Turkey together will account for over 20% of the global pharmaceuticals market by March 2016 (annual growth of 15%). In response to

this changing environment, under the plan “HAYABUSA,” Eisai aims to enter all of the world’s top 20 markets to make a contribution to the lives of significantly more patients.

Accomplishments and Issues Under DLP v Achieved

global success for flagship products Aricept®, an Alzheimer’s disease treatment, and Pariet®/AcipHex®, a proton pump inhibitor (PPI), by establishing worldwide operations covering all stages from manufacturing to sales. v Successfully entered the field of oncology, an area in which there are significant unmet medical needs globally.

v Realized

a strategic vision to enter the field of oncology through proactive M&A, while employing effective leveraging strategies to avoid stock dilution and improve capital efficiency. v Pursued product creation for challenging unmet medical needs. Successfully developed a new anticancer agent Halaven® but struggled to provide some new products according to plans. v Gained considerable knowledge through business expansion for flagship products in cooperation with strategic global partners. As sales increased, however, alliance fees rose accordingly.

2011/3

t

Drama 2007/3

08


n

la P p a ic Le

2016/3

A S U

B A Y A H v DLP

targets for net sales and operating profit were not reached. Nevertheless, the Group improved its ability to generate cash income. Cash income* was allocated approximately equally into three areas: investment for future growth, dividend payments, and funds for the repayment of debt.

* Cash income: The total amount of cash available for investments for growth, dividend payment, and repayment of borrowings, etc., considered to be an indicator of company growth potential and strategy.

Vision for the Year Ending March 2016 In a pharmaceuticals market that demands innovative drug discovery and high-quality products, information, and services, Eisai aims to benefit many more patients by entering all of the world’s top 20 markets. We will work to transform Eisai into a global top-tier, high- performing company, while also winding down our relationships with global partners in Japan, the U.S., and Europe.

Cash income = net income (loss) + depreciation of PP&E and amortization of intangible assets + IPR&D expenses + amortization of goodwill + loss on impairment of long-lived assets (including loss on devaluation of investment securities)

Overview of the Medium-term Strategic Plan “HAYABUSA” ~ Transform Eisai into a Global Top-Tier, High-Performing Company ~

• Ascendance of the East Asia region Rise of the East Asia region will drive the growth of Global Eisai Hayabusa: Hayabusa is the name of a Japanese asteroid probe that traveled six billion kilometers before returning to Earth, overcoming two major obstacles along the way before fulfilling its mission.

• Dawn of the Great Globalization Era: Eisai will supply its product line throughout the world, including zero-price products, for the benefit of millions more patients and enter all the world’s top-20 markets • Eisai will build an efficient and lean commercial structure to create value for patients • Eisai will concentrate initiatives on women’s oncology to build a business in the oncology field with targeted net sales of over US$2 billion, to be ranked among the world’s top-10 • Eisai will evolve towards “focused” medicines, with the aim of maximizing patient benefits Eisai Co., Ltd. Annual Report 2011

09

Medium-term Strategic Plan “HAYABUSA” The medium-term strategic plan “HAYABUSA” aims to transform Eisai into a global top-tier, high- performing company. Our targets in this plan are to achieve over ¥800 billion in net sales, over ¥200 billion in operating income, and over 25% operating income ratio by the year ending March 31, 2016.

1

Transformation in an Era of Great Globalization Healthcare reforms in the U.S. and moves to curb pharmaceutical expenditures among European countries point to harsher conditions and slower growth within mature markets, while emerging market countries such as China, Brazil, and India represent opportunities for growth. The plan “HAYABUSA” will respond to this Era of Great Globalization.

3 10


2

Transforming the Franchise Portfolio Eisai is targeting global leadership in the central nervous system fields including Alzheimer’s disease and epilepsy, while also seeking to satisfy major unmet medical needs in the field of oncology. Furthermore, we maintain a strong presence in the fields of gastrointestinal and liver disease.

Transforming the Regional Balance The plan designates East Asia (particularly Japan and China) as a growth driver and also calls for expansion of Eisai Group operations in emerging markets such as India, Brazil, Russia, Canada, and ASEAN nations. In the U.S. and Europe, our aim is to build an efficient and lean business structure, focusing on the fields of oncology and epilepsy.

4

Product Creation (R&D Activities) Eisai is tranforming from a traditional R&D model based on biologically or biochemically identified targets into a more focused, patient-oriented model of “product creation” that seeks to identify genetically and epigenetically defined disease targets.

5

Roadmap for the Plan “HAYABUSA”

Investing for Future Growth and Creating Shareholder Value Eisai will continue working to bolster cash generation capabilities and strike a balance among investing for future growth, paying dividends and repaying debt. At the same time, we will seek to make efficient investments in growth fields.

Transformation of P/L Structure Aim for 800 billion yen + Aim for 200 billion yen+ Operating Income Ratio at 25%+

Net Sales

Operating Income

Operating income Significant increase in operating income margin 14.7% (’11/3) to 25%+ (’16/3) Alliance fees SG&A (Others) Cost efficiency Wind down partner dependence Efficient organizational structure

768.9 billion yen

113.1 billion yen Operating Income Ratio 14.7%

’11/3 Results

’12/3 Target

Operating Income Ratio at approx. 22%

’14/3 Target

R&D expenses Proactive investment Increase investment to secure growth by innovation 18.9% (’11/3) to 20%+ (’16/3)

’16/3 Target

’11/3 Results

’12/3 Target

’14/3 Target

’16/3 Target

COGS Thorough cost reduction Target 26% in ’16/3

Assumed average exchange rates: ’11/3: $1 = ¥85.7; =C 1 = ¥113.1; and £1 = ¥133.1 ’11/3–’16/3: $1 = ¥85; =C 1 = ¥110; and £1 = ¥135


11

1

“HAYABUSA” — A New Plan for Transformation

Transformation in an Era of Great Globalization

Market Environment

Eisai Initiatives

The global pharmaceuticals market

expanded to over 200 million patients

features harsher conditions and slower

Expanding Contributions to Patients

growth within mature markets, along-

Eisai aims to transform into a global

“HAYABUSA,” we aim to more than

side opportunities for growth in emerg-

top-tier, high-performing company by

double that reach to over 500 million

ing markets such as China, Brazil and

adapting to these changing market

people. We expanded the number of

India. Eisai aims to benefit millions

conditions. In practical terms, our

countries where Eisai products are

more patients around the world by

goal is to help improve the quality of

available to 66 over the course of DLP,

entering all of the world’s top 20 mar-

life of patients around the world by

and we plan to increase this figure to

kets. At Eisai, we have named this time

making our products available to

114 in “HAYABUSA.” In particular, we

in history the Era of Great Globalization,

significant number of more patients in

have set a goal of entering all the

in which we intend to contribute more

more countries.

Eisai’s reach in product delivery during the DLP period. During the plan

than ever to the well-being of patients.

Five-year Cumulative Number of Patients Served by Eisai Products

Number of Countries Served by Eisai Products

(Million) 600

114

120

500+

North America Middle East Central/South America

400

Africa

80

66 200

More Than Double

200+

Europe 40

Asia/Oceania 0

0

’07/3–’11/3

’12/3–’16/3

’07/3–’11/3

’12/3–’16/3

(internal estimates) Note: Including all types of market entry (affiliates, branches, distributors, and representative offices) and countries to provide DEC tablets for lymphatic filariasis

12


top-20 markets globally, which we

We aim to transform the earnings

proportion of sales, is expected to rise

consider important as pharmaceuticals

structure of Eisai within the plan

from 19% in fiscal 2010 to over 20%.

markets. Having set up operations in

“Hayabusa” as we work to achieve

Our manufacturing costs have been

12 of these markets by the end of the

global top-tier status.

kept low due to Aricept® and Pariet®/

DLP, we plan to enter the other 8 mar-

Alliance fees paid to global partners

AcipHex®, but we expect these costs to

kets, including Canada, Brazil and

amounted to a little under 20% of

rise in line with projected changes in

Russia, in due course.

consolidated revenues in fiscal 2010;

the product mix. We aim to restrict the

The target in “Hayabusa” of over

however, this proportion is forecast to

cost-of-goods-sold (COGS) ratio to

500 million people includes patients

fall to 4% in fiscal 2013. The end of

26% in fiscal 2015, in part by control-

with lymphatic filariasis. To combat this

the partnership agreement for Aricept®

ling costs through a shift from domestic

tropical disease, Eisai plans to supply

in Japan will play a major part in this

to overseas production facilities.

approximately 2.2 billion diethylcar-

shift. We expect to diminish this ratio

These changes are set to transform

bamazine citrate (DEC) tablets via

further to less than 1% by fiscal 2015.

earnings. We aim to boost the operat-

WHO* to treat 250 million lymphatic

We are also making progress in build-

ing income ratio from 14.7% in fiscal

filariasis patients in 37 countries. We

ing a more efficient and lean business

2010 to over 25% in fiscal 2015,

will supply this remedy at price “zero,”

structure through Group-wide cost-

moving Eisai into the global top tier.

for the ultimate in affordability. We also

reduction efforts, which will help to

Projections in the plan “HAYABUSA”

plan to work on improving access to

trim cost of sales, apart from alliance

show EPS*1 growing from ¥236.52 in

medicine by providing comprehensive

fees, as well as general and adminis-

fiscal 2010 to almost ¥500 in fiscal

disease solutions and engaging in

trative expenses.

2015. Eisai achieved an ROE*2 of

public-private partnerships (PPP).

Eisai continues to invest in innovation

16.4% in fiscal 2010; putting Eisai

* WHO: World Health Organization

for future growth. R&D spending as a

within the top tier of Japanese companies. By fiscal 2015, we aim to boost

Toward Global Top-tier Status

ROE to a global top-tier level of over 20%. Cumulative cash income in the past

Serve More Patients Through Market Entry Expansion

five years amounted to about ¥570 billion. Over the course of the plan “Hayabusa,” we aim to increase cumulative cash income to about ¥750 billion. *1 EPS (earnings per share): net income per share *2 ROE (return on equity): net income as a percentage of shareholders’ equity

Markets entered Market entries under the plan “Hayabusa”


13

2


Transforming the Regional Balance

A Shift in Focus From the U.S. to Asia and the Emerging Markets

Net Sales by Region (Billions of yen)

From fiscal 2011, Eisai will work to create and reinforce a business struc-

CAGR (’11/3–’16/3) Others

800

ture that is optimized for product lines

5%

U.S.

–9%

New Markets & ASEAN

34%

East Asia Japan China

6% 5% 26%

6%

and to market needs in the four designated regions of East Asia, the U.S.,

Europe

7%

23%

600

Europe, and New Markets and ASEAN (emerging markets). East Asia

4%

39%

is expected to be the core growth driver, with sales in that region

400

1%

increasing from 49% of the total in fiscal 2010 to 63% by fiscal 2015. Similarly, sales from New Markets and

200

49%

63%

ASEAN, where we are currently in the investment phase, is expected to grow from 1% to 4% of the consolidated total. The core focus in emerging markets will be on India, Brazil,

0

’11/3 Results

’12/3 Target

’14/3 Target

’16/3 Target

Russia, Canada, and ASEAN nations. In the U.S. and Europe, Eisai is shifting to a business model that is more focused on specialty therapeutic

Framework of East Asia

areas such as oncology and epilepsy. East Asia Region

East Asia: Regional Overview The East Asia region is composed of Japan, China, South Korea, Taiwan, and Hong Kong. By sharing knowledge

14


Japan Local Top

China Local Top

South Korea Local Top

Taiwan Local Top

Hong Kong Local Top

provided by local talents in each of

array of medical fields such as the

(PCU) is also working to accelerate

these markets, Eisai aims to generate

central nervous system, oncology,

clinical development in East Asia.

synergies for boosting its competitive-

rheumatoid arthritis, and gastrointestinal

Led by Japan and China, the East

ness. We will also endeavor in our plan

and liver disease.

Asia region is expected to become a

for East Asia to promote interaction

Local managers are being appointed

major growth driver for Eisai based on

among key medical opinion leaders in

to lead operations in each of the five

these approaches.

the region as well as to build a

locations in the region. The Japan/Asia

common operational platform in an

Clinical Research Product Creation Unit

First Local President Appointed to Lead an Eisai Subsidiary in China In April 2011, a locally hired executive was appointed for the first time to lead the subsidiary in China, Eisai China Inc. We expect a strong local leadership to realize the significant growth potential of the market in China. In China, Eisai aims to shift from a business model relying on large numbers of medical representatives in the field to a model more adaptive to local market characteristics and product requirements.

Transformation to a Globalized Production Management System

managed system of manufacturing.

strategic importance based in India for

Specific plans call for the establishment

procurement, the U.S. for logistics and

of a global headquarters in Tokyo for

the U.K. for technology. This shift to a

Eisai plans to shift from Japan-oriented

the demand chain in production and

global management system will rein-

production management to a globally-

logistics within Eisai, with functions of

force capabilities in strategic planning and implementation, while also enabling Eisai to enhance its patient contribution worldwide by realizing high

Transformation of Production Management System From Japan-led to Global Management

quality, stable product supply, and affordable pricing.

Establishment of Three Strategic Global Functional Units

The manufacturing and supply strucHatfield Plant, UK

Change in Global Leadership

tures will also shift from mainly in Japan to overseas. Eisai made initial investments in production capabilities in India

Technology Strategy Unit

and the U.K., as well as a parenteral Enhancement of Strategic Planning and Implementation Capability

Eisai Demand Chain HQ (Tokyo)

oncology drug production facility in the U.S., under the DLP. The plan “Hayabusa” calls for a significant increase in supply capacity in India and

Vizag Plant, India

North Carolina Plant, U.S.

Increase in Global-Base Patient Contribution

Procurement Strategy Unit

Logistics Strategy Unit

Commitment to Absolute Quality Stable Supply Realization of Affordable Pricing

other overseas production sites outside of Japan.


15

Establishing Efficient and Lean business Structures

and prognosis of diseases. Moreover, this

medical representatives in the field, to a

“Patient Journey” model will be applied

model more adaptive to Chinese regional

Eisai will transform and establish

extensively throughout East Asia to pro-

market characteristics and product char-

efficient and lean regional business

mote regional growth. In order to

acteristics. Eisai will build a new business

structures for East Asia, the U.S.,

enhance operating efficiencies, factories

model in China led by marketing in the

Europe, and the New Markets and

in Japan are also expected to leverage

major cities, and establish business units

ASEAN (emerging markets).

their technological competitiveness in

specialized in the key therapeutic areas of

manufacturing to specialize in launching

cancer, liver disease, and central nervous

new products and producing drugs that

system disorders.

East asia Eisai positions Japan and China as its

are complex to process.

dual growth drivers in the East Asia region.

n China

a sales-driven business model in alliance

n Japan

with local companies in the smaller,

The pharmaceutical market in China

regional cities. Led by the strong leader-

In Japan, the government is promoting

continues to grow rapidly in line with

ship of the first locally hired top executive,

the use of generic drugs in an effort to

economic development. Yet the disease

Eisai plans to achieve growth under-

control medical expenses that have

profile and market structure in China are

scored by new organizations and strate-

increased as the population rapidly ages.

quite different from developed markets in

gies in China.

that it requires a product line that is both

Eisai integrated its four businesses in

broader in range and priced to match

prescription drugs, consumer healthcare

patients and their varying economic

products, diagnostics, and generic drugs

circumstances.

Growth in the U.S. pharmaceutical

in Japan. Eisai is currently engaged in a

market, which still remains the largest

new business model named “Patient

The sales and market growth Eisai has

market in the world, has slowed in recent

Journey.” This business model strives to

secured in China ranks best among

years. Yet, contrary to this downturn,

leverage integration and provide value-

Japanese companies. Going forward,

market demand in certain therapeutic

added services and information through-

Eisai aims to transform from a business

areas such as oncology, as well as the

out the prevention, diagnosis, treatment

model relying on large numbers of

market share of generic drugs in the U.S.,

Meanwhile, Eisai will efficiently establish

The u.S.

is expanding. Net Sales by Region

’16/3 (Targets) Net Sales Aim for 800.0 Billion Yen +

’11/3 (Results) Net Sales 768.9 Billion Yen

v East Asia

49% (375.7 billion yen)

v East Asia

63%

v U.S.

39% (303.0 billion yen)

v U.S.

23%

v EU

7%

v New Markets & ASEAN

4%

v Others

3%

v EU v New Markets & ASEAN v Others

16


6% (44.4 billion yen) 1% (6.9 billion yen) 5%

models tailored to each individual country.

In the U.S., Eisai will transform its co-

It has been regrouped into three pan-

The need for pharmaceuticals in the New

promotion business model focused on

European business units of oncology and

Markets and ASEAN region has grown

mass markets into an Eisai independent

institutional care, epilepsy, and mature

dramatically along with the region’s rapid

franchise model focused on oncology and

products. Market coverage under those

population increase and economic devel-

the central nervous system. We will focus

units, furthermore, will be restructured

opment. Similar to market needs in China,

on women’s oncology, treatment of can-

under the sub-EU regions of North, Cen-

the region requires a broad-ranging prod-

cers that primarily affect women, and

tral and South Europe. In these ways,

uct line priced to match patients and their

accelerate the transformation of this ther-

Eisai aims to adapt to a single European

varying e conomic circumstances.

apeutic franchise. Meanwhile, Eisai will

market and optimize the allocation of its

further expand its therapeutic field in the

resources. In addition, a pan-European

Eisai will apply its strengths to the fullest

central nervous system including epilepsy.

market access team was established to

extent in providing solutions to various

obtain price and reimbursement approv-

diseases, while placing particular empha-

als in a timely manner, based on health

sis on the rapidly growing middle income

technology assessment.

groups in the New Markets and ASEAN

Europe In Europe, growth has been quite slow in recent years mainly due to the increased use of generic drugs associated with

region for its business development. Eisai

New Markets and ASEAN (Emerging Markets)

plans to provide a wide-ranging product line of branded pharmaceuticals and

tighter government control on healthcare

In April 2011, Eisai established a New

branded generic drugs in the key thera-

spending. The European Medicines

Markets and ASEAN region to oversee the

peutic areas of the central nervous

Agency (EMA) is supporting moves

markets in India, Russia, Africa, the Middle

system (including Alzheimer’s disease

toward a single market that will require

East, Turkey, Latin America, Canada and

and epilepsy), oncology and liver disease.

pharmaceutical companies to develop

Oceania, as well as markets in ASEAN

Moreover, Eisai will engage in public-

efficient business structures for promptly

countries including Thailand, Singapore,

private partnerships (PPP) promoting

delivering their drugs to patients.

Indonesia, the Philippines and Malaysia.

medical networks and patient awareness,

Eisai expects to achieve high growth in the

establish alliances with local partners,

Eisai will transform to a “ONE EUROPE”

New M arkets and ASEAN region for the

and exercise affordable pricing policies to

business model that views Europe as a

benefit of numerous patients in the region.

build its business foundation in such

single market, in place of business

emerging markets.

Eisai to Supply Free of Charge Medicine for Treatment to the World Health Organization (WHO) to Combat Lymphatic Filariasis On November 18, 2010, Eisai signed a joint statement of intent with the WHO to supply free of charge an essential medicine for the treatment of lymphatic filariasis. In the joint statement, Eisai agreed to produce up to 2.2 billion 100mg tablets of diethylcarbamazine (generic name, “DEC”) over a six-year period between 2012 and 2017, guaranteed to comply with WHO quality standards and supplied free of charge. This was the first time for a Japanese pharmaceutical company to form a public-private partnership (PPP) with the WHO in the pro bono provision of medicine for eradicating a neglected tropical disease.

The signing ceremony of the joint statement on the pro bono provision of “DEC”


17

3


Transforming the Franchise Portfolio

Concentrating Initiatives on Women’s Oncology

achieve this goal by fiscal 2015,

cancer, thyroid cancer, and endome-

through the realization of US$2.0 billion

trial carcinoma.

Eisai aims to emerge as a top-10

sales in the oncology field.

We are engaged in the clinical

global player in oncology, an area with

Within this field, we aim to create

development of a number of anticancer

high unmet medical needs. In 2009,

benefits for patients by concentrating

agents, including Halaven® (global

the watermark for entering the top-10

initiatives on enhancing the oncology

market potential: (US$11 billion*1 for

was net sales in excess of US$1.5

product line in the remedy of cancers

breast cancer), a novel agent devel-

billion a year, coupled with market

that primarily affect women. These

oped in-house, together with farletu-

growth of at least 8%. Eisai aims to

include breast cancer, ovarian

zumab (MORAb-003; US$1.8 billion*2

Prospect for Women’s Oncology Halaven

Expected synergy effects

18

farletuzumab

(Millions of U.S. dollars)

monoclonal antibody

lenvatinib

2,000

chemotherapy

targeting agent

Breast cancer

Ovarian cancer

Thyroid cancer Endometrial carcinoma

1,500

®

Target indication

Women’s Oncology Franchise Global Sales

• Refractory recurrent/ • Platinum-sensitive Metastatic breast cancer ovarian cancer: patients with fewer prior Phase III treatment: Phase III • Platinum-resistant • First line ovarian cancer: (Her2+ and Her2–): Phase II Phase II • Potential development • Adjuvant: Phase II of companion • Potential development diagnosis of liposomal formulation

• Thyroid cancer: Phase III • Endometrial carcinoma: Phase II

Collaborations with patient advocacy groups a Fully understand patients’ needs/Value-added product development H3 Biomedicine: Personalized medicine based on the genetics of patients’ cancers


1,000

500

0

’11/3 Results m Halaven® m farletuzumab m Aloxi ® /netupitant

’12/3 Target m lenvatinib m others

’14/3 Target

’16/3 Target

for ovarian cancer), and lenvatinib

robust clinical and patient databases

diagnosis to treatment of liver diseases,

(E7080; US$500 million*3 for thyroid

we have accumulated through the

such as clevudine, LIVACT®, Stronger

cancer). Eisai aims to develop products

development of this compound enable

Neo-Minophagen® C, and E5501.

that offer greater value to patients

us to offer highly value-added informa-

Around 78% of the estimated 350

based on combining its unique pipeline

tion to medical practitioners and

million people worldwide who are

with its technological strengths.

patients alike.

infected with the hepatitis B virus (HBV)

We aim to be a top-3 global player

live within the Asia-Pacific region*1.

in the market for epilepsy treatments,

Unmet medical needs are especially

estimated at about US$4 billion, as part

high in Asia, given that China has the

of enhancing our overall position as a

highest incidence of hepatocellular

global leader in the central nervous

carcinoma in the world*2.

system field.

Targeting East Asia and New Markets

*1 Decision Resources 2009; Internal Eisai Analysis *2 Mattson Jack Da Vinci Treatment Architecture 2010; Decision Resources 2009; Internal Eisai Analysis *3 Da Vinci Treatment Architecture 2010; NCCN; Cancer Mpact 2010; Internal Eisai Analysis

Becoming a Top-3 Global Player in the Epilepsy Field

* Number of patients suffering from epilepsy worldwide is estimated at 40–50 million, including 3.0 million in the U.S. and 2.4 million in Europe. About 200,000 people in the U.S. were newly diagnosed as epilepsy in 2010.

Eisai has a rich lineup of epilepsy products with various mechanisms of action, including perampanel, Inovelon®/BANZEL®, ZEBINIX®, and first-in-class AMPA receptor antagonist

presence further in the field of liver disease by offering multiple treatment options for treating the different stages of v arious liver diseases.

Growth in the Liver Disease Field

Zonegran®. Of these, perampanel is a

and ASEAN, we aim to enhance our

*1 Asian Liver Center, Stanford School of Medicine *2 The Oncologist 2015; 15 (suppl 4); 5-13

Eisai’s lineup includes a range of prod-

that could potentially offer a new treat-

ucts offering potential benefits in the

ment option to epilepsy patients. The

Product lineup to cover liver diseases from diagnostics to treatment

Epilepsy Franchise Global Sales

Growth of Liver Disease Franchise

(Billions of yen)

(Billions of yen)

90

25

Diagnosis

PIVKA®

Hepatitis B

clevudine, Stronger Neo-Minophagen® C

Hepatitis C

Stronger Neo-Minophagen® C

Hepatic cirrhosis

Livact ®

Hepatocellular carcinoma

DC Bead , lenvatinib, E7050

Idiopathic thrombocytopenic E5501 purpura (ITP) 20

60 15

10 30 5

0

0

’11/3 Results m perampanel m Others

’12/3 Target

’14/3 Target

’16/3 Target

’11/3 Results

’12/3 Target

’14/3 Target

’16/3 Target

m Stronger Neo-Minophagen® C m clevudine m Livact ®


19

4


Product Creation (R&D Activities)

Further Development into Focused Medicine

the future, Eisai will aim to create lead

Furthermore, we will work to increase

compounds more efficiently through

the success rate of clinical research

Defining research and development

screening based on a therapeutics

and shorten development times by

efforts as product creation, Eisai takes

area-oriented compound library and a

actively utilizing biomarkers that reflect

a more patient-oriented approach

diversity-oriented compound library,

clinical pathological conditions. In this

along with a management stance that

targeting genetically defined or epige-

way, we intend to maximize benefits

emphasizes autonomy in our activities

netically identified diseases in order to

provided to patients around the world.

discovering potential compounds. In

clarify disease mechanisms.

Commitment in the Late Clinical Stage Projects Project

Halaven® additional indications perampanel additional indications farletuzumab

lenvatinib

E5501

Indication

Development Stage

Submission Schedule

Breast cancer 2nd line

Phase III

FY2012

Non-small-cell lung cancer

Phase III in preparation

Beyond FY2014

Sarcoma

Phase III

Beyond FY2014

Primary generalized seizures


FY2013

Partial-onset seizures (monotherapy)


Beyond FY2014

Lennox-Gastaut syndrome


Beyond FY2014

Platinum-sensitive ovarian cancer

Phase III

FY2012

Platinum-resistant ovarian cancer

Phase II

FY2012

Thyroid cancer

Phase III

FY2013

Melanoma

Phase II

FY2012

Endometrial cancer

Phase II

FY2012

Hepatocellular carcinoma

Phase I / II

Beyond FY2014

Idiopathic thrombocytopenic purpura (ITP)


FY2013

Product Creation Policy for the Plan “HAYABUSA” • Place top priority on the projects that are highly likely to deliver meaningful results within the timespan of the plan “HAYABUSA” • Promote development in the areas of Alzheimer’s disease space and personalized medicine • Investments to be made in projects that we believe will significantly enhance corporate value regardless of being at the pre-clinical, translational, or clinical stage • We will start no new projects without an embedded biomarker 20


Initiatives in the Oncology Field

clinical development. In addition, based

H3 Biomedicine Inc.

Synergistic benefits, such as potential

on the concept of “open innovation,”

H3 Biomedicine Inc. is a bio-

use of various products developed

Eisai has entered into strategic global

pharmaceutical venture that specializes

in-house as combination therapies,

R&D partnerships with Epizyme, Inc.,

in the discovery and development of

are anticipated among Eisai’s oncol-

PRISM BioLab Corporation, and

cancer treatments. H3 Biomedicine

ogy research functions which consist

TransMolecular, Inc.

aims to develop next-generation treatments for cancer that will improve the

of the Oncology Product Creation Unit (PCU), Morphotek, Inc., and H3

Morphotek, Inc.

quality of life for patients, while utilizing

Biomedicine, Inc. and others.

A subsidiary of Eisai, Inc., Morphotek is

state-of-the-art technologies in latest

a specialized biopharmaceutical com-

cancer gene science, bioinformatics,

Oncology PCU

pany that is engaged in the develop-

technology associated with cancer

The Oncology PCU is engaged in stra-

ment of protein and antibody products

biology, and technology associated

tegic and lifecycle management activi-

using novel and innovative genetic

with diversity-oriented synthesis based

ties to maximize the value of the current

technology. Morphotek is currently

on the latest organic synthetic chemis-

oncology pipeline and seeking syner-

focused on leveraging its technology

try. Based in Cambridge,

gies among Eisai’s oncology assets.

platform to develop proteins used for

Massachusetts, H3 Biomedicine is a

The PCU has been focused on, among

treatment of cancer, inflammatory dis-

subsidiary of Eisai Inc.

others, Halaven®, Dacogen® and lenva-

eases, and infectious diseases, and to

tinib (E7080), some of which have been

create a production platform.

launched or are at the late-stage of Eisai’s Efforts in Oncology

Adjunctive therapy, etc.

Oncology PCU

Halaven®

v Breast cancer 3rd line (approved) v Breast cancer 2nd line (Phase III) v Breast cancer 1st line (Phase II) v Breast cancer adjuvant (Phase II) V Sarcoma (Phase III) m Non-small-cell lung cancer (Preparing for Phase III) V Liposomal Formulation

Dacogen®

V Myelodysplastic syndrome (approved) V Acute myeloid leukemia (submission being processed)

Morphotek Antibodies Morphodoma technology

Small molecular compounds and biologics PRISM BioLab Protein-protein interaction inhibitors

Synergies

Epizyme Cancer epigenetics

farletuzumab/ MORAb-003

TransMolecular Cancer targeting

Synergies

Synergies

lenvatinib/E7080

v Thyroid cancer (Phase III) m Hepatocellular carcinoma (Phase I/II) V Melanoma (Phase II) v Endometrial cancer (Phase II) V Glioma (Phase II)

v Platinum-sensitive ovarian cancer (Phase III) v Platinum-resistant ovarian cancer (Phase II) m Non-small-cell lung cancer (Phase II)

MORAb-009

V Mesothelioma (Phase II)

MORAb-004

FORMA Therapeutics

V Melanoma (Phase II)

Diversity-oriented synthesis (DOS) libraries Cancer genomics

H3 Biomedicine

v Women’s oncology m Focus on East Asia


21

Flagship Products in the Oncology Field Eisai aims to leverage the technological strengths in its robust oncology pipeline, which includes Halaven®, farletuzumab (MORAb-003) and lenvatinib (E7080), to develop potential treatments in women’s oncology (such as breast cancer, ovarian cancer, thyroid cancer, and endometrial carcinoma) and focus on enhancing the lineup of products in East Asia including potential treatment for non-smallcell lung cancer and hepatocellular carcinoma, among others.

Halaven® Non taxane, novel mechanism of action on microtubule dynamics inhibitor with a distinct binding profile c Target indications: breast cancer, non-small-cell lung cancer, sarcoma, and others c Breast cancer previously treated with standard therapies: launched in the U.S., Europe, and Japan c Breast cancer with fewer prior treatments (2nd line): phase III study ongoing c Breast cancer adjuvant: phase II study ongoing c Sarcoma: phase III study ongoing c Non-small-cell lung cancer: preparing for phase III study c Target submission: breast cancer with fewer prior treatments (2nd line) in FY2012 (U.S. and Europe) c China: Clinical Trial Application submitted for breast cancer (March 2011) c Developing liposomal formulation for further patient benefit

lenvatinib (E7080) Molecular-targeting agent expected for its efficacy in multiple types of cancers by multi-kinase inhibitor with unique receptor tyrosine kinase (RTK) inhibiting profile c Target indications: thyroid cancer, melanoma, endometrial carcinoma, hepatocellular carcinoma, glioma, and others c Oral molecular-targeting agent with potential effect derived both from angiogenesis inhibition and cell proliferation control c Thyroid cancer: phase III study ongoing c Melanoma, endometrial carcinoma, and glioma: phase II studies ongoing c Renal cell cancer: phase Ib/II study ongoing c Hepatocellular carcinoma: phase I/II ongoing c Non-small-cell lung cancer: phase Ib (combination) ongoing c Target submissions: m elanoma and endometrial carcinoma in FY2012 (U.S.); thyroid cancer in FY2013 (U.S., Europe, and Japan)

farletuzumab (MORAb-003) Antibody agent expected for its survival benefit by extending recurrence period in ovarian cancer c Target indications: ovarian cancer, non-small-cell lung cancer c Humanized monoclonal antibody targeting folate receptor alpha c Platinum-sensitive ovarian cancer: phase III study ongoing c Platinum-resistant ovarian cancer: phase II study ongoing; Non-small-cell lung cancer: phase II study ongoing c Target submission: ovarian cancer in FY2012 (U.S., Europe, and Japan)

22


Moving From Aricept® to Nextgeneration Treatments for Alzheimer’s Disease Eisai is developing the three compounds BAN2401, E2609 and E2212 as potential next-generation Alzheimer’s disease treatment. BAN2401 and E2609 are both high-priority development projects conducted in parallel with biomarker research. The aim is to demonstrate proof of concept from a single clinical trial for both symptomatic improvement and disease modification. Eisai aims to shorten the overall development time through such an approach.

Flagship Products in the Neuroscience Field In the neuroscience field, Eisai is focusing on the disease modification and symptomatic improvement of Alzheimer’s disease, epilepsy, and pain. We seek to collaborate actively with external research institutions to gain access to a wide variety of technologies and to acquire novel drug discovery targets, while conducting internal research in optimal drug discovery models. Our application has been accepted for review in Europe in June 2011 for regulatory approval of the in-housedeveloped AMPA receptor antagonist perampanel for treatment of partial onset seizures. It is in preparation for re-submission in the U.S.

Perampanel (E2007) Potential alleviation of epileptic seizures by shutting off the excitability stimuli of nerves with first-in-class AMPA receptor antagonist c Target indications: treatment of refractory partial-onset seizures, adjunctive treatment of refractory primary generalized tonic-clonic seizures, monotherapy of refractory partial-onset seizures, pediatric adjunctive treatment of partial-onset seizures and Lennox-Gastaut Syndrome c Perampanel is the world’s first highly selective, non-competitive AMPA-type g lutamate receptor antagonist, discovered and being developed by Eisai c Submission planned based on three global phase III studies (studies 304, 305, and 306); submissions are being processed since May 2011 in the U.S. and Europe and was accepted for review in Europe in June 2011 – All of the studies showed consistent results both in efficacy and tolerability of perampanel given as an adjunctive treatment in patients with refractory partialonset seizures c Preparing for phase III studies for monotherapy in the treatment of refractory partialonset seizures, adjunctive treatment of refractory primary generalized tonic-clonic seizures and Lennox-Gastaut syndrome

BAN2401 Novel humanized monoclonal antibody that removes neurotoxic beta-amyloid protofibrils, which is considered a cause of Alzheimer’s disease c Anti-protofibril humanized monoclonal antibody c Selectively combine with neurotoxic beta-amyloid protofibril, which is considered a cause of Alzheimer’s disease; detoxified and removed c Phase I single-dose study is ongoing in the U.S. Implement single-dose and multidose studies efficiently for prompt confirmation of pharmacodynamic action c Aim for shortening the development period by utilizing biomarkers and imaging markers based on mechanism of action c Submission target: FY2015-2016 (U.S. and Europe)

E2609 Aim for next-generation Alzheimer’s disease treatment that reduces total beta-amyloid, anticipated use for not only symptomatic improvement but also for disease modification c Beta secretase inhibitor c Reduce total beta-amyloid by inhibiting beta-site cleavage enzyme (BACE) of amyloid precursor protein c One of the first BACE inhibitors with favorable pre-clinical properties – Favorable selectivity and pharmacokinetics to other similar proteolytic enzymes – Small molecular compound exhibiting promising in vivo efficacy c Phase I single-dose study is ongoing in the U.S. Implement single-dose and multi-dose studies efficiently c Aim for shortening the development period by utilizing beta-amyloid reduction and imaging marker c Submission target: FY2016 (U.S. and Europe)


23

Ongoing Research & Development Projects Global Development Halaven® Microtubule dynamics inhibitor*1

Halaven® received approval in the U.S. as a thirdline breast cancer treatment in November 2010. Subsequently, the agent was also approved in other markets including Singapore, the European Union, Japan and Switzerland. A Phase III study investigating the agent as a potential second-line treatment for breast cancer is ongoing in the U.S. and in Europe. A Phase III study investigating the agent as a potential treatment for sarcoma is currently underway in the U.S. The agent is also being investigated in Phase II and other studies for non-small-cell lung cancer and others.

E5564 Endotoxin antagonist*2

Eisai will continue its analysis of the data from the Phase III trials, as the study did not meet its primary endpoint, and will determine the next steps in accordance with the results of analysis.

E2007 AMPA receptor antagonist*3

The three Phase III studies conducted for the agent showed consistent results in regards to the efficacy and tolerability as therapy in patients with refractory partial seizures. Based upon these study results, submissions are being processed in the U.S. and EU since May 2011. The application seeking approval was accepted in the EU in June.

E7080 VEGF receptor tyrosine kinase inhibitor

A Phase III study of E7080 for thyroid cancer was initiated in the U.S. In addition, Phase II studies for endometrial cancer and melanoma were initiated in Europe following commencement of the studies in the U.S. A Phase II study for glioma is also ongoing in the U.S.

MORAb-003 Humanized antifolate-receptor-alpha monoclonal antibody

A Phase III study for ovarian cancer was initiated in Japan. The study is now ongoing in Europe, the U.S. and Japan, and is being conducted as a global development program. A Phase II study for nonsmall-cell lung cancer is also ongoing in the U.S.

Development in Japan NerBloc® Botulinum toxin type B neuro muscular- blocking agent

In January 2011, NerBloc® received approval in Japan for the treatment of cervical dystonia.

SEP-190 Insomnia treatment

In November 2010, an application seeking approval of SEP-190 as a treatment for insomnia was submitted in Japan.

24


Vasolan®

Zonegran®

Calcium channel blocking anti-arrhythmic agent

Antiepileptic agent

In November 2010, an application seeking approval of additional dosage and administration of Vasolan® for the treatment of arrhythmia in pediatric patients was submitted and approved in May 2011 in Japan.

In July 2010, an additional formulation (orallydisintegrating tablet) of Zonegran® obtained marketing approval in Europe.

HUMIRA® A fully human anti-TNF-alpha monoclonal antibody*4

E7040 Embolic bead

In December 2010, an application seeking approval of E7040, a medical device for use in transcatheter arterial embolization in patients with hepatocellular carcinoma, was submitted in Japan.

E2080 Antiepileptic agent

A Phase III study of E2080 for Lennox-Gastaut syndrome (LGS) is ongoing in Japan.

Additional Indications and Formulations

In October 2010, the applications for additional indications of HUMIRA® for the treatment of Crohn’s disease and ankylosing spondylitis were approved in Japan. In the same month, the Ministry of Health, Labour and Welfare of Japan notified Eisai of clearance of the condition for approval of Humira® in terms of the drug-useresults survey (all-case surveillance) on rheumatoid arthritis. In August 2010, an application seeking approval of an additional indication for the treatment of juvenile idiopathic arthritis was submitted in Japan.

Warfarin® Oral anticoagulant

Aricept

®

Alzheimer’s disease treatment agent

In July 2010, Aricept 23mg tablet, a higher dose, once-daily tablet formulation was approved in the U.S. for the treatment of moderate-to-severe Alzheimer’s disease. A Phase III study for Lewy body dementia, and a Phase II study of the higher dose Aricept® 23mg tablet formulation are also ongoing in Japan. ®

Pariet®/AcipHex® Proton pump inhibitor

In June 2010, the applications submitted for additional indications of Pariet® for the treatment of non-erosive gastroesophageal reflux disease (GERD), and concomitant therapy with amoxicillin hydrate and either clarithromycin or metronidazole for the eradication of Helicobacter pylori in gastric MALT lymphoma, in the stomach after endoscopic resection of early stage gastric cancer, and in idiopathic thrombocytopenic purpura, were approved in Japan. In December 2010, Pariet® received approval in Japan for additional twicedaily dosage and administration for the treatment of reflux esophagitis patients. In June 2010, the application submitted for the proton pump inhibitor AcipHex® ExtendedRelease 50 mg formulation was accepted for review in the U.S. In January 2011, Eisai received a Complete Response Letter from the FDA. The application submitted in Europe for the agent was also accepted for review in September 2010.

Tambocor ® Anti-arrhythmic agent

In May 2010, the application submitted for an additional indication and additional dosage and administration of the anti-arrhythmic agent Tambocor® Tablet for the treatment of tachyarrhythmia (paroxysmal atrial fibrillation/flutter, paroxysmal superventricular tachycardia, ventricular tachycardia) in pediatric patients was approved in Japan.

In February 2011, Warfarin® Tablet received approval in Japan for additional dosage and administration for the treatment and prevention of thromboembolism in pediatric patients. In June 2010, an application seeking approval of a new granule formulation of Warfarin® was submitted in Japan.

BANZEL®/Inovelon® Antiepileptic agent

In March 2011, BANZEL® Oral Suspension, 40 mg/ml received approval in the U.S. for the adjunctive treatment of seizures associated with Lennox-Gastaut syndrome (LGS) in children 4 years and older and adults. In October 2010, the application submitted for a new oral suspension formulation of Inovelon® was accepted for review in Europe.

ONTAK® Anti-cancer agent

A Phase II study for melanoma is ongoing in the U.S. *1 A synthetic analog that retains the anticancer pharmacophore of halichondrin B, a natural product isolated from a marine sponge. The compound is a novel anticancer that acts by suppressing the formation of microtubules through the polymerization of tubulin, a basic structural constituent of microtubules, and by inhibiting cell division. 2 * E5564 is a lipid A derivative compound that selectively antagonizes endotoxins and therefore has potential as a treatment for severe sepsis. 3 * E2007 selectively inhibits glutamate binding to the AMPA-type glutamate receptor and controls cell death by preventing the excessive influx of calcium into the cell. 4 * HUMIRA® is a fully human anti-TNF-a monoclonal antibody that neutralizes the activity of tumor necrosis factor-alpha (TNF-a), a protein that plays a central role in inflammatory reactions in patients with auto immune diseases.

Major R&D Pipeline Under Review/Preparing for Submission (1) Oncology and Supportive Care Research Code (generic name)

Halaven / E7389 (eribulin) ®

Description

Form.

Development Status

Phase I

A synthetic analog of halichondrin B derived from a marine sponge. Believed to exert an antitumor effect by arresting the cell cycle through inhibition of the growth of microtubules. Currently being investigated as a potential treatment for breast cancer and various other solid tumors. Received approval in the United States, Singapore, the European Union and Japan. In addition, a Phase III study investigating the potential of the agent as a second-line treatment for recurrent and metastatic breast cancer is ongoing in the United States and Europe.

Injection

Breast cancer

U.S. Singapore EU Japan Switzerland


U.S./EU

Prostate cancer

U.S./EU

Sarcoma

U.S.

Phase II

Phase III

Filed

Approved

Submission/ Target

Nov. 2010 Feb. 2011 Mar. 2011 April 2011 May 2011

EU E7820

An angiogenesis inhibitor that suppresses the expression of alpha 2 integrin, a vascular endothelial cell adhesion molecule.

Oral

Colorectal cancer

U.S.

E7080 (lenvatinib)

An anti-angiogenic agent that inhibits tyrosine kinase of the VEGF receptor, VEGFR2, and a number of other types of kinase involved in angiogenesis and tumor proliferation. Currently being investigated as a potential treatment for various solid tumors.

Oral

Thyroid cancer

U.S.

FY2013

EU

FY2013

Endometrial cancer

U.S./EU

Melanoma

U.S./EU

Glioma

U.S.

Ovarian cancer

Global Development Program


U.S. U.S./EU

A humanized IgG1 monoclonal antibody (MAb) that targets folate receptor alpha (FRA). Expected to exhibit an antitumor effect against carcinomas that over-express FRA. A Phase III study was initiated in Japan for ovarian cancer. The study is now ongoing in Europe, the United States and Japan, and is being conducted as a global development program.

Injection

MORAb-009 (amatuximab)

A chimeric IgG1 MAb that blocks the function of mesothelin. Expected to exhibit an antitumor effect against carcinomas that express mesothelin.

Injection

Mesothelioma

Dacogen®/ E7373 (decitabine)

Induces cell differentiation through inhibition of DNA methylation. Currently approved for the treatment of myelodysplastic syndromes (MDS) in the United States.

Injection

Additional Indication

E7850 (irofulven)

Expected to exhibit an anticancer effect against various solid tumors by inhibiting DNA synthesis.

E5501/ AKR-501

A novel, oral thrombopoietin receptor agonist that stimulates platelet production. Expected to exhibit effects against conditions that are associated with thrombocytopenia.

MORAb-003 (farletuzumab)

Acute myelogenous leukemia (AML)

U.S.

Injection

Prostate cancer, etc.

U.S.

Oral

Idiopathic thrombocytopenic purpura (ITP)

U.S.

Thrombocytopenia associated with liver disease (TLD)

U.S.

U.S.

E6014 (glutamine)

A topical, oral glutamine suspension for the treatment of chemotherapy-induced mucositis.

Oral Suspe.

Oral mucositis

ONTAK®/ E7272 (denileukin diftitox)

A fusion protein that combines the interleukin-2 (IL-2) receptor binding domain with diphtheria toxins. It specifically binds to IL-2 receptors on the cell surface, causing diphtheria toxins that have entered cells to inhibit protein synthesis. The agent is already approved in the United States as a treatment for CD25 (a component of the IL-2 receptor) positive cutaneous T-cell lymphoma.

Injection

Additional Indication

E7040

A hydrophilic microspherical particle produced from a polyvinyl alcohol polymer. An embolic bead that is injected through a catheter to physically and selectively embolize targeted blood vessels. Microscopic and uniformly spherical in shape, it allows for precise embolization of targeted vessels based on vascular diameter and tumor size.

Embolic agent

Melanoma

U.S.

Transcatheter arterial embolization in patients with hepatocellular carcinoma

Japan

FY2012

Submission being processed

FY2013

Dec. 2010

(2) Neurology Research Code (generic name)

Aricept®/ E2020 (donepezil)

Description

Form.

Development Status

Increases levels of the neurotransmitter acetylcholine in the brain by inhibiting its breakdown by the enzyme acetylcholinesterase, thereby slowing the overall progression of symptoms associated with Alzheimer’s disease. Currently approved in more than 90 countries around the world for the treatment of mild to moderate Alzheimer’s disease. It is also approved as a treatment for patients with severe Alzheimer’s disease in countries including the United States, Canada, Japan, and some Asian and South/Central American countries.

Oral

Additional Dosage & Administration, Formulation Higher dose 23mg tablet

Phase I

U.S.

Phase II

Phase III

Filed

Approved

Submission/ Target

July 2010

Japan

Additional indication Lewy body dementia

Japan

FY2012


25

Research Code (generic name)

E2007 (perampanel)

Description

Form.

Development Status

A selective AMPA-subtype glutamate receptor antagonist for the treatment of a variety of neurological disorders. Clinical studies investigating the potential of the agent as a treatment for generalized epilepsy, monotherapy for partial epilepsy, treatment for Lennox-Gastaut syndrome (LGS) as well as an adjunctive therapy for partial epilepsy are ongoing.

Oral

Epilepsy

Phase I

Phase II

Phase III

Filed

Approved

U.S./EU

Submission/ Target

Submission being processed*2

Japan Neuropathic pain

U.S./EU

Multiple sclerosis

EU

Migraine prophylaxis

U.S. U.S./EU

AS-3201 (ranirestat)

An aldose reductase inhibitor that is believed to reduce intracellular accumulation of sorbitol. Currently being investigated as a potential treatment for diabetic neuropathy, one of the most common diabetic complications.

Oral

Diabetic neuropathy

Zonegran®/ E2090 (zonisamide)

Believed to exhibit a broad anti-epileptic spectrum and is well-tolerated. Currently indicated as an adjunctive therapy in the treatment of patients with partial seizures.

Oral

Additional formulation Orally disintegrating tablet

II/III*1

EU

July 2010

Pediatric epilepsy

EU

FY2011

Monotherapy for epilepsy

EU

Amyotrophic lateral sclerosis (ALS)

Japan

Cervical dystonia

Japan

Jan. 2011

Insomnia

Japan

Nov. 2010

Additional indication

E0302 (mecobalamin)

A mecobalamin (vitamin B12 coenzyme) formulation. Restores damaged peripheral nerves and is widely used for the treatment of peripheral neuropathy. Currently being investigated as a potential treatment for amyotrophic lateral sclerosis (ALS).

NerBloc®/ E2014 (botulinum toxin type B)

Injection By acting specifically on motor nerve terminals at the neuromuscular junction, it inhibits the release of acetylcholine from the cholinergic nerve endings and exhibits muscle relaxant effects.

SEP-190 (eszopiclone)

A non-benzodiazepine-type allosteric GABA-A receptor agonist that may help patients with transient or short-term insomnia, as well as insomnia in the elderly.

Inovelon®/ (Europe) BANZEL® (U.S.)/ (rufinamide)

A triazole derivative that is structurally unrelated to currently Oral marketed antiepileptic drugs (AEDs). It is believed to regulate the activity of sodium channels in the brain which carry excessive electrical charges. The agent is approved in Europe (under the product name Inovelon®) and the United States (under the brand name BANZEL®) as an adjunctive therapy for LGS.

Injection

Oral

FY2011 II/III*

1

Additional formulation Oral suspension

Adjunctive therapy for LGS

U.S.

Mar 2011

EU

Sep. 2010 (accepted Oct. 2010)

Japan

FY2012

(3) Vascular and Immunological Reaction Research Code (generic name) ®

HUMIRA / D2E7 (adalimumab)

Description

Form.

Development Status

Phase I

A fully human monoclonal anti-TNF-alpha antibody that neutralizes the activity of tumor necrosis factor alpha (TNF-alpha), a type of cytokine that plays a central role in inflammatory reactions in patients with autoimmune diseases. Approved in Japan for the treatment of rheumatoid arthritis, psoriasis, Crohn’s disease and ankylosing spondylitis.

Injection

Additional indication Crohn’s disease

Filed

Approved

Submission/ Target

Japan

Oct. 2010 Oct. 2010

Juvenile idiopathic arthritis

Japan

Aug. 2010

Inhibition of structural damage of joints

Japan

FY2011

Ulcerative colitis

Japan

Exhibits endotoxin antagonist effects that inhibit isolation of inflammatory cytokines. Suppresses various clinical conditions caused by endotoxins.

Injection

Severe sepsis

Global Development Program

E5555

Selectively binds to the thrombin receptor (PAR-1) and inhibits platelet aggregation and vascular smooth muscle cell proliferation by suppressing thrombin-mediated cellular activation.

Oral

Acute coronary syndrome

Japan/U.S./EU

Atherothrombosis

Japan/U.S./EU

E6201

A novel MEK-1/MEKK-1 kinase inhibitor. Expected to inhibit inflammatory cellular signaling as well as overgrowth of epidermal cells in patients with psoriasis.

Topical

Psoriasis

U.S./EU

T-614 (iguratimod)

Suppresses inflammatory cytokine production and immunoglobulin production. Expected to exhibit effects against rheumatoid arthritis.

Oral

Rheumatoid arthritis

Japan

Tambocor®/ (flecainide)

Suppresses tachyarrhythmia by blocking cardiac sodium channels. Oral The agent was approved for the treatment of tachyarrhythmia (paroxysmal atrial fibrillation/flutter, paroxysmal superventricular tachycardia, ventricular tachycardia) in pediatric patients, in addition to the existing indication for the treatment of tachyarrhythmia (paroxysmal atrial fibrillation/flutter and ventricular tachycardia) in adults.

Additional Indication, Dosage & Administration

Exhibits anticoagulant effects by antagonizing vitamin K and inhibiting the production of blood clotting factors. Widely used for the treatment and prevention of thromboembolisms in adults. An application seeking approval for pediatric dosage and administration was submitted and approved in Japan after a special committee for the use of unapproved and off-label drugs for which there is a high medical need, operating under the Japanese Ministry of Health, Labour and Welfare, designated the agent as a drug that can provide significant clinical benefits to pediatric patients.

Additional Dosage & Administration

Oral

Phase III

Ankylosing spondylitis Japan

E5564 (eritoran)

Warfarin®/ (warfarin potassium)

Phase II

Tachyarrhythmia in pediatric patients

Japan

Pediatric dosage & administration

Japan

II/III*1

FY2011

FY2011

May 2010

Feb. 2011

Additional formulation Granules

Japan

June 2010

*1 Phase II/III means that clinical trials are being conducted through Phase II and Phase III *2 An application was accepted in Europe in June 2011.

26


Research Code (generic name) ®

Vasolan / (verapamil)

Description

Form.

Oral, Slows cardiac excitation and regulates tachyarrhythmia by Injection blocking calcium channels. Also exhibits coronary dilating and peripheral vasodilator action and is widely used as a treatment for ischemic heart disease and tachyarrhythmia in adults. An application seeking approval for pediatric dosage and administration was submitted in Japan after a special committee for the use of unapproved and off-label drugs for which there is a high medical need, operating under the Japanese Ministry of Health, Labour and Welfare, designated the agent as a drug that can provide significant clinical benefits to pediatric patients.

Development Status

Phase I

Phase II

Phase III

Filed

Approved

Submission/ Target

Additional Dosage & Administration: Pediatric dosage & administration

Japan

May 2011

(4) Gastrointestinal Disorders Research Code (generic name) ®

Pariet / AcipHex® E3810 (rabeprazole)

Description

Form.

Development Status

Phase I

A proton pump inhibitor approved for the treatment of gastric and duodenal ulcers, reflux esophagitis and eradication of Helicobacter pylori infections, etc.

Oral

Additional Indication, Additional Dosage & Administration Non-erosive gastroesophageal reflux disease

Phase II

Phase III

Filed

Approved

Submission/ Target

Japan

June 2010

Japan

June 2010

Additional Indication: Concomitant therapy for the eradication of Helicobacter pylori in gastric MALT lymphoma, idiopathic thrombocytopenic purpura, and the stomach after endoscopic resection of early stage gastric cancer

Additional Dosage & Administration Reflux esophagitis

Japan

Dec. 2010

U.S.

Mar. 2010 (accepted June 2010)

EU

Mar. 2010 (accepted Sep. 2010)

Additional formulation Extended-release 50mg formulation

Additional Indication Prevention of recurrence of gastric and duodenal ulcers during treatment with low-dosage aspirin

Japan

Functional dyspepsia

Japan

II/III*

(5) Development in Asia Research Code (generic name) ®

Glufast / (mitiglinide)

®

Gasmotin / (mosapride)

(clevudine)

Description

Form.

Development Status

By selectively binding to sulfonylurea receptors in pancreatic beta cells, it accelerates insulin release, resulting in the reduction of blood glucose. (In-licensed from Kissei Pharmaceutical Co., Ltd.)

Oral

Type 2 diabetes mellitus

A selective serotonin 5-HT4 receptor agonist that exhibits gastroprokinetic and gastric evacuation effects by enhancing acetylcholine release. (In-licensed from Dainippon Sumitomo Pharma Co., Ltd.)

Oral

Phase I

Phase II

Phase III

Filed

Approved

Submission/ Target

Thailand, Philippines Indonesia, Malaysia

Gastroprokinetic agent

Thailand, Philippines

Launched

Vietnam Malaysia, Myanmar, Laos, Cambodia

An antiviral drug that exerts an anti-HBV effect by inhibiting DNA Oral polymerase. (In-licensed from Bukwang Pharmaceutical Co., Ltd.)

Chronic hepatitis B

Philippines

Launched

Indonesia, Thailand, India, China

Urief®/ (silodosin)

A selective alpha 1A-adrenergic receptor antagonist. By selectively blocking alpha 1A-adrenergic receptors that are found primarily in the prostate gland, the compound reduces urethral resistance by relaxing certain prostate gland muscles, thereby improving dysuria associated with benign prostatic hyperplasia (BPH). (In-licensed from Kissei Pharmaceutical Co., Ltd.)

Oral

Dysuria associated with benign prostatic hyperplasia

Singapore

(cinitapride)

By stimulating 5-HT2 and 5-HT4 receptors found in the gastrointestinal tract, the agent increases acetylcholine release and improves upper gastrointestinal motility. Its antidopaminergic activity also helps stimulate the release of acetylcholine by blocking dopamine receptors, thereby improving upper gastrointestinal function. (In-licensed from Almirall, S.A.)

Oral

Functional dyspepsia

China

* Phase II/III means that clinical trials are being conducted through Phase II and Phase III (as of June 2011)


27

5


Investing for Future Growth and Creating Shareholder Value

Investing for Growth

M&A and Business Development

Over the next five-year span of the plan

Eisai will adopt a proactive stance toward

lead compounds more efficiently

“Hayabusa,” Eisai will continue working

investing in the development of a busi-

through screening based on a diversity-

to bolster cash generation capabilities,

ness platform and the creation of new

oriented compound library and target-

while striking a balance among investing

business models for East Asia and New

ing genetically defined or epigenetically

for growth, paying dividends, and repaying

Markets and ASEAN with high growth

identified diseases in order to clarify

debt. The key areas of investment focus

potential, as well as in the enrichment of

disease mechanisms. Furthermore, we

are: business growth and new business

the product line for Eisai’s franchise in

will work to increase the success rate of

model creation in East Asia, and New

the fields of the central nervous system,

clinical research and shorten develop-

Markets and ASEAN; enhancement of

liver disease and women’s oncology,

ment times by actively utilizing biomark-

product lines in the fields of women’s

among others.

ers that reflect clinical pathological

oncology and the central nervous system;

conditions. In this way, we intend to

the development of a technological plat-

Investing in Technology Platforms

maximize benefits provided to patients

form for focused medicine; and the estab-

• Supporting the transition to a focused

around the world.

lishment of a global p roduction framework.

medicine company

Cash Income (Billions of yen)

600

Image of Dividend Trajectory 750 billion yen level

800

570 billion yen level

400

40%+

30%+

200

25–30%

0

Approx. 300 billion yen

Strategic investment

Shareholder return

(Yen) 200

150

• DPS (dividends per share)150 yen+ • DOE (dividend on equity) 8%+ • FY2011–15 cumulative dividends = approx. 1/3 level of cumulative cash income

100

50

Debt repayment

0

’07/3–’11/3 Results

28

In the future, Eisai will aim to create


’12/3–’16/3 Target

’11/3 Results

’12/3 Target

’14/3 Target

’16/3 Target

Investment in Strategic Facilities

a true measure of shareholder value

• Monoclonal antibody production

creation known as the equity spread* .

We plan to construct a pilot production

We also aim to ensure stable and con-

of one-third of the cash available to each purpose.

2

plant for monoclonal antibodies such as

tinuous shareholder returns, maintaining

Shareholder Returns

MORAb-003, an anti-cancer agent, to

a dividend on equity (DOE) of at least

Eisai comprehensively takes consolidated

support steady clinical development.

8%. At the same time, to enable flexible

earnings performance, consolidated DOE

• Expansion of the Vizag Plant in India

balance sheet management, we plan to

and cash income into consideration in its

The Eisai Knowledge Centre in India

control the net debt-to-equity ratio below

basic stance of paying shareholders a

was established in December 2009 as

0.3, while both reducing WACC*3 and

continuous and steady stream of retained

the fourth Eisai Knowledge Center to

maintaining corporate credit rating.

earnings as dividends. DOE is a hybrid

integrate production of API, and formulations and processes for API, in a single location. The facility is scheduled to reach full annual production capacity of 2.0 billion tablets during fiscal 2013.

policy comprised of two indices for share-

*1 Assumed cost of equity capital: 8% *2 Equity spread (%): ROE – cost of equity *3 WACC: weighted average cost of capital

holders: the dividend payout ratio (DPR), which is the proportion of profit distributed to shareholders as income gain, and

Cash Income

return on equity (ROE), which measures

Eisai uses cash income as an indicator

how effectively a company is able to

of its ability to generate cash. Under the

Creating Shareholder Value Eisai aims to be a global top-tier company in terms of creating shareholder value. By pursuing further enhancement in profitability and capital efficiency, we aim to achieve an operating income margin of at least 25% and ROE of at least 20% in fiscal 2015. We have also set a target of 15 percentage points for the difference between ROE and the cost of equity* , 1

produce a profit with the money invested

plan “Hayabusa,” the target for cash

by shareholders, as capital gain. Eisai

income in fiscal 2015 is ¥170 billion.

believes that a comprehensive evaluation

Cash income is used to make invest-

of consolidated earnings performance,

ments for future growth, to fund divi-

DOE and the distribution of cash income

dends to shareholders, and to

is a balanced metric useful in the

strengthen the financial position, including by debt repayment. From a mediumterm perspective, Eisai believes it is important to make a balanced allocation

ROE

medium-term valuation of shareholder returns. Moreover, Eisai’s policy is to maintain a flexible stance in executing share buybacks when appropriate.

Steady Increase of Cash Income

(%)

CAGR 8%

25

20

’11/3 Results

’16/3 Target

Cash income of 120 billion yen

Aim at cash income of 170 billion yen

15

Value Creation of Shareholders (Equity Spread*1) 10

5

v Strategic investment v Dividends v Debt repayment

Cost of Equity*2

Allocating approx. 1/3 of cash income in the mid-term range

0

’11/3 Results

’12/3 Target

’14/3 Target

’16/3 Target

DOE of 8%+

Striving to maintain and increase dividends

*1 Equity spread: ROE – cost of equity (%) *2 Assuming 8% level of cost of equity Eisai Co., Ltd. Annual Report 2011

29

Corporate Social Responsibility

hhc Activities Eisai’s corporate philosophy is to give first thought to patients and their families, and to increase the benefits that health care provides to them. Guided by this corporate philosophy, all corporate officers and employees are w orking as one to meet diversified health care needs worldwide. By doing so, Eisai aims to be a “human health care (hhc) company” capable of making a meaningful contribution under any health care system. Eisai incorporated this basic concept within its Articles of Incorporation so that it may be shared with shareholders.

Corporate Philosophy 1. The Company’s Corporate Philosophy is to give first thought to patients and their families, and to increase the benefits that health care provides to them. Under this concept, the Company endeavors to become a human health care (hhc) company. 2. The Company’s mission is the enhancement of patient satisfaction. The Company believes that sales and earnings will be generated as a consequence of the fulfillment of this mission. The Company places importance on this positive sequence of the mission and the ensuing results. 3. Positioning compliance (adherence to legal and ethical standards) as the core of all business activities, the Company strives to fulfill corporate social responsibilities. 4. The Company’s principal stakeholders are patients and their families, shareholders, and its employees. The Company seeks to develop and maintain a good relationship with stakeholders and enhance the value they receive, through the following. (1) Satisfying unmet medical needs, ensuring a stable supply of high-quality products, and providing useful information regarding safety and efficacy. (2) Timely disclosure of management information, improvement of corporate value, and proactive return to shareholders. (3) Ensuring stable employment, offering fulfilling work, and providing a full range of opportunities for the development of capabilities. Excerpt from the Articles of Incorporation, Chapter I, Article 2

All corporate officers and employees in every department and organization in Eisai are globally engaged in hhc activities with the aim of benefiting patients throughout the world through realization of the corporate philosophy.

The Launch of an Alzheimer’s Disease Patient Support Program There is limited awareness of Alzheimer’s disease in Indonesia, and the consultation rate is low. The medication compliance (taking medication as prescribed) of those who have consulted with physicians is also not at a very high level. A patient support program was launched by a marketing subsidiary in Indonesia, PT Eisai Indonesia, as one of the measures to resolve these issues. In this program, a team comprised of a medical professional and an employee visits patients. Awareness of the disease as well as medication compliance was improved through the provision of information, such as the offering of advice from physicians on taking medication, the provision of support for at-home care, the organization of meetings with patients and their caregivers, and the issuance of newsletters. Such activities enabled employees to deeply understand the feelings of patients and caregivers and take a step forward toward the resolution of issues. Patient support program

30


pplying the Concerns and Anxieties of Patients to A Product Creation Researchers at the Tsukuba Research Laboratories are executing an hhc activity in which they learn the concerns and anxieties of patients and their families at the medical front-line through volunteer activities at hospitals and exchanges with patient support groups, and apply their newly acquired knowledge in product creation. “I feel sleepy and can’t focus on work, and people think that I am being lazy or taking too much time off.” This was the heartfelt concern of a patient taking anti-epilepsy medication, who was feeling anxious about returning to work due to the side effects of the medication. Upon hearing this, researchers became aware of the need for medication that not only suppressed seizures but also had little central depressant action, such as drowsiness. These experiences resulted in the researchers creating a new exploratory research method that emphasized the evaluation of a formulation’s central depressant action. This method was utilized to promptly and successfully identify new drug candidate compounds that not only had an adequate effect toward controlling seizures but also little central depressant action.

he Great East Japan Earthquake: hhc Activities T in Afflicted Areas We would like to express our deepest sympathies to those affected by the Great East Japan Earthquake. Following the earthquake, Eisai immediately established a local task force. All employees in the Tohoku region have been working as one and beyond the framework of the geographic areas to which they are normally assigned to provide relief support activities to patients, their families, and consumers in affected areas as part of human health care activities based on Eisai’s corporate philosophy. Specifically, Eisai has provided its prescription drugs (antithrombotic agents, bronchodilating agents, antianginal agents, gastrointestinal agents, etc.) as well as general medical devices (measuring devices for simplified and swift blood coagulation tests) free of charge to medical associations, medical

institutions and academic societies in relevant prefectures for use at the medical front-line in the affected areas. Furthermore, local Eisai medical representatives (MR; providers of hhc activities in afflicted areas medical information) have provided, free of charge, the Company’s products that meet the needs of the affected areas (e.g. cleansing cotton, vitamin drinks, skincare creams, etc.). Eisai will continue to involve itself in disaster relief activities.

For All Employees Believing that employees are also important stakeholders, Eisai works to create workplaces where all employees can find fulfillment proactively engaging in daily business activities.

ersonnel Development Programs That Promote the P Achievement of the hhc Philosophy In order to achieve the hhc philosophy globally, Eisai carries out the global development of talented employees who will support the continuous future growth of Eisai. Such approaches include leadership programs for managers of every region, short-term internship programs at overseas subsidiaries for young employees, and other personnel exchange programs that go beyond national borders. The Talent Innovation HQ—which carries out total human resources management, such as recruitment, development, assessment, and staffing—was established in June 2011 to build and realize various human resources systems that respond to changes in global business and work environments, and lead to the maximization of employee value. Moreover, Chief Talent Officer was appointed to supervise those functions. Furthermore, in order to attain the hhc philosophy through day-today operations, Eisai emphasizes the development of talented employees who can perceive and consider ways of responding to the “feelings and realities” of patients on their own and sincerely reflect their insights into their daily work. One of these programs is on-site experience training at health care facilities. Besides attending lectures by various medical professionals working at the front lines of health care, visiting medical facilities, experiencing physical therapy processes, and exchanging opinions with various medical professionals, this training program also involves activities that bring employees into direct contact with patients and thereby encourage

employees to deliberate and act on their own understanding of patients’ perspectives. Eisai also organizes other training programs— such as designated and voluntary training sessions and skill enhancement training programs—that are adapted to employees’ characteristics and capabilities.

Creating Workplaces With Ideal Working Conditions The Company aims to create workplaces where every employee can work towards achievement of the hhc philosophy with a rewarding sense of satisfaction. Flexible duty systems that respond to an employee’s job type include flexible working hours and discretionary work, while leave of absence and short-time work systems for the purpose of providing childcare or nursing care for family members support the employee’s achievement of a work-life balance. Together with enriching such systems, the Company also offers systems that enable volunteer leave and donor leave, thereby supporting employees’ contribution to society. It also provides mental health care programs and health maintenance guidance by industrial physicians. In these ways, the Company is striving to create workplaces that enable each and every employee to work with vitality. Employee training


31

Compliance In day-to-day corporate activities, various decisions or judgments are required. Eisai believes that compliance (with regulations and ethical standards) should be fundamental in making such decisions. Believing that top priority in corporate activities should be given to compliance and recognizing that compliance is the basis for corporate survival, Eisai has a rticulated its concept of compliance in its corporate philosophy, which is incorporated within its Articles of Incorporation.

Compliance Promotion System Eisai has been promoting global compliance through a system with divisions established in Japan, the United States, and Europe, which are responsible for the promotion of compliance. An Executive Officer responsible for promoting and supervising compliance, who is appointed under the Chief Compliance Officer, leads the divisions dedicated to the promotion of corporate ethics. Eisai’s compliance promotion programs are assessed on a regular basis by the Compliance Committee. The Compliance Committee, an advisory organization consisting primarily of outside legal specialists that include lawyers and consultants from Japan, the United States, and Europe, conducts an objective review of compliance activities on a regular basis, and offers necessary advice and recommendations to the Chief Compliance Officer.

Compliance Handbook To enable all officers and employees to carry out their activities with the same compliance mindset, the Company has developed the “Compliance Handbook,” which includes the “ENC* Charter of Business Conduct”—the basis of Eisai’s business activities—and the “ENC Conduct Guidelines” that lays out the concept. Providing an easy-to-understand explanation of the compliance charter and guidelines, the handbook is available in Japanese, English, Chinese, and 14 other languages, and it is effectively p romoting a rigorous compliance mindset among all officers and employees around the globe. * ENC (Eisai Network companies) refers to the corporate group composed of Eisai Co., Ltd. and its consolidated subsidiaries and affiliates.

Compliance Handbook

32


Compliance Cards Each corporate officer and employee must always carry a Compliance Card, bearing the name ENC Compliance Test, enabling them to constantly self-examine and check their behavior.

Training System Eisai is conducting various training initiatives as internal compliance programs. This Compliance Card includes seminars for top management, programs focusing on a specific department or specific personnel, such as newly appointed managers or newly hired employees, risk-assessment programs* and compliance e-learning, which enables employees to study at their convenience. * Risk-assessment programs are training in which compliance risks detected by each employee are analyzed and assessed through group discussions that include lawyers.

Compliance Counter In April 2000, the Company established the Compliance Counter, which is an in-house compliance consulting service for all officers and employees to utilize whenever they have compliance concerns about their own conduct or the conduct of their supervisors or colleagues. Working to create an environment that promotes the strengthening of compliance, we have also established an outside desk staffed by lawyers and an outside consultation desk staffed by non-Eisai consulting staff.

Environmental Protection

IN DETAIL

Environmental and Social Report http://www.eisai.com/responsibility/esreport/index.html

All officers and employees of Eisai, under the environmental management system based on the “Eisai Network Companies Environmental Protection Policy,” share the basic policy of environmental protection. Environmental protection activities are being executed not only in Japan but also on a global basis, including those being carried out through the establishment of an environmental protection committee at the North Carolina Plant in the United States, and the acquisition of the ISO14001 certification by the Suzhou Plant in China.

Global Warming Prevention Eisai has set the goal of “reducing its average annual CO2 emissions during the five-year period from fiscal 2008 to fiscal 2012 to the fiscal 1990 level.” The Company is promoting the shift to efficient forms of energy and the use of waste heat, mainly among plants and research laboratories that heavily consume energy. Eisai is also continuing to strive to reduce its emission of CO2 through the conversion of its fleet of cars used by its medical representatives to hybrid-drive vehicles, and by other means. Promoting Waste Reduction and Recycling With the aim of reducing waste matter, Eisai is working to reduce waste product volume, the volume of waste matter ultimately disposed as landfills, and expand recycling. During the fiscal year 2010, Eisai reduced the proportion of its volume in waste matter ultimately disposed as landfill to less than 1%.

Management of Chemical Substances To prevent environmental pollution, Eisai is working to promote the appropriate management, reduced usage, and greater recycling of chemical substances at all stages of operations, from procurement to usage and disposal processes. Furthermore, it is involved in carrying out environmental education. Green Purchasing Having established the “Eisai Guidelines on Green Purchasing” in 2001, Eisai has been giving priority to the procurement of environmentally friendly goods with minimal environmental impact. The Company is promoting the circulation of feedback information on monthly green purchasing ratios throughout the organization with the goal of enhancing greenpurchasing awareness among our employees. In addition, the Company is also striving to apply green-purchasing principles to the procurement of packaging materials.

Philanthropy Eisai’s social contribution activities primarily promote progress in medical science. Eisai opened the Naito Museum of Pharmaceutical Science and Industry to the public free of charge; provides operational support for the Health Care Science Institute, which supports medical and pharmaceutical research; and has co-sponsored the Health and Medical Care C ontributions Awards for healthcare professionals with outstanding medical achievements over many years. Naito Museum of Pharmaceutical Science and Industry The Naito Museum of Pharmaceutical Science and Industry, Japan’s first museum devoted to pharmaceuticals, was established in 1971 by Toyoji Naito, the founder of Eisai. Admission to the museum is free of charge, and visitors can view approximately 2,000 items selected from the museum’s collection of more than 65,000 materials and 62,000 books. In February 2009, it was recognized as a modern industrial heritage by the Ministry of Economy, Trade and Industry. On January 26, 2010 it reopened after renovations with all descriptions having English translations alongside. Approximately 42,000 people visited the museum in the fiscal year ended March 31, 2011, and the museum’s cumulative total number of visitors has surpassed 1.34 million. IN DETAIL

http://www.eisai.co.jp/museum/english/index.html

The Naito Foundation The Naito Foundation was established in 1969 by Eisai and its founder, Toyoji Naito, to contribute to the advancement of science and human welfare. Each year, the Foundation provides financial support for leadingedge researchers. In fiscal 2010, the Foundation provided financial support totaling 400 million yen for 257 projects, including science promotion prizes and science incentive grants. IN DETAIL

research and surveys related to pharmaceuticals and associated sciences. In addition to publishing the Healthcare and Society periodical outlining research achievements, the Institute organizes research conventions and symposia to provide venues for discussions among specialists. In October 2010, the Institute’s 20th Symposium discussed the topics of the management of healthcare organizations. IN DETAIL

http://www.iken.org/english/misson.html

Health and Medical Care Contributions Awards Since 1986, Eisai has co-sponsored the Health and Medical Care Contributions Awards*. The awards spotlight healthcare professionals with outstanding achievements in providing medical services over many years amid challenging environments. In fiscal 2010, 15 domestic recipients and 3 overseas recipients were presented with awards. *M ain sponsor: Yomiuri Shimbun; Adjunct sponsors: Ministry of Health, Labour and Welfare, and Nippon Television Network Corporation IN DETAIL

http://www.eisai.co.jp/social/program.html#awards

http://www.naito-f.or.jp/index.php?lang=en

The Health Care Science Institute The Health Care Science Institute was established in 1990, funded by a donation marking the 50th anniversary of the foundation of Eisai Co., Ltd., with the aim of promoting the progress of medical therapy and human welfare in Japan by conducting economic surveys and research related to medical therapy and pharmaceuticals; conducting economic surveys and research focused on R&D, manufacturing, distribution, and other subjects related to pharmaceuticals; and promoting academic

Naito Museum of Pharmaceutical Science and Industry

Health and Medical Care Contributions Awards Ceremony Eisai Co., Ltd. Annual Report 2011

33

Share Information and Return to Shareholders

Eisai is devoted to providing sustainable and stable dividends to its shareholders based on the consideration of its consolidated financial performance along with the consolidated dividend on equity (DOE)*1 ratio as well as allocation of cash income.*2 DOE is a hybrid policy for generating shareholder value that incorporates the elements of both the dividend payout ratio (DPR), an income gain indicator that denotes profit distributed to shareholders, and return on equity (ROE), a capital gain indicator that measures how effectively a company is able to produce a profit with the money invested by shareholders. Eisai’s fundamental stance is to maintain DOE higher than 8% based on the concept of using cash dividends to repatriate the cost of equity. Cash income represents corporate ability to earn cash. Cash income will be used for such purposes as providing dividends to shareholders, making investments for future growth, and strengthening financial capabilities, including the repayment of borrowings. From a mediumterm perspective, Eisai believes that it is important to make a well-balanced allocation of approximately 1/3 of the cash available for each purpose. Moreover, acquisition of treasury stock will be carried out on a timely basis. Eisai is a Company with Committees System, and the Articles of Incorporation provide that the dividend payment should be resolved at a Board of Directors meeting in order to facilitate flexible payment. Based on its basic policy to provide sustainable and stable dividends to its shareholders, Eisai set the year-end dividend for the fiscal year ended March 31, 2011 at 80 yen per share. Combined with the interim dividend of 70 yen per share, this resulted in an annual dividend of 150 yen per share (same as the previous year), and the dividend on equity (DOE) ratio was 10.4%. *1 Dividend on equity (DOE) ratio = Dividend payout ratio (DPR) x Return on equity (ROE) *2 Cash income is equivalent to the total amount of cash available for use for such purposes as growth investment/business, dividend payment, and the repayment of borrowings. Cash income = Net income (loss) + Depreciation of PP&E and amortization of intangible assets + In-process R&D expenses + Amortization of goodwill + Loss on impairment of long-lived assets (including loss on devaluation of investment securities)

Cash Dividends per Share (DPS) and Dividend on Equity (DOE) (Yen)

(%) 150

130

120 100

90

9.1


10.1

10.4

12

8

50

4

0

0

’06/3

’07/3

’08/3

’09/3

’10/3

’11/3

m DPS = Dividends per Share (left scale) DOE: Dividend on Equity = ROE x Dividend Payout Ratio (right scale) m

Stock Price (%)

150 m

m

100 m

Eisai Stock Price Nikkei Average TOPIX

50

0

’06/3

’07/3

’08/3

’09/3

’10/3

’11/3

* Stock price on April 1, 2006 = 100 for Nikkei and TOPIX indices

Top 10 Shareholders* (As of March 31, 2011)

Principal shareholders

Number of shares held (thousands)**

Equity position (%)

15,856 15,344 12,617 10,000 7,005 5,924 4,680 4,521 4,207 3,617

5.56 5.38 4.43 3.51 2.46 2.08 1.64 1.59 1.48 1.27

Japan Trustee Services Bank, Ltd. (trust account) Nippon Life Insurance Company The Master Trust Bank of Japan, Ltd. (trust account) Saitama Resona Bank, Limited Eisai Employee Shareholding Association SSBT OD05 OMNIBUS ACCOUNT-TREATY CLIENTS Mizuho Corporate Bank, Ltd. National Mutual Insurance Federation of Agricultural Cooperatives The Naito Foundation Mizuho Bank, Ltd. * Treasury stock (11,608 thousands shares, 3.91%) is excluded as it has no voting rights. ** Numbers of shares less than one thousand have been omitted.

Change in Breakdown of Shares Held by Category v Financial Institutions v Financial Instruments and Exchange Companies (Securities Companies) v Other Japanese Corporations v Outside Japan, etc. v Treasury Stock v Individuals and Others

43.9%

20.4%

37.8%

33.1%

3.9%

March 31, 2010

March 31, 2011

3.9%

20.8% 7.5%

34

150

7.4

6.4

5.3

140

150

3.5%

15.1%

2.0% 8.1%

Corporate Governance

Eisai has stipulated its human health care philosophy in its Articles of Incorporation and endeavors to share this mission with its shareholders. To realize human health care, Eisai recognizes that it must carry out company policies with a long-term perspective, and that putting forward such policies is only possible with the trust of its shareholders. Accordingly, Eisai is working to enhance its corporate governance, gain the trust of its shareholders, and ensure that company shares are secure over the long term for shareholders. To effectively carry out corporate governance, Eisai has established a system designed to stimulate corporate vitality, ensure fair management, and enhance the transparency of management. Eisai strives to continuously enhance management practices related to corporate governance, and to this end, adopted the Company with Committees System in June 2004.

Central to Eisai’s corporate governance is the clear separation between the functions of supervision and operation that makes the most of the Company with Committees System. In order to ensure this separation, outside directors with independence and neutrality are appointed. By having the Board of Directors delegate business decision-making exclusively to officers, Eisai ensures the increased mobility and flexibility of officers involved in operations, as well as autonomy in establishing internal controls, thereby increasing management dynamism. Entrusted by the shareholders, the Board of Directors, in which the majority of members are outside directors, focuses on overall supervision activities to ensure objectivity and fairness in management.

Eisai’s Corporate Governance System General Meeting of Shareholders

Management Audit Department Collaboration

Audit by Committee Accounting Audits Accounting Auditor

Broadly delegate Company management decisions to Executive Officers

Audit Committee 5 members (3 outside, 2 inside) Chair: Outside Director

Audit by Committee

Board of Directors: 11 members (7 outside, 4 inside) Chair: Outside Director Nomination Committee 3 members (All members are Outside Directors)

Executing Division

Compensation Committee 3 members (All members are Outside Directors)

Independent Committee of Outside Directors 7 members (All members are Outside Directors)

Board of Directors’ Secretariat

President and CEO

Executive Officer responsible for promotion of internal controls Corporate Internal Control Department Corporate Internal Audit Department

Executive Board Executive Officers Individual divisions/ subsidiaries inside and outside Japan

Maintenance of internal control system/internal audits

Special Features of Eisai’s Corporate Governance System n As far as allowed by law, the Board of Directors shall broadly delegate company management decisions to Executive Officers, and focus exclusively on management oversight. n The Board of Directors shall be composed of members who have a diverse range of specialized professional knowledge and experience. Outside Directors shall constitute the majority of the Board of Directors. n The Chair of the Board of Directors shall, in principle, be an Outside Director and be separated from the President and CEO. n Outside Directors shall not only meet the necessary requirements for the Companies Act but also be independent of the Company. n The Nomination Committee and Compensation Committee shall be composed solely of Outside Directors.

nO utside Directors shall constitute the majority of the Audit Committee, with the remainder consisting of Inside Directors who are well informed about matters within the Company. nT he Chairs of the Nomination Committee, the Audit Committee, and the Compensation Committee shall be Outside Directors. nT he President and CEO shall be the only Director with additional duties as an Executive Officer. nA meeting attended solely by the Outside Directors will be held once each year. n The Board of Directors will conduct a review of its own activities once each year in conformance with corporate governance guidelines. n The Independent Committee of Outside Directors, composed entirely of Outside Directors, will be formed, and it shall be responsible for maintenance, revision, and abolition of matters related to the “Policy for Protection of the Company’s Corporate Value and Common Interests of Shareholders.”

The Board of Directors has developed the corporate governance guidelines with a view to achieving the best possible corporate governance. The guidelines are reviewed regularly and applied strictly. Corporate Governance Guidelines

http://www.eisai.com/company/cgguideline.html Eisai Co., Ltd. Annual Report 2011

35

Audit System Operating under a Company with Committees System, Eisai’s audit system is centered on the Audit Committee, the majority of which is composed of outside directors, with the Management Audit Department established to assist the Audit Committee in the execution of duties. The Audit Committee directs the Management Audit Department and collaborates with the Accounting Auditor and the Corporate Internal Audit Department.

Audit Committee The Inside Directors serving on the Audit Committee and the Management Audit Department collaborate and arrange regular meetings with the Executive Officer responsible for internal control, the Corporate Internal Audit Department, and the Corporate Internal Control Department as needs arise. The meetings are held to share general audit information and exchange opinions on the status of internal control measures. Moreover, the Audit Committee receives the internal audit reports of Eisai Network Companies (ENC)* from the Corporate Internal Audit Department. The organizational units, personnel, and procedures, etc., related to audits performed by the Audit Committee are as shown below. Unit

Staff

Procedures, etc.

Audit Committee

5 persons 3 Outside Directors 2 Inside Directors Chair: Outside Director

Management Audit Department

5 persons

The Audit Committee audits according to the annual audit plan based on the various rules including: (1) Rules of the Audit Committee (2) Rules Concerning Items Necessary for Performance of Duties by the Audit Committee (3) Auditing Standards for Audit Committee

To ensure the fairness and transparency of audits, the independence of the Management Audit Department personnel from the Executive Officers is guaranteed. * ENC (Eisai Network Companies) refers to the corporate group composed of Eisai Co., Ltd. and its consolidated subsidiaries and affiliates.

Internal Audit The Corporate Internal Audit Department performs internal audits under the supervision of the Executive Officer responsible for internal control. The related organizational units, personnel, and procedures, etc., are as shown below. Unit

Staff

Procedures, etc.

Executive Officer Responsible for Internal Control

1 person

Corporate Internal Audit Department

16 persons

The Corporate Internal Audit Department audits according to the annual internal audit plan based on the Internal Control Policy and the various rules including: (1) ENC Internal Audit Standard (2) E NC Implementation and Assessment Standard for Internal Controls Over Financial Reporting

Collaboration Between the Audit Committee and the Accounting Auditor The Audit Committee collaborates with the Accounting Auditor through the following activities, thereby endeavoring to improve the quality of audits. • The Audit Committee confirms the yearly accounting audit plans of the Accounting Auditor in advance and obtains a copy of the plan. • The Audit Committee obtains and reviews the auditing opinions and recommendations of the Accounting Auditor regarding quarterly and year-end financial statements (consolidated and nonconsolidated). • The Audit Committee obtains information regarding the important audit activities implemented by the Accounting Auditor (visiting audits of ENC, etc.). • The Audit Committee obtains information concerning the internal control audit executed by the Accounting Auditor. • The Audit Committee continuously confirms the status of internal control related to Article 131 of the Rules of Company Accounting of the Accounting Auditor.

36


Collaboration Between the Audit Committee, and the Corporate Internal Audit Department and the Corporate Internal Control Department The Audit Committee collaborates with the Corporate Internal Audit Department, the Corporate Internal Control Department, and the Executive Officer responsible for internal control through the following activities, thereby aiming to achieve efficient audits. • The Audit Committee shares information related to internal control promotion activities and overall auditing activities through the Audit Council Meeting. •T he Audit Committee confirms the internal audit plans (annual plan and individual plans) of the Corporate Internal Audit Department in advance and obtains copies of the plans in order to achieve c onsistency between the Audit Committee’s auditing activities and internal audits. • The Audit Committee obtains copies, from the Corporate Internal Audit Department, of the annual audit plans and the results of individual audits carried out by the internal audit department of ENC. • The Audit Committee obtains information on a regular basis concerning the status of internal control over financial reporting under the Financial Instruments and Exchange Act. • The Audit Committee obtains reports on a regular basis regarding the status of efforts in internal control related to risk management. • Outside the Audit Council Meeting as well, the Audit Committee promptly shares information regarding matters of urgency related to internal control or internal audits.

Internal Control Internal Control Promotion and Assessment Eisai regards internal control as the “structure and processes established and managed internally to ensure proper and efficient operations.” In light of this, it executes the design and assessment of Group-wide internal control through the Corporate Internal Control Department for the promotion of the internal control system on a global basis and the Corporate Internal Audit Department for objective assessment, established under the supervision of an E xecutive Officer responsible for internal control. In specific terms, Eisai has established the “Basic Policy for Internal Control” and “Principles of Conduct for Internal Control,” and set up controlling organizations in each region, and is enhancing collaboration between these organizations. At the same time, Eisai places importance on the promotion of the strengthening of its internal control structure through its global committee related to internal control, etc.

The objectives of Eisai’s internal control are to ensure: 1) the reliability of the Group’s financial reporting; 2) the effectiveness and efficiency of business operations; 3) compliance, and 4) the safeguarding of Group assets. For the purpose of making continuous improvements to the state of internal control, Eisai implements a Control Self-Assessment (CSA) every year for the whole of ENC to detect risks in everyday operations. The Group strives to stimulate the risk management cycle (identification, evaluation, response and monitoring of risks) through the CSAs and improve its control activities. The assessment of the Group’s internal control is executed through internal audits by the Corporate Internal Audit Department, which are carried out in collaboration with the internal control departments of ENC. The Corporate Internal Audit Department strives to execute high-quality internal audits and is regularly assessed by an external institution to confirm the quality of its internal control as well as improve the quality of audits meeting global standards.

Basic Policy for Internal Control Eisai Network Companies (ENC) are driving our business toward the realization of our corporate vision under the hhc and compliance philosophies and aiming continuously at enhancing the corporate value of the entire Eisai Group. In order for ENC to achieve these goals, it is essential to establish and implement internal controls to deal with significant risks that may affect “Compliance with applicable legal and ethical standards,” “Effectiveness and efficiency of operations,” and “Reliability of financial reporting.” Therefore, we, as the officers, managers and employees of ENC, will commit ourselves to establishing and implementing internal controls.

Principles of Conduct for Internal Control 1. We will develop an environment to appropriately deal with risks such as organizational decision making procedures, committees, job descriptions, and the organizational culture. 2. We will identify and assess risks that may affect our overall business and operational processes, and take countermeasures. 3. We will develop and implement control mechanisms, such as internal rules and work processes, to manage risks. 4. We will appropriately develop and retain information related to internal controls and effectively communicate the information with relevant persons. 5. We will review our status of internal controls independently and enhance their effectiveness through third-party reviews.


37

Ensuring the Reliability of Financial Reporting The reliability of financial reporting is ensured through appropriate response to “Internal Control Reporting” under the Financial Instruments and Exchange Act. For this purpose, the Corporate Internal Control Department is continuously executing, in collaboration with the Accounting Auditors, design of “Internal Controls over Financial Reporting.” This is executed in relation to the maintenance of “entity level internal control,” which has a major impact on the overall consolidated financial report, and “process level internal control,” which is incorporated into and executed as one with operational processes. All ENCs (with the exception of those companies that would only have a minimal impact on the financial report) are subject to these activities. Regarding “entity level internal control,” a review of internal control procedures, etc., is executed by each ENC every six months using a written inquiry for promoting “entity level internal control,” that is drafted by the Corporate Internal Control Department. The design of “Internal Controls over Financial Reporting” is thus executed on an ongoing basis. As for “process level internal control,” its maintenance is executed by the Company, Eisai Inc. (United States), and those ENCs that have operational processes that contain high risks.

Various other measures to further promote activities related to “Internal Controls over Financial Reporting” are also being executed towards each ENC, such as the provision of software that serves as support tools for the promotion of “Internal Control over Financial Reporting” and the adoption of a self-monitoring method by the Group. Assessment of the design and operation of “entity level control” and “process level internal control” is executed once a year as onsite audits by the Corporate Internal Audit Department at the Company, Eisai Inc. (United States), and those ENCs that have operational processes that contain high risks. As for those ENCs other than the aforementioned, on-site audits were executed once at each company in the three-year period between the fiscal year ended March 31, 2009 and the fiscal year ended March 31, 2011. Countermeasures are established and efforts toward improvement are made for any “deficiencies” related to maintenance or operation of the internal controls that were discovered in the on-site audits. Regarding the Company’s Internal Control Report, responsible officers at the Company’s subsidiaries and the heads of each department submit a back-up certification for internal control based on the aforementioned assessment of design and operation of internal controls, and both the Chief Executive Officer (CEO) and Chief Financial Officer (CFO) approve the Internal Control Report that has been reviewed by the Executive Officer responsible for internal control. There were no “material deficiencies” contained in the Internal Control Reports for the fiscal year ended March 31, 2009 when the “Internal Control Reporting System” began, or for the fiscal year ended March 31, 2010.

Internal Control Policy Executive Officer Responsible for Internal Control Corporate Internal Control Department

Internal Audit Department

Maintenance/Promotion of internal control

Objective assessment

Eisai and its Group Companies

Development of internal control on financial reporting

Control Self-Assessment (CSA)

Maintenance and operation of the internal control systems

Reliability of financial reporting

Effectiveness and efficiency of operations

Compliance

ENC Internal Control Policy

38


Safeguarding of assets

Eisai is working to continuously improve corporate governance with a particular emphasis on its stakeholders Koichi Masuda Outside Director (Chair of Audit Committee and Member of Independent Committee of Outside Directors)

Q: One year has passed since you became an Outside Director at Eisai. What are your impressions of Eisai today? A: I think that Eisai is a very progressive company where all Eisai employees constantly think from the patient’s perspective and understand that business activities should be aimed at improving patient value. Moreover, this corporate vision is a consistent point of focus throughout management. Many organizations are attempting to shift their focus in business activity from the supply side to the user side, but I think few companies are thorough when it comes to this. Eisai stands out from the rest, as the human health care (hhc) philosophy is understood throughout the organization. In addition, this philosophy is stipulated in the Articles of Incorporation and shared with all Eisai shareholders. I find that extraordinary. I also think that the organization is very open. There is a deep-seated culture of communicating what needs to be said among all Officers and employees that is not constrained by rank or department. You can see this in the way the Board of Directors conduct their meetings, the way the staff operate in the Management Audit Department work, and the way the Audit Committee conducts itself. This openness fosters active communication within the company and, in my view, helps Eisai to

respond to the diverse needs of patients and other stakeholders.

Q: What is your impression of Eisai’s corporate governance? A: Eisai is one of the most innovative thinkers with regard to corporate governance and putting that governance into practice in Japan. In my capacity as a certified public accountant and overseeing the Japanese Institute of Certified Public Accountants, I have come in contact with many companies over the years and been involved with various companies progressively engaged in corporate governance. Even compared to those companies, to my knowledge, Eisai maintains a particularly high level of corporate governance. Obviously, Eisai has done a good job of bringing in outside expertise for building a strong corporate governance system. However, I think an outstanding characteristic of Eisai’s corporate governance is its consistent and acute awareness of potential issues with the existing corporate organization and efforts to make improvements. A humanly built system is never perfect, so companies must always make an effort to improve the existing system. I sense that Eisai is a company where all the officers and employees are always alerted and actively engaged in discussing ways to solve problems and make improvements to

the existing management system. I think that Eisai also takes a particularly sincere approach to accountability for stakeholders. My theory is that sound conduct at the General Meeting of Shareholders is usually an indicator of whether a company’s corporate governance is functioning. At a recent General Meeting of the Shareholders, there were 23 questions share holders raised during the Q&A session, and Eisai’s management took the time to respond to each one in detail.

Q: In your opinion, what needs to be done to improve Eisai’s corporate value? A: The world is going through a period of major change. We are on the verge of entering an “Era of Great Globalization.” Advances in IT and other means of communication imply that a wide range of company information can be communicated around the world faster, while companies are facing more diverse and far greater risks. I think that risk management is crucial if Eisai is to increase corporate value and protect various stakeholder benefits continuously. As a Director at Eisai, my mission is to guide the company down the path of nurturing human resources and building an organization fittingly capable of responding to those growing and diversifying risks.


39

Board of Directors and Executive Officers Directors (As of June 30, 2011)

Haruo Naito

(President and CEO) Oct. Apr. Jun. Apr. Jun. Jun.

1975 1983 1983 1985 1985 1986

Jun. 1987 Apr. 1988 Jun. 2003 Jun. 2004 Jan. 2006

Joined the Company Senior Director, R&D Promotion Department of the Company Director of the Company General Manager, R&D of the Company Managing Director of the Company Representative Director and Senior Managing Director of the Company Representative Director and Deputy President of the Company Representative Director and President of the Company Representative Director, President, and Chief Executive Officer (CEO) of the Company Director, President (Representative Executive Officer) and CEO of the Company (current) Chair, The Naito Foundation (current)

Junji Miyahara

(Member of Nomination Committee, Member of Compensation Committee, and Member of Independent Committee of Outside Directors) Apr. 1967 Jun. 1970 Jul. 1975

Apr. 1996 Jun. 1998 Apr. 2001 Apr. 2004 Jun. 2008

Dear Shareholders,

I will strive continuously toward carrying out measures to realize the corporate mission (hhc & compliance) of the Company that we share with our shareholders, as stated in our Articles of Incorporation, and aim to increase “patient value,” “shareholder value,” and “employee value” and achieve sustained growth. By actively disclosing management information, we will increase management transparency and fulfill our corporate social responsibilities, thereby meeting our obligations to shareholders.

Dear Shareholders,

Akira Fujiyoshi

Christina Ahmadjian

(Member of Audit Committee) Apr. 1976 Apr. 2002 Apr. 2004 Jun. Jun. Oct. Jun.

2006 2006 2008 2009

Joined the Company General Manager, Research and Development Division General Manager, Corporate Communications Department, IR Group Vice President Responsible for Corporate Communications and IR Responsible for Corporate Communications Director of the Company (current) and Member of Audit Committee (current)

Dear Shareholders,

I believe that the Company’s unique characteristics can be found in the combination of its operating function which advances the execution of corporate activities in accordance with the corporate philosophy, and which is inherited by Eisai people like a corporate gene, as stipulated in the Articles of Incorporation; and supervisory function that pursues the management transparency and fairness through maximum utilization of advantages in Company with Committee System. I will do my utmost to ensure that Eisai’s corporate activities are properly executed based on this corporate governance system and that implementation of the corporate philosophy contributes to an increase in corporate value and stakeholder value so that growth in shareholder value over the long term meets the expectations of shareholders.

40

Joined NGK Insulators, Ltd. Joined FUJIFILM Corporation Research Manager, Central R&D Laboratories, Ashigara R&D Center, Project Team, and Miyadai Technology Development Center of FUJIFILM Corporation Department Manager/Assigned to oversight of Research, Business Equipment Business Division of FUJIFILM Corporation Professor, Institute of Innovation Research, Hitotsubashi University Director, Institute of Innovation Research, Hitotsubashi University Professor, Management of Science and Technology, Graduate School, Tokyo University of Science Director of the Company (current), Member of the Nomination Committee (current), Member of the Compensation Committee (current), and Member of the Independent Committee of Outside Directors (current) Representative, Institute of Innovation Factor (current)


Apr. 2010

In the course of my activities as an outside director of Eisai, I have deepened my recognition that Eisai is an R&D-oriented pharmaceuticals company striving to implement its corporate philosophy of contributing to a wide range of stakeholders and to society, and that Eisai has a unique corporate culture. As an outside director of such a company, I hope to continue utilizing my experience in corporate R&D and in research regarding R&D management as I participate in discussions in meetings of the Board of Directors and in dialogue with Executive Officers and members of the staff, thereby contributing to Eisai’s progress as well as to an increase of various shareholders’ value.

(Member of Audit Committee and Member of Independent Committee of Outside Directors) Sep. 1982 Sep. 1987 Jan. 1995 Oct. 2001 Apr. 2004 Sep. 2008 Jun. 2009

Apr. 2010

Joined Mitsubishi Electric Corporation Joined Bain & Company Assistant professor, Columbia University Graduate School of Business Assistant professor, Hitotsubashi University Graduate School of International Corporate Strategy Professor, Hitotsubashi University Graduate School of International Corporate Strategy Associate dean and professor, Hitotsubashi University Graduate School of International Corporate Strategy Director of the Company (current), Member of Audit Committee (current) and Member of Independent Committee of Outside Directors (current) Dean, Hitotsubashi University Graduate School of International Corporate Strategy (current)

Dear Shareholders,

Based on my activities as a Director during the past years, I have recognized that Eisai is a company with an advanced corporate governance system when compared to other companies based in Japan and that the system is functioning effectively. In addition, Eisai is an excellent company, which, through its business in pharmaceuticals that directly relate to the lives of people, has the goal of contributing to the health of people throughout the world. Eisai has made this goal into a corporate philosophy that is stipulated in its Articles of Incorporation. To help Eisai make a greater contribution to society, increase its corporate value, and enhance shareholder benefits, I would like to act from the perspective of an independent Outside Director and make use of my specialist expertise mainly in the field of corporate governance to continue making a contribution by participating in the deliberations of the Board of Directors’ meetings and of committee meetings as well as by undertaking conversations with people in Eisai and by other means.

Kimitoshi Yabuki

(Chair of Independent Committee of Outside Directors and Member of Audit Committee) Apr. 1987 Apr. 1987 Sep. 1991 Feb. 1992 Jun. 1996 Jun. 2000 Sep. 2006 Jun. 2008

Apr. 2009 Apr. 2009 Jun. 2009 Apr. 2010

Registered as member of the Tokyo Bar Association Joined Nagashima Ohno Law Office (currently Nagashima, Ohno & Tsunematsu Marunouchi Chuo Law Office) Joined Covington & Burling LLP Registered as member of New York State Bar Association Yabuki Law Office (current) Corporate Auditor, UPS (Japan) Co., Ltd. Adjunct Lecturer (Economics Law), Tokyo University Law School Director of the Company (current), Member of Audit Committee (current), and Member of Independent Committee of Outside Directors Vice Chairman, Tokyo Bar Association Adjunct Lecturer, Waseda Law School (current) Chair of Independent Committee of Outside Directors (current) Professor, Hitotsubashi University Graduate School of International Corporate Strategy (current)

Dear Shareholders,

Eisai has established a Board of Directors with a majority of Outside Directors, a Chair who is also an Outside Director, and Nomination, Audit, and Compensation committees centered around Outside Directors. These and other items show that Eisai employs a unique corporate governance system among other Japanese companies, and it is implementing one new initiative after another, such as its move to include its corporate philosophy in its Articles of Incorporation. Through such innovative corporate management, Eisai is working to optimize the stakeholder value of diverse stakeholders, including patients, share holders, and employees. I would like to continue to make a contribution through articulating my opinions and drawing on my professional knowledge as a lawyer at the meetings of the Board of Directors and the Audit Committee and participate in the operation of the Independent Committee of Outside Directors.

Tokuji Izumi

(Chair of Board of Directors and Member of Independent Committee of Outside Directors) Apr. 1963 Apr. 1973 Apr. 1983 Nov. 1996 Mar. 2000 Nov. 2002 Feb. 2009 Mar. 2009 Apr. 2009 Jun. 2010

Jun. 2011

Assistant Judge, Tokyo District Court Judge, Kanazawa District Court Judicial Research Official, Supreme Court Secretary General, Supreme Court President, Tokyo High Court Justice, Supreme Court Registered as member of the Tokyo Bar Association Special Counsel, TMI Associates (current) Member of Compliance Committee of the Company Director of the Company (current), Member of the Independent Committee of Outside Directors (current), Chair of the Compensation Committee, and Member of Nomination Committee Chair of Board of Directors (current)

Dear Shareholders,

Through my activities as a director for the past year, I have learned to appreciate deeply how Eisai is working to establish corporate governance, with strong motivation to provide high-quality pharmaceuticals to as many patients as possible in each region of the world. I believe that this corporate stance enables Eisai to develop continuously with the trust of society, and leads to improvement of benefits to shareholders. I would like to do all that is necessary for the steady development of Eisai’s business, utilizing my experience as a judge while serving as an independent outside director in an effort to continue to contribute to the appropriate and fair preservation of the interests of shareholders and other stakeholders.

Koichi Masuda

(Chair of Audit Committee and Member of Independent Committee of Outside Directors) Apr. 1966 Sep. 1978 Jul. 1992 Jul. 2001 Jul. 2004 Jul. 2007 Oct. 2009 Apr. 2010 Jun. 2010

Jun. 2011

Yoshiji Tanaka Certified Public Accountant Office Joined Shinwa Audit Corporation Managing Partner, Asahi Shinwa Audit Corporation (currently KPMG AZSA & Co.) Deputy Chairman and President, The Japanese Institute of Certified Public Accountants Chairman, Political Federation in The Japanese Institute of Certified Public Accountants (current) Chairman and President, The Japanese Institute of Certified Public Accountants (current) Auditor, Enterprise Turnaround Initiative Corporation of Japan (current) Outside Auditor, NKSJ Holdings, Inc. (current) Director of the Company (current), Chair of Audit Committee (current), Member of Independent Committee of Outside Directors (current), Outside Director, TDK Corporation (current), Outside Director, Daishi Bank, Ltd. (current)

Dear Shareholders,

With the rapid globalization of Japan’s economy, the occurrence of the Great East Japan Earthquake, and other factors, the environment surrounding corporate management has changed significantly. The laws and regulations related to corporate accounting and auditing have changed dramatically as well in response to the increased diversity of business risks. For a company to earn recognition as a member of society, it must show society transparency and fairness in corporate management, in addition to responding to such changes. While engaging in activities to implement its corporate philosophy, Eisai places significant emphasis on transparency and fairness. As an outside director of Eisai, I would like to make use of the experience and knowledge I have obtained through my many years in practice as a CPA to play a role in Eisai’s governance, and respond to the expectations of shareholders and all other stakeholders.

Michikazu Aoi

(Chair of the Compensation Committee, Member of the Nomination Committee, and Member of Independent Committee of Outside Directors) Apr. 1980 Apr. 1990 Oct. 2001 Mar. 2006 Oct. 2007 Jun. 2010 Apr. 2011 Jun. 2011

Associate Professor, Graduate School of Business Administration, Keio University Professor, Graduate School of Business Administration, Keio University Dean of Keio Business School, Graduate School of Business Administration, Keio University Outside Director, KFE JAPAN Co., Ltd. Outside Director, Adat Inc. (current) Outside Director, Tokyo Cathode Laboratory Co., Ltd. (current) Professor, Meiji University Graduate School of Global Business (current) Director of the Company (current), Chair of the Compensation Committee (current), Member of the Nomination Committee (current), Member of the Independent Committee of Outside Directors (current), Outside Director of Anritsu Corporation (current)

Dear Shareholders,

The expectations of society toward public companies will continue to increase. I believe that the accountability for various activities of the public company not only to shareholders, but to all stakeholders, is a mandatory obligation. In a global society full of uncertainty, it can be said that the decision-making and strategy selection conducted by Eisai’s management is based on the values of the Eisai organization’s corporate values of human health care. The Board of Directors recognizes its responsibility to monitor whether or not management continues to strive for business conduct that is based on the accountability for, transparency, and corporate values.

Norio Kano

(Member of Audit Committee) Mar. 1973 Apr. 2003 Jun. 2003 Jun. 2004 Jun. 2007 Jun. 2008 Jun. 2008 Jul. 2009 Jun. 2010

Joined the Company General Manager, Tokyo Area, Prescription Drug Division Executive Officer Vice President General Manager, Corporate Regulatory Compliance, Quality Assurance Senior Vice President Responsible for Corporate Regulatory Compliance, Quality Assurance, Environmental and Safety Affairs Responsible for Clinical Research Japan Director of the Company (current) and Member of Audit Committee (current)

Dear Shareholders,

I will do my utmost to increase corporate value and long-term shareholder value while keeping in mind the viewpoints of our major stakeholders— the patients, shareholders, and employees—to achieve implementation of the corporate philosophy as stipulated in the Articles of Incorporation. I have experience engaging in a wide variety of assignments in the operating divisions, including pharmaceutical product sales and marketing, corporate regulatory compliance and quality assurance, and clinical research. As an inside director, I would like to make good use of that experience while continuing to contribute to the achievement of the optimal operational supervision and decision-making on the part of the Board of Directors, thereby ensuring appropriate execution of diverse business activities in pharmaceuticals operations.

Kiyochika Ota

(Chair of Nomination Committee, Member of Compensation Committee, Member of Independent Committee of Outside Directors) Apr. 1970 Dec. 1987 Jun. 1997 Jun. 2002 Apr. 2005 Apr. 2008 Jul. 2010 Jun. 2011

Joined Nomura Computing Center Co., Ltd. (currently Nomura Research Institute, Ltd.) Director, Nomura Research Institute, Ltd. Representative Director and Deputy President, Nomura Research Institute, Ltd. Director and Deputy Chairman, Nomura Research Institute, Ltd. Representative Director and President, ARGO 21 Corporation (currently Canon IT Solutions Inc.) Advisor, Canon IT Solutions Inc. (current) Director, Canon MJ IT Group Holdings Inc. (current) Director of the Company (current), Chair of the Nomination Committee (current), Member of the Compensation Committee (current), and Member of the Independent Committee of Outside Directors (current)

Dear Shareholders,

I agree with the management stance of promoting a highly-transparent governance structure and proactive disclosure of information to improve value for patients, shareholders, and employees, under Eisai’s vision of “human health care.” I would like to make use of my experience in management of a company that proposes IT solutions to contribute to the discovery of the optimal solutions for the achievement of an ambitious company vision, through deliberation with the Board of Directors and communication with members of operating divisions.

Hideaki Matsui Mar. 1971 Apr. 1995 Jun. 1997 Jul. 1997 Jun. 2000 Jun. 2001 Jun. 2002 Jun. 2002 Jun. 2004 Jan. 2008 Apr. 2009 Jun. 2010 Jun. 2011

Joined the Company Senior Director, Corporate Management Planning Department Director of the Company Chairman, Eisai Welfare Pension Fund (currently Eisai Corporate Pension Fund) Director and Executive Officer Director and Senior Vice President Director and Executive Vice President Assigned to Management Affairs Representative Executive Officer Chief Financial Officer (CFO) Assigned to Customer Joy Head of Finance & Accounting HQ Director of the Company (current)

Dear Shareholders,

Up to the present, I have been involved in the operating divisions preparing and executing Eisai’s corporate governance structure. I believe that separating management oversight and business execution functions and transferring broad authority from the Board of Directors to operating divisions have increased the vitality of Eisai’s management. In the future as well, I will maintain and develop the supervisory function of the Board of Directors, aim to increase corporate value as a public institution of the Company, and execute my duties in a manner that allows me to contribute to the common benefit of all stakeholders and increase value for a wide range of shareholders.


41

Executive Officers (As of June 21, 2011)

President (Representative Executive Officer) and CEO

Haruo Naito

Vice President, Chief Talent Officer, Director of Talent Innovation Headquarters, Japan Subsidiaries

Deputy President (Representative Executive Officer), Aide to President, Chief Compliance Officer, President of Eisai R&D Management Co., Ltd.

Vice President, Deputy Director of Corporate Regulatory Compliance, Quality Assurance

Nobuo Deguchi

Edward Stewart Geary

Executive Vice President, President, Eisai East Asia Region

Vice President, Chief Information Officer, General Affairs, Environmental and Safety Affairs

Hideshi Honda

Yasushi Okada

Kazuo Hirai

Executive Vice President, President, New Markets & ASEAN

Hajime Shimizu Executive Vice President, Chief Product Creation Officer, Eisai Product Creation Systems, Investor Relations

Hideto Ueda

Hideki Hayashi

Vice President, Director of Talent Management, Talent Innovation Headquarters

Executive Vice President, Corporate Regulatory Compliance, Quality Assurance, Public Affairs

Vice President, President & CEO, Eisai Europe Ltd.

Yutaka Tsuchiya

Gary Hendler

Senior Vice President, Chief Scientific Officer, Eisai Product Creation Systems

Vice President, Corporate Strategy, Finance & Accounting

Kentaro Yoshimatsu Senior Vice President, President & CEO, Eisai Inc.

Lonnel Coats Senior Vice President, President, Eisai Japan

Noboru Naoe Senior Vice President, President, Eisai Demand Chain Systems

Takafumi Asano Senior Vice President, General Counsel, Intellectual Property

Kenta Takahashi

42

Vice President, Internal Control/Audit


Yuji Matsue

Ivan Cheung

Financial Section

Contents 44

Financial Review

48

Consolidated Balance Sheets

50

Consolidated Statements of Income Consolidated Statement of Comprehensive Income

51

Consolidated Statements of Changes in Equity

52

Consolidated Statements of Cash Flows

53

Notes to Consolidated Financial Statements

69

Independent Auditors’ Report


43

Financial Review

Operating income, ordinary income and net income increased, even though the Group strove to keep up the investment of its resources in R&D activities. The increases were mainly because selling, general and administrative (SG&A) expenses declined for two main reasons: Firstly, alliance and other fees Eisai paid to Pfizer Inc. declined following patent expiration of Aricept® in the U.S. Secondly, there was in-process R&D expenses related to the acquisition of AkaRx, Inc. incurred in the previous fiscal year. As a result of the above, basic earnings per share (EPS) for the fiscal year under review amounted to ¥236.52, an increase of ¥94.94 from the previous fiscal year. Comprehensive income after adding/deducting minority interests and other comprehensive income to net income came to ¥31.2 billion. Eisai uses cash income*1 as an indicator of cash-generating ability. Cash income is the total amount of cash that can be used for such applications as growth investments, dividend payments, debt repayments, and the like. The Group’s management considers it a tool to evaluate growth potential and strategies. For the fiscal year under review, cash income amounted to ¥120.0 billion (down 5.0% from the previous fiscal year), and cash income per share*2 amounted to ¥421.29 (down ¥22.44 from the previous fiscal year). These figures reflected net income of ¥67.4 billion, depreciation of property, plant and equipment and amortization of intangible assets of ¥43.5 billion, amortization of goodwill of ¥7.8 billion, and loss on impairment of long-lived assets (including loss on devaluation of investment securities) of ¥1.4 billion.

Items regarding the future in this section are based on judgments and forecasts we have made as of the date our Annual Report 2011 was compiled. There is consequently some risk that changes in various factors could lead to substantial disparities between our forecasts and actual results. Please refer to pages 70–71 for risks that could alter the consolidated performance of our Group or that could materially impact investment decisions.

Financial Highlights The pharmaceutical industry today is expected to provide innovative drug development as well as information, services, and products of high quality. Amidst these expectations, growth in mature markets around the world is forecast to slow down against the backdrop of increasingly harsh business conditions and resultant reforms to health care systems. In contrast, major opportunities for growth are anticipated in emerging markets where the middle classes are growing rapidly. Given these major shifts occurring in pharmaceutical markets around the world, Eisai recognizes the need for its corporate management to adapt to an era of tremendous globalization. Against this backdrop, for the current fiscal year, Eisai Co., Ltd., and its subsidiaries (“Eisai”) reported consolidated net sales of ¥768.9 billion, a decrease of 4.3% compared with the previous fiscal year. Operating income increased 30.9% compared with the previous fiscal year, to ¥113.1 billion, and net income rose 67.1%, to ¥67.4 billion. Sales of Aricept®, an Alzheimer’s disease treatment, declined 10.1% year on year, to ¥290.4 billion, and sales of the proton pump inhibitor (PPI) Pariet® (U.S. trade name: AcipHex®) dropped 7.5%, to ¥136.9 billion. Sales of oncology-related products rose 0.5% year on year, to ¥80.3 billion.

*1 Cash income is calculated as follows: Net income (loss) + depreciation of PP&E and amortization of intangible assets + in-process R&D expenses + amortization of goodwill + loss on impairment of long-lived assets (including loss on devaluation of investment securities) *2 Cash income per share is calculated as follows: Cash income ÷ number of shares issued and outstanding at the end of the year after deduction of treasury stock

Net Sales

Net Income (Loss) and Ratio of Net Income (Loss) to Net Sales

(Billions of yen)

(Billions of yen)

900

(%)

734.3

70.6

600

47.7 40.3

40 6.1

8.8

18 16.4

12 10.5

(%)

300

67.4

60

674.1

(Yen)

16

80 781.7 803.2 768.9

Major Financial Indicators

200

247.85 13.2

236.52 10.9 167.35

9.2

8

12 9.6 141.58 6.3

100

5.0

20

4

0

0

4.2

6

3.6

300

0

–20

’07/3 ’08/3 ’09/3 ’10/3 ’11/3

–17.0

–2.3

0

–100

–4

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m Net Income (Loss) Ratio of Net Income to Net Sales m

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m EPS ROE ROA m

m

44


0 –1.8 –59.80 –3.4

–6

the previous fiscal year. In addition, sales of oncology-related products accounted for 10.4% of consolidated net sales, an increase of 0.5 percentage points from the previous fiscal year. In terms of sales by segment to consolidated net sales, Japan Pharmaceuticals Business accounted for 45.6%, an increase of 5.4 percentage points, and United States Pharmaceuticals Business accounted for 39.4%, a decrease of 5.3 percentage points. Eisai expects patent expiration on its core product, Aricept®, in the U.S. to cause sales to decline in the year ending March 31, 2012. This is despite projected sales contributions from new anticancer agent Halaven® and other oncology-related products, and sustained business growth in the East Asian region. The cost of sales rose ¥7.0 billion, to ¥167.8 billion. The cost of sales ratio rose 1.8 percentage points from the previous fiscal year, to 21.8%. Accordingly, gross profit fell 6.4%, or ¥41.3 billion, to ¥601.1 billion. SG&A expenses, excluding R&D expenses, came to ¥343.0 billion, down 9.0%, or ¥33.9 billion, from the previous fiscal year. This was largely attributable to a decline in co-promotion expenses at a U.S.-based alliance partner. R&D expenses fell 19.0%, or ¥34.1 billion, from the previous fiscal year, to ¥145.0 billion. Consequently, operating income increased 30.9%, or ¥26.7 billion, from the previous fiscal year, to ¥113.1 billion. SG&A expenses declined, resulting in increases in operating income, ordinary income and net income, even though the Group strove to invest in R&D activities. The decrease was because alliance and other fees Eisai paid to Pfizer Inc. declined following patent expiration of Aricept® in the U.S., and there were in-process R&D expenses related to acquisition of AkaRx., Inc. Eisai incurred in the previous fiscal year.

Cash Income Billions of yen 2011

Increase/ 2010 11/10 (%) Decrease

Net income

67.4

40.3

Depreciation of PP&E and amortization of intangible assets

26.1

29.8

Amortization of intangible assets by MGI PHARMA acquisition

17.4

In-process R&D expenses Amortization of goodwill

7.8

Loss on impairment of long-lived assets (incl. loss on devaluation of investment securities) Cash income

167.1

27.0 (3.7)

19.1

(1.6)

23.9

(23.9)

8.5

(0.6)

1.4

4.9

120.0

126.4

(3.4) 95.0

(6.3)

Yen

Cash income per share

421.29 443.73

(22.44)

At March 31, 2011, total assets amounted to ¥1,046.3 billion, a ¥55.6 billion decrease from the previous fiscal year-end, total equity was ¥410.4 billion, down ¥11.4 billion, shareholders’ equity*3 was ¥404.2 billion, down ¥11.8 billion, and the shareholders’ equity ratio was 38.6%, up 0.9 of a percentage point. As a result, return on equity (ROE) was 16.4% and return on assets (ROA) was 6.3%. Cash dividends per share were ¥150, the same as a year earlier, and dividends on equity (DOE) advanced 0.3 of a percentage point to 10.4%. *3 Shareholders’ equity = (Equity) – (minority interests) – (stock options)

Performance Review Net sales in the fiscal year under review decreased 4.3%, or ¥34.2 billion, from the previous fiscal year, to ¥768.9 billion. Combined sales of Aricept® and Pariet®/AcipHex® accounted for 55.6% of consolidated net sales, a decrease of 3.1 percentage points from

Cash Dividends per Share and DOE

Sales of Main Products

R&D Expenses and Ratio of R&D Expenses to Net Sales

(Yen)

(Billions of yen)

(Billions of yen)

(%)

160

120

120.0

130.0

140.0

150.0 150.0 10.1 10.4

9.1

12

400

6.4

9

300

291.0

322.8

303.8

6

3

0

200

175.9

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m Cash Dividends per Share DOE

m

30

179.1 156.1

22.3 145.0 20

159.9

100

0

30.7

150

75.6 0

200

290.4

252.9 174.3

40

40 225.4

7.4 80

(%)

250

148.0 79.9

100

136.9

20.0

108.3

18.9 10

50

80.3

25.4

0

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m Aricept® m Pariet®/AcipHex® m Oncology-related products

16.1

0

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m R&D Expenses Ratio of R&D Expenses to Net Sales m


45

Japan Pharmaceuticals Business

Other income (expenses) — net were down ¥1.6 billion from the previous fiscal year, to expenses of ¥10.5 billion. The main factors contributing to this decline were a decrease in loss on impairment of long-lived assets, and an increase in foreign exchange loss. As a result, net income for the fiscal year under review was ¥67.4 billion, up 67.1%, or ¥27.1 billion, from the previous fiscal year. Basic earnings per share (EPS) amounted to ¥236.52, up ¥94.94 from the previous fiscal year. In the fiscal year ending March 31, 2012, Eisai is anticipating net income to increase primarily due to continuous improvement of the efficiencies in SG&A expenses although proactive investment of resources in R&D activities will be made. Comprehensive income after adding/deducting minority interests and other comprehensive income came to ¥31.2 billion, an increase of 9.8%, or ¥2.8 billion from the previous year.

Sales amounted to ¥350.4 billion, an 8.7% increase from the previous fiscal year, and segment profit grew 8.7% to ¥145.0 billion. Sales of Aricept® advanced 12.8%, to ¥105.5 billion, and sales of Pariet® rose 11.9%, to ¥60.2 billion.

United States Pharmaceuticals Business Sales decreased 15.5% (8.5% on a local-currency basis) from the previous fiscal year to ¥303.0 billion, and segment profit amounted to ¥94.4 billion, down 11.4% in yen and 4.1% on a local-currency basis. Sales of Aricept® fell 21.2% (14.6% on a local-currency basis), to ¥153.4 billion, and sales of AcipHex® decreased 19.0% (12.3% on a local currency basis) to ¥65.6 billion. Aricept 23mg tablet, a higher dose formulation for the treatment of moderate-to-severe Alzheimer’s disease, was launched in August 2010. Sales of the new product totaled ¥5.2 billion. Greenstone LLC., a subsidiary of U.S. based Pfizer Inc., launched Aricept AG (Authorized Generic: a generic product sold under license from the manufacturer of an original drug). Sales of Aricept AG and related business income, including revenue generated from this affiliation, came to ¥21.8 billion. As a result, the sales of Aricept in the U.S. totaled ¥153.4 billion during this fiscal year, contributed to in part by the launch of the higher dose formulation and the AG strategy, helping the Group to secure more than 40% of the Alzheimer’s disease drug market share in the U.S. Halaven®, a novel anticancer agent indicated for the treatment of patients with metastatic breast cancer who have previously been treated with at least two chemotherapeutic regimens including an anthracycline and a taxane, was launched in November 2010. Sales of Halaven® totaled ¥2.2 billion.

Performance by Segment (Net sales for each segment include only sales to external customers.) The Group’s Pharmaceuticals business encompasses operations in five regions worldwide: Japan, the United States, Europe, Asia (including China) and New Markets (India, Middle East, etc.), each of which pursues strategies tailored to the specific characteristics of each region or market. In the Pharmaceuticals business, the Group is mainly engaged in the manufacture and sale of prescription drugs. The Group’s segments comprise the Pharmaceuticals and Other businesses, with the Pharmaceuticals business of each region being identified as a reporting segment. “Other” is a business segment not included in reporting segments. Pharmaceutical raw materials and machinery businesses are included in this segment.

Operating Income and Ratio of Operating Income to Net Sales (Billions of yen)

(%)

120

113.1

105.3 90

Proportion of Sales in Each Reporting Segment to Total Net Sales 20

Sales in Each Reporting Segment to Total Net Sales (%)

New Markets 0.1%

Other 5.1%

Asia 4.1%

100

Europe 5.8%

15.6

91.8

86.4

14.7

15

Japan 45.6%

75

11.7 60

10.8

30

0

10

5

2.4 17.7

50

Pharmaceuticals Business

94.9% 0

0

’07/3 ’08/3 ’09/3 ’10/3 ’11/3 m Operating Income Ratio of Operating Income to Net Sales m

46


25

’10/3 U.S. 39.4%

’11/3

m Japan Pharmaceuticals Business m United States Pharmaceuticals Business m Europe Pharmaceuticals Business m Asia Pharmaceuticals Business m New Markets Pharmaceuticals Business m Other

Financial Position

Europe Pharmaceuticals Business Sales decreased 10.4% from the previous fiscal year, to ¥44.4 billion, and segment profit declined 26.5%, to ¥4.7 billion. Sales of Aricept® were down 12.5%, to ¥24.4 billion, and sales of Pariet® decreased 22.4%, to ¥6.4 billion. In April 2011, Halaven®, a novel anticancer agent indicated for the treatment of patients with metastatic breast cancer who have previously been treated with at least two chemotherapeutic regimens including an anthracycline and a taxane, was launched in the U.K., Germany, Sweden, Denmark, and Finland.

Asia Pharmaceuticals Business Sales rose 0.7% from the previous fiscal year, to ¥31.3 billion, but segment profit was down 28.1%, to ¥5.9 billion. Sales of Aricept® rose 4.8%, to ¥6.9 billion, while sales of Pariet® fell 7.1%, to ¥4.5 billion.

New Markets Pharmaceuticals Business Sales rose 28.1% from the previous fiscal year, to ¥1.0 billion, although segment loss was ¥0.7 billion. Sales of Aricept® (trade name in India: Aricep®) climbed 15.1%, to ¥0.1 billion, and sales of Pariet® (trade name in India: Parit®) jumped 42.2%, to ¥0.3 billion.

Performance of Eisai Inc. in the U.S. Aricept® sales fell $307 million from the previous fiscal year, to $1,790 million, and AcipHex® sales dropped $107 million, to $765 million. As a result, net sales at Eisai Inc., including consignment research and service revenues, declined $175 million from the previous fiscal year, to $3,928 million. Eisai Inc. recorded an operating loss of $3 million, representing a decline of $138 million from the previous fiscal year.

Total assets amounted to ¥1,046.3 billion, down ¥55.6 billion from the previous fiscal year-end. This outcome largely reflected a decline in intangible assets, mainly due to a decline in the yenvalue of assets at foreign subsidiaries because of foreign exchange rate fluctuations. Total liabilities decreased ¥44.2 billion from the previous fiscal year-end, to ¥635.9 billion. The main items to decline were shortterm borrowings and accounts payable-other. Total equity amounted to ¥410.4 billion, a decrease of ¥11.4 billion from the previous fiscal year-end, and the shareholders’ equity ratio was 38.6%, up 0.9 of a percentage point.

Cash Flows Net cash provided by operating activities amounted to ¥123.2 billion, an increase of ¥15.2 billion from the previous fiscal year. The main contributing factors were income before income taxes and minority interests of ¥102.6 billion, and depreciation and amortization of ¥43.5 billion, which were partly offset by income taxes-paid of ¥19.0 billion. Net cash used in investing activities amounted to ¥58.8 billion, down ¥11.1 billion from the previous fiscal year. The main uses of cash were ¥13.7 billion for purchases of property, plant and equipment (PP&E), and a ¥37.4 billion net increase in time deposits exceeding three months. Net cash used in financing activities amounted to ¥68.0 billion, up ¥18.8 billion from the previous fiscal year. Cash was used mainly for dividends paid of ¥42.7 billion, and for a ¥24.0 billion net decrease in short-term borrowings. Consequently, cash and cash equivalents at the end of March 2011 were down ¥12.3 billion from the previous fiscal year-end, to ¥102.8 billion. In the current fiscal year, the annual dividend is expected to be ¥150 per share (¥70 for the interim dividend and ¥80 for the yearend dividend), remaining the same as in the fiscal year under review.

Cash Flows Billions of yen

Years ended March 31,

Net Cash Provided by Operating Activities Actual Change

Capital Expenditures Actual Change

Free Cash Flow* Actual Change

2007

¥ 81.2

¥ (5.9)

¥ 52.5

¥ 9.1

¥ 28.6

¥ (14.9)

2008

73.2

(7.9)

489.1

436.6

(415.9)

(444.5)

2009

105.0

31.7

45.7

(443.4)

59.3

475.1

2010

107.9

3.0

55.0

9.3

52.9

(6.4)

2011

123.2

15.2

22.8

(32.2)

100.3

47.4

* Free cash flow = Net cash provided by operating activities – (capital expenditures + other revenue / payments needed to maintain continuous activities)


47

Consolidated Balance Sheets March 31, 2011 and 2010

Assets Current assets (Note 12): Cash and cash equivalents �� Short-term investments (Note 3) �� Notes and accounts receivable - trade �� Inventories (Note 4) �� Deferred tax assets (Note 9) �� Other �� Total current assets ��

2011

¥ 102,800 78,857 195,234 70,807 39,172 22,486 509,359

2010

2011

¥ 115,128 38,332 207,219 67,553 32,457 19,352 480,044

$ 1,238,554 950,084 2,352,216 853,096 471,951 270,915 6,136,855

Property, plant and equipment (Note 5): Land ��

19,388

19,803

233,590

Buildings and structures �� Machinery, equipment and vehicles �� Other property, plant and equipment �� Construction in progress �� Total �� Accumulated depreciation �� Total property, plant and equipment - net ��

188,427 117,866 52,958 4,845 383,487 (234,354) 149,132

185,363 112,509 51,609 13,387 382,673 (226,031) 156,642

2,270,204 1,420,072 638,048 58,373 4,620,325 (2,823,542) 1,796,771

Investments and other assets (Note 12): Investment securities (Note 3) �� Investments in associated companies �� Intangible assets (Note 5): Goodwill ��

54,286 275

64,622 174

654,048 3,313

128,450

152,768

1,547,590

Sales rights �� Core technology �� Other intangible assets �� Deferred tax assets (Note 9) �� Other �� Total investments and other assets �� Total assets ��

83,037 43,687 13,035 57,802 7,223 387,799 ¥1,046,291

109,704 50,967 12,449 63,568 10,967 465,223 ¥1,101,910

1,000,445 526,349 157,048 696,409 87,024 4,672,277 $12,605,915

See notes to consolidated financial statements.

48

Thousands of U.S. dollars (Note 1)

Millions of yen


Liabilities and Equity Current liabilities (Note 12): Notes and accounts payable - trade �� Short-term borrowings (Note 6) �� Bonds and debentures (current portion) (Note 7) �� Accounts payable - other �� Accrued expenses �� Income taxes payable �� Reserve for sales rebates �� Other �� Total current liabilities �� Long-term liabilities (Note 12): Bonds and debentures (Note 7) �� Long-term borrowings (Note 6) �� Liability for retirement benefits (Note 8) �� Deferred tax liabilities (Note 9) �� Other �� Total long-term liabilities �� Total liabilities ��


Millions of yen

2011

¥ 22,004

2010

2011

¥ 20,314 24,000

$ 265,108

39,999 46,432 59,305 24,070 23,872 9,430 225,116

67,913 60,214 6,555 32,723 8,523 220,244

481,915 559,421 714,518 290,000 287,614 113,614 2,712,240

79,992 259,890 30,031 24,802 16,089 410,804 635,921

119,987 265,824 29,092 23,786 21,235 459,925 680,170

963,759 3,131,204 361,819 298,819 193,843 4,949,445 7,661,698

44,985

44,985

541,987

56,910 870 448,410

56,928 741 423,756

685,662 10,481 5,402,530

(39,499)

(39,574)

(475,891)

69 (808) (105,898) 405,041 5,329

4,884 (609) (74,436) 416,677 5,063

831 (9,734) (1,275,879) 4,880,012 64,204

410,370 ¥1,046,291

421,740 ¥1,101,910

4,944,216 $12,605,915

Commitments and contingent liabilities (Notes 12 and 13) Equity (Notes 10, 11 and 18): Common stock: Authorized - 1,100,000,000 shares Issued - 296,566,949 shares in 2011 and 2010 �� Capital surplus �� Stock options �� Retained earnings �� Treasury stock - at cost: 11,608,283 shares in 2011, 11,629,379 shares in 2010 �� Accumulated other comprehensive income (Notes 10 and 15): Net unrealized gain (loss) on available-for-sale securities �� Deferred gain (loss) on derivatives under hedge accounting �� Foreign currency translation adjustments �� Sub-total �� Minority interests �� Total equity �� Total liabilities and equity ��


49

Consolidated Statements of Income Years ended March 31, 2011 and 2010


Millions of yen

2011

2010

2011

Net sales �� Cost of sales �� Gross profit ��

¥768,914 167,767 601,146

¥803,152 160,742 642,409

$9,264,024 2,021,289 7,242,722

Selling, general and administrative expenses �� Research and development expenses (Note 14) �� Operating income ��

342,998 145,030 113,117

376,920 179,082 86,406

4,132,506 1,747,349 1,362,855

Other income (expenses): Interest and dividend income �� Interest expense �� Foreign exchange loss �� Loss on impairment of long-lived assets (Note 5) �� Other - net �� Other income (expenses) - net ��

1,919 (7,415) (2,418) (743) (1,886) (10,544)

2,099 (7,659) (720) (4,814) (1,034) (12,129)

23,120 (89,337) (29,132) (8,951) (22,722) (127,036)

Income before income taxes and minority interests ��

102,572

74,277

1,235,807

Income taxes (Note 9): Current �� Deferred �� Total income taxes ��

37,227 (2,437) 34,789

26,781 6,633 33,415

448,518 (29,361) 419,144

Income before minority interests ��

67,783

40,861

816,662

Minority interests in income �� Net income ��

388 ¥ 67,394

523 ¥40,338

4,674 $ 811,975

Yen

Per share information (Note 16): Basic earnings per share (EPS) �� Diluted earnings per share �� Cash dividends per share ��

¥236.52 236.51 150.00

U.S. dollars (Note 1)

¥141.58 141.56 150.00

$2.85 2.85 1.81


Consolidated Statement of Comprehensive Income Year ended March 31, 2011 (Notes 10 and 15)

Millions of yen

2011

Income before minority interests �� Other comprehensive income Net unrealized gain (loss) on available-for-sale securities �� Deferred gain (loss) on derivatives under hedge accounting �� Foreign currency translation adjustments �� Total other comprehensive income �� Comprehensive Income �� Comprehensive income attributable to shareholders of the parent company �� Comprehensive income attributable to minority interests �� See notes to consolidated financial statements.

50



2011

¥ 67,783

$ 816,662

(4,808) (198) (31,558) (36,565) ¥ 31,217 ¥ 30,918 299

(57,927) (2,385) (380,216) (440,542) $ 376,108 $ 372,506 3,602

Consolidated Statements of Changes in Equity Years ended March 31, 2011 and 2010

Thousands 2010

Issued number of shares

Balance at beginning of year ��

296,566

Number of treasury stock

(11,660)

Common stock

¥44,985

Capital surplus

¥56,949

Stock options

Retained earnings

¥613 ¥423,305

Treasury stock

Millions of yen 2010 Accumulated other comprehensive income (Note 10) Net unrealized Deferred gain (loss) gain (loss) on Foreign currency on available- derivatives for-sale under hedge translation securities accounting adjustments

¥(39,683)

¥1,125

¥(437)

Sub-total

¥(58,293) ¥428,565

Minority interests

Total equity (Notes 10 and 11)

¥4,479 ¥433,045

Net income ��

40,338

40,338

40,338

Dividends ��

(39,887)

(39,887)

(39,887)

139

118

118

(30)

(30)

(30)

Retirement of treasury stock ��

40

Acquisition of treasury stock ��

(9)

(20)

Changes in other items during the year (Net) �� Balance at end of year ��

127 296,566

(11,629)

¥44,985

¥56,928

¥741 ¥423,756

¥(39,574)

Thousands 2011

Issued number of shares


296,566

Number of treasury stock

(11,629)

Common stock

¥44,985

Capital surplus

¥56,928

Stock options

Retained earnings

¥741 ¥423,756

Treasury stock

3,759

(171)

¥4,884

¥(609)

(16,143)

Millions of yen 2011 Accumulated other comprehensive income (Note 10) Net unrealized Deferred gain (loss) gain (loss) on Foreign currency on available- derivatives for-sale under hedge translation securities accounting adjustments

¥(39,574)

¥ 4,884

(12,428)

¥(74,436) ¥416,677

Sub-total

¥(609) ¥ (74,436) ¥416,677

583

(11,844)

¥5,063 ¥421,740

Minority interests


¥5,063 ¥421,740

Net income ��

67,394

67,394

67,394

Dividends ��

(42,740)

(42,740)

(42,740)

96

78

78

(21)

(21)

(21)

Retirement of treasury stock ��

28

Acquisition of treasury stock ��

(7)

(18)


129 296,566

(11,608)

¥44,985

Common stock


$541,987

¥56,910

Capital surplus

$685,879

(4,815)

¥870 ¥448,410

Stock options

Retained earnings

$ 8,927 $5,105,493

¥(39,499)

¥ 69

(198)

(31,462)

Thousands of U.S. dollars (Note 1) 2011 Accumulated other comprehensive income (Note 10) Net unrealized Deferred gain (loss) gain (loss) on Foreign currency on available- derivatives Treasury for-sale under hedge translation stock securities accounting adjustments

$(476,795)

$ 58,843

(36,346)

¥(808) ¥(105,898) ¥405,041

Sub-total

$(7,337) $ (896,819) $5,020,204

266

(36,080)

¥5,329 ¥410,370

Minority interests


$61,000 $5,081,204

Net income ��

811,975

811,975

811,975

Dividends ��

(514,939)

(514,939)

(514,939)

(216)

Retirement of treasury stock �� Acquisition of treasury stock ��

939

939

(253)

(253)

(253)

1,554


1,156

$541,987

$685,662

$10,481 $5,402,530

(58,012) $(475,891)

$ 831

(2,385)

(379,060)

(437,903)

$(9,734) $(1,275,879) $4,880,012

3,204

(434,698)

$64,204 $4,944,216



51

Consolidated Statements of Cash Flows Years ended March 31, 2011 and 2010


Millions of yen

2011

Operating activities: Income before income taxes and minority interests �� Adjustments for: Income taxes - paid �� Depreciation and amortization �� Amortization of goodwill �� In-process R&D expense for acquisition (Note 14) �� Loss on impairment of long-lived assets (Note 5) �� (Increase) decrease in notes and accounts receivable - trade �� Increase in inventories �� Increase in notes and accounts payable - trade �� Increase (decrease) in other current liabilities �� Increase (decrease) in reserve for sales rebates �� Increase in liability for retirement benefits �� Other - net �� Net cash provided by operating activities �� Investing activities: Proceeds from sales and redemption of short-term investments �� Purchases of property, plant and equipment �� Purchases of intangible assets �� Proceeds from sales and redemption of investment securities �� Purchases of investment securities �� Acquisition of a company (Note 14) �� Net increase in time deposits (exceeding three months) �� Other - net �� Net cash used in investing activities �� Financing activities: Net increase (decrease) in short-term borrowings �� Repayment of long-term borrowings �� Dividends paid �� Other - net �� Net cash used in financing activities �� Foreign currency translation adjustments on cash and cash equivalents �� Net decrease in cash and cash equivalents �� Cash and cash equivalents at beginning of year �� Cash and cash equivalents at end of year �� See notes to consolidated financial statements.

52


2010

2011

¥102,572

¥ 74,277

$1,235,807

(19,018) 43,487 7,777

(229,132) 523,939 93,698

743 4,777 (6,407) 3,014 (8,342) (5,538) 2,527 (2,436) 123,157

(49,904) 48,903 8,467 23,854 4,814 (18,939) (4,456) 1,717 14,511 1,874 4,911 (2,086) 107,947

8,951 57,554 (77,192) 36,313 (100,506) (66,722) 30,445 (29,349) 1,483,819

4,341 (13,749) (9,311) 1,823 (2,256)

8,975 (22,397) (8,862) 1,056 (3,361)

52,301 (165,650) (112,180) 21,963 (27,180)

(37,361) (2,240) (58,754)

(23,854) (19,062) (2,317) (69,823)

(450,132) (26,987) (707,879)

(24,000)

(289,156)

(42,740) (1,259) (68,000) (8,730)

2,000 (9,284) (39,887) (2,069) (49,240) (5,280)

(514,939) (15,168) (819,277) (105,180)

(12,328) 115,128 ¥102,800

(16,398) 131,527 ¥115,128

(148,530) 1,387,084 $1,238,554

Notes to Consolidated Financial Statements Years ended March 31, 2011 and 2010

Note

1

Basis of Presenting Consolidated Financial Statements The accompanying consolidated financial statements of Eisai Co., Ltd. (the “Company”) and its subsidiaries have been prepared in accordance with the provisions set forth in the Japanese Financial Instruments and Exchange Act and its related accounting regulations and in conformity with accounting principles generally accepted in Japan (“Japanese GAAP”), which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2010 consolidated financial statements to conform to the classifications used in 2011. The consolidated financial statements and notes are stated in Japanese yen, the currency of the country in which the Company is incorporated and principally operates. Japanese yen amounts less than one million yen are rounded down to the nearest million yen and are translated into U.S. dollar amounts. U.S. dollar amounts are presented solely for the convenience of readers outside Japan at the rate of ¥83 to $1, the approximate rate of exchange at March 31, 2011. U.S. dollar amounts less than one thousand dollars are rounded down to the nearest thousand dollars (except for Note 14). Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate. Number of shares less than a thousand shares is rounded down to the nearest thousand shares.

Note

2

Summary of Significant Accounting Policies (a) Consolidation The consolidated financial statements as of March 31, 2011 include the Company and its all 50 (49 in 2010) subsidiaries (collectively, the “Group”). Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for under the equity method. Investment in 1 (1 in 2010) associated company is accounted for under the equity method. The difference regarding consolidated subsidiaries between the amounts of investments and the fair value of net assets is amortized on a straight-line basis. Goodwill is amortized over a period of 20 years or less varying according to the reasons those were recorded, and negative goodwill is amortized over a period of 5 years. All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group has been eliminated. (b) Cash equivalents Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits, MMFs and others, all of which mature or become due within 3 months of the date of acquisition. (c) Short-term investments and investment securities Short-term investments consist of time deposits with more than 3 months to maturity and marketable securities. Investment securities consist of marketable and non-marketable securities. Marketable securities included in short-term investments and investment securities are classified and accounted for, depending on management’s intent, as follows: 1) Held-to-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity, are reported at amortized cost. 2) Available-for-sale securities, which are not classified as the aforementioned securities, are reported at fair value, with unrealized gain and loss, net of applicable taxes, reported under “Accumulated Other Comprehensive Income” as a separate component of equity. Non-marketable available-for-sale securities are stated at cost, determined by the moving-average method. For other than temporary declines in fair value, investment securities are reduced to fair value by a charge to income. (d) Inventories Inventories are stated at the lower of cost, determined using the average method, or net selling value for the Company and Japanese subsidiaries, and at lower-of-cost-or-market method, cost being determined using the first-in, first-out method for overseas subsidiaries.


53

(e) Property, plant and equipment (excluding leased assets) Property, plant and equipment (excluding leased assets) are stated at cost and depreciated by the straight-line method. The range of useful lives is principally from 15 to 50 years for buildings and from 6 to 7 years for machinery and equipment, and other. (f) Leases (Finance lease transactions that do not transfer ownership) Leased assets are depreciated by the straight-line method over the lease term with residual value of zero. (g) Intangible assets (excluding leased assets) Intangible assets (excluding leased assets) are stated at cost less accumulated amortization, which is computed by the straight-line method at rates based on the estimated useful lives of the assets. The range of useful lives is principally from 5 to 10 years for sales rights, 19 to 20 years for core technology and 5 years for software for internal use. (h) Impairment of long-lived assets The Company and its Japanese subsidiaries review their long-lived assets for impairment whenever events or changes in circumstance indicate the carrying amount of an asset or asset group may not be recoverable. A loss on impairment would be recognized if the carrying amount of an asset or asset group exceeds the sum of the undiscounted future cash flows expected to result from the continued use and eventual disposition of the asset or asset group. The loss on impairment would be measured as the amount by which the carrying amount of the asset exceeds its recoverable amount, which is the higher of the discounted cash flows from the continued use and eventual disposition of the asset or the net selling price at disposition. Overseas subsidiaries perform impairment tests and recognize a loss on impairment in accordance with either International Financial Reporting Standards or accounting principles generally accepted in the United States of America. (i) Income taxes The provision for income taxes is computed based on the income before income taxes and minority interests included in the consolidated statements of income. The asset and liability approach is primarily used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. ( j) Retirement and pension plans The Company has a contributory funded defined benefit pension plan and an unfunded retirement benefit plan for employees. Certain Japanese subsidiaries sponsor a contributory funded defined benefit pension plan managed by the employees’ pension fund for multiemployers and have a contributory funded defined benefit pension plan and an unfunded severance indemnity plan for employees. Certain overseas subsidiaries adopt a defined contribution plan as well as a defined benefit plan. The Company and certain subsidiaries provide a liability for the retirement benefits at an amount to be determined as of the balance sheet date, which is derived from the projected benefit obligations and estimated plan assets at the end of the year. The unrecognized prior service cost of the Company and certain Japanese subsidiaries is being amortized over 5 years and recognized as operating expenses in the consolidated statements of income. The unrecognized actuarial gain (loss) of the Company and certain Japanese subsidiaries is being amortized over 5 years by the straight-line method and amortization of the unrecognized actuarial gain (loss) is recognized as operating expenses in the consolidated statements of income starting from the period following the period during which each gain (loss) occurred. Certain subsidiaries provide a reserve for retirement allowances for directors, executive officers and corporate auditors in required amounts calculated based on the bylaw. The Company provided a reserve for retirement allowances for directors, executive officers and corporate auditors in required amounts calculated based on internal policies. In June 2010, determinations were made to abolish these retirement allowances and the provision thereof. As a result, the remaining amount reserved for allowances for retirement benefits for directors, executive officers and corporate auditors was reversed, with the amount unpaid allocated to “other” in long-term liabilities. The amount unpaid for retirement benefits for directors allocated to “other” in long-term liabilities was ¥1,352 million ($16,289 thousand). (k) Appropriations of retained earnings Appropriations of retained earnings are reflected in the consolidated financial statements for the following year upon the Board of Directors’ resolution or shareholders’ approval.

54


(l) Foreign currency transactions All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gain and loss from translation are recognized in the consolidated statements of income to the extent that they are not hedged by forward exchange contracts. (m) Foreign currency financial statements The balance sheet accounts of overseas subsidiaries are translated into Japanese yen at the current exchange rates as of the balance sheet date except for equity, which is translated at the historical rate. Revenue and expense accounts of overseas subsidiaries are translated into Japanese yen at the average exchange rates. Differences arising from such translation were shown as “Foreign currency translation adjustments” under “Accumulated other comprehensive income” in a separate component of equity. (n) Derivatives and hedging activities The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange rates and interest rates. Foreign exchange forward contracts are utilized by the Group to reduce foreign currency exchange and interest rate risks. The Group does not enter into derivatives for trading or speculative purposes. The counterparties to these derivatives are limited to major international financial institutions, and the Group does not anticipate any losses arising from counterparty default. The Company and certain subsidiaries use hedging transactions in the ordinary course of business to reduce the exposure of foreign currency transactions to fluctuations in foreign currency exchange rates. The hedging transactions used by the companies have been made in accordance with internal policy. The Company also enters into hedging transactions in the ordinary course of business to reduce the exposure of long-term borrowings to fluctuations in interest rates. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: 1) All derivatives are recognized as either assets or liabilities and measured at fair value, with gain or loss recognized in the consolidated statements of income. 2) For derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gain or loss on derivatives is deferred until maturity of the hedged transactions. If the forward contracts qualify for hedge accounting, accounts and notes receivable and payable denominated in foreign currencies are translated into the contracted rates. The interest rate swaps which qualify for hedge accounting and meet specific matching criteria are not re-measured at market value but the differential paid or received under the swap agreements are recognized and included in interest expense or income. (o) Stock options The Company recognizes compensation expense for stock options based on the fair value at the date of grant and over the vesting period as a consideration for receiving services from directors, executive officers and employees. In the consolidated balance sheets, the stock options are presented as “stock options” as a separate component of equity until exercised. (p) Research and development expenses Research and development expenses are charged to income as incurred. (q) Per share information Basic earnings per share are computed by dividing net income available to common shareholders by the weighted-average number of common shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if stock options were exercised into common stock. Diluted earnings per share of common stock assume full exercise of outstanding stock options at the beginning of the year (or at the time of issuance). Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to the respective years, including dividends to be paid after the end of the year.


55

Note

3

Short-term Investments and Investment Securities Short-term investments and investment securities as of March 31, 2011 and 2010 were as follows: Thousands of U.S. dollars

Millions of yen

2011

Short-term investments: Time deposits with more than 3 months to maturity �� Marketable securities: Bonds �� Other �� Total �� Investment securities: Marketable securities: Stocks �� Bonds �� Other �� Non-marketable securities: Stocks �� Total ��

2011

2010

¥75,040

¥34,544

$904,096

1,250 2,566 ¥78,857

2,000 1,787 ¥38,332

15,060 30,915 $950,084

¥37,107 14,702 1

¥45,466 16,167 506

$447,072 177,132 12

2,474 ¥54,286

2,482 ¥64,622

29,807 $654,048

The costs and aggregate fair values of available-for-sale and held-to-maturity securities at March 31, 2011 and 2010 were as follows: Millions of yen

2011 Cost

Securities classified as: Available-for-sale: Stocks �� Bonds �� Other �� Held-to-maturity ��

¥36,788 1,367 2,504 14,547

Unrealized gain

2010

Unrealized loss

¥5,136 70 65 301

¥(4,816) (32) (1) (20)

Fair value

Cost

¥37,107 1,405 2,568 14,827

¥37,038 2,163 2,261 15,748

Unrealized gain

Unrealized loss

¥9,366 255 34 304

¥(938) (2) (0)

Fair value

¥45,466 2,418 2,293 16,052

Thousands of U.S. dollars

2011

Securities classified as: Available-for-sale: Stocks �� Bonds �� Other �� Held-to-maturity ��

Cost

Unrealized gain

Unrealized loss

$443,228 16,469 30,168 175,265

$61,879 843 783 3,626

$(58,024) $447,072 (385) 16,927 (12) 30,939 (240) 178,638

Fair value

Proceeds from sales of available-for-sale securities and gain and loss on these sales, computed by the moving-average method, for the years ended March 31, 2011 and 2010 were as follows: Thousands of U.S. dollars

Millions of yen

2011

Proceeds from sales �� Gain on sales �� Loss on sales ��

56


¥1,064 46 0

2011

2010

¥0 0

$12,819 554 0

Scheduled amounts (face value) of redemption of available-for-sale and held-to-maturity securities at contractual maturities as of March 31, 2011 were as follows: Millions of yen


2011

2011

Availablefor-sale

Due within 1 year or less �� Due after 1 year through 5 years �� Due after 5 years through 10 years �� Due after 10 years �� Total ��

Note

4

Held-tomaturity

Availablefor-sale

¥ 500

¥ 1,250 1,297

$ 6,024

$ 15,060 15,626

1,457 ¥1,957

12,000 ¥14,547

17,554 $23,578

144,578 $175,265

Inventories Inventories as of March 31, 2011 and 2010 were as follows:

2011

5


Millions of yen

2010

¥38,496 18,677 13,633 ¥70,807

Merchandise and finished goods �� Work-in process �� Raw materials and supplies �� Total ��

Note

Held-tomaturity

¥36,564 19,676 11,313 ¥67,553

2011

$463,807 225,024 164,253 $853,096

Impairment of Long-lived Assets The main contents of loss on impairment of long-lived assets for the years ended March 31, 2011 and 2010 were as follows: Thousands of U.S. dollars

Millions of yen

2011

2010

¥328 414 ¥743

Intangible assets (mainly Sales rights) �� Property, plant and equipment �� Total ��

¥4,812 2 ¥4,814

2011

$3,951 4,987 $8,951

Discount rates for measuring the recoverable amount: 7.8% in 2011 (7.6~10.0% in 2010)

Note

6

Borrowings Short-term and long-term borrowings are unsecured loans from financial institutions. Scheduled amounts of repayment of borrowings as of March 31, 2011 and 2010 were as follows: Thousands of U.S. dollars

Millions of yen

2011

2010

2011

Short-term borrowings (Weighted average interest rates: 0.36% in 2010) �� Long-term borrowings (Weighted average interest rates: 2.09% in 2011, 2.04% in 2010) Maturity date: From April 1, 2012 to March 31, 2013 �� Maturity date: From April 1, 2013 to March 31, 2014 ��

¥ 40,000 16,630

40,000 55,824

$ 481,927 200,361

Maturity date: From April 1, 2014 to March 31, 2015 ��

43,315

35,000

521,867

Maturity date: From April 1, 2015 to March 31, 2016 ��

8,315

Maturity date: After April 1, 2016 �� Total ��

151,630 ¥259,890

¥ 24,000

100.180 135,000 ¥289,824

1,826,867 $3,131,204


57

Note

7

Bonds and Debentures Bonds and debentures are unsecured. Scheduled amounts (face value) of redemption of bonds and debentures as of March 31, 2011 and 2010 were as follows: Thousands of U.S. dollars

Millions of yen

2011

Bonds and debentures (Current portion): Maturity date: June 6, 2011 (Interest rates 1.34% in 2011) �� Bonds and debentures: Maturity date: June 6, 2011 (Interest rates: 1.34% in 2010) �� Maturity date: June 6, 2013 (Interest rates 1.63% in 2011, 1.63% in 2010) �� Maturity date: June 5, 2015 (Interest rates 1.83% in 2011, 1.83% in 2010) �� Total ��

Note

8

2011

2010

¥ 40,000

$ 481,927 ¥ 40,000

50,000

50,000

602,409

30,000 ¥120,000

30,000 ¥120,000

361,445 $1,445,783

Retirement and Pension Plans The Company and certain subsidiaries have retirement and pension plans for employees, directors, executive officers and corporate auditors. Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lump-sum payment from the Company or from certain subsidiaries and/or annuity payments from a trustee. The Company adopts a defined benefit pension plan and retirement lump-sum payments for employees, which cover approximately 45% and 55%, respectively, of their benefits. Liability for retirement benefits as of March 31, 2011 and 2010 were as follows: Thousands of U.S. dollars

Millions of yen

2011

Projected benefit obligation �� Fair value of plan assets �� Unrecognized actuarial gain �� Unrecognized prior service cost �� Liability for retirement benefits ��

¥(117,434) 67,703 20,505 ¥ (29,225)

2010

2011

¥(117,079) 72,353 19,632 (1,274) ¥ (26,368)

$(1,414,867) 815,698 247,048 $ (352,108)

Components of net periodic retirement benefit costs for the years ended March 31, 2011 and 2010 were as follows: Thousands of U.S. dollars

Millions of yen

Service cost �� Interest cost �� Expected return on plan assets �� Amortization of unrecognized net actuarial loss �� Amortization of prior service cost �� Contribution to defined contribution plan and others �� Net periodic retirement benefit costs ��

2011

2010

¥ 4,175 2,851 (2,084) 3,828 (1,275) 2,174 ¥ 9,671*

¥ 3,854 2,834 (1,883) 5,520 (2,616) 2,140 ¥ 9,849

2011

$ 50,301 34,349 (25,108) 46,120 (15,361) 26,192 $116,518*

* Severance costs and other related costs of ¥5,502 million ($66,289 thousand) associated with restructuring of overseas subsidiaries in the year ended March 31, 2011 were incurred in addition to the above.

58


Assumptions used for the years ended March 31, 2011 and 2010 were set forth as follows: Discount rate �� Expected rate of return on plan assets �� Amortization period of actuarial gain/loss �� Amortization period of prior service cost ��

2011

2010

Mainly 2.5% Mainly 4.0% 5 years 5 years

Mainly 2.5% Mainly 4.0% 5 years 5 years

Retirement allowances for directors, executive officers and corporate auditors at March 31, 2011 and 2010 were ¥805 million ($9,698 thousand) and ¥2,723 million, respectively, which were included in the liability for retirement benefits.

Note

9

Income Taxes Description of the main items included in deferred tax assets and liabilities as of March 31, 2011 and 2010 were as follows: Thousands of U.S. dollars

Millions of yen

2011

Deferred tax assets: Entrusted R&D expenses �� Liability for retirement benefits �� Depreciation and amortization �� Deferred charges in tax procedures �� Tax credit for R&D expenses �� Unrealized profits on inventories �� Accrued bonuses �� Reserve for sales rebates �� Tax loss carryforwards �� Other �� Less valuation allowance �� Total �� Deferred tax liabilities: Sales rights �� Core technology �� Other �� Total �� Net deferred tax assets ��

¥ 46,439 19,091 12,356 7,003 6,709 5,951 5,646 4,058

2010

2011

¥ 49,852 18,377 12,409

$ 559,506 230,012 148,867 84,373 80,831 71,698 68,024 48,891

17,708 (6,515) 118,451

10,346 4,944 4,685 5,385 9,577 21,423 (5,472) 131,531

(22,514) (17,182) (6,635) (46,331) ¥ 72,119

(31,511) (20,463) (7,480) (59,454) ¥ 72,076

213,349 (78,493) 1,427,120 (271,253) (207,012) (79,939) (558,204) $ 868,903


59

Reconciliation between the statutory tax rate and the effective income tax rate reflected for the years ended March 31, 2011 and 2010 was as follows: Statutory tax rate �� Expenses not permanently deductible for income tax purposes, such as entertainment expenses �� Income not permanently taxable for income tax purposes, such as dividend income �� Tax credit for R&D expenses �� Difference in statutory tax rate of subsidiaries and other �� Change in valuation allowance �� Amortization of goodwill �� In-process R&D expenses �� Other - net �� Effective income tax rate ��

Note

10

2011

2010

41.0%

41.0%

2.0 (0.2) (13.4) (0.8) 1.7 2.7 0.9 33.9%

3.1 (0.2) (12.9) (0.4) (2.0) 4.1 11.2 1.1 45.0%

Equity The Company is organized as a company with board committees. Under the Companies Act of Japan and the current articles of incorporation of the Company, if certain requirements, including the receipt of an unqualified opinion on the consolidated financial statements from the independent auditors, have been met, appropriations of retained earnings, such as acquisition of treasury stock and dividends in cash, are approved by the Board of Directors of the Company. The Company has adopted the Accounting Standard “Accounting Standards for presentation of comprehensive income” (Accounting Standards Board of Japan (“ASBJ”) No. 25 issued on June 30, 2010) in the year ended March 31, 2011. Figures in “Accumulated other comprehensive income” in the previous fiscal year’s financial report correspond to the amount of “Net unrealized gain/loss and translation adjustments” presented in this fiscal year.

60


Note

11

Stock Options Directors, executive officers and employees of the Company were granted options for common stock. The stock options outstanding as of March 31, 2011 were as follows: Date of June 29, decision �� 2000 Date of September grant �� 1, 2000 Exercise From period �� September 1, 2000 to June 29, 2010 Exercise ¥3,090 price �� ($37.23) Number of options 142,000 granted �� shares

June 28, 2001 August 1, 2001 From September 3, 2001 to June 28, 2011 ¥2,668 ($32.14)

June 27, 2002 July 1, 2002 From July 1, 2002 to June 27, 2012 ¥3,165 ($38.13)






June 20, 2008 July 7, 2008 From June 21, 2010 to June 20, 2018 ¥3,760 ($45.30)



180,000 shares

175,000 shares

210,000 shares

238,000 shares

262,000 shares

254,000 shares

264,000 shares

288,000 shares

291,000 shares

319,000 shares

The stock options activities for the year ended March 31, 2011 were as follows: June 29, 2000

Date of decision Before the right is vested: Balance at beginning of year �� Granted �� Forfeited �� Vested �� Balance at end of year �� After the right is vested: Balance at beginning of year �� 36,800 Vested �� Exercised �� Forfeited �� 36,800 Balance at end of year ��

June 28, 2001

June 27, 2002

June 24, 2003

Shares June 24, 2005

June 24, 2004

June 23, 2006

June 22, 2007

June 20, 2008

June 19, 2009

283,000

291,000

June 18, 2010

319,000 283,000

48,300

108,400

53,900

191,200

18,800

4,300

3,000

2,400

29,500

104,100

50,900

188,800

234,400

254,000

291,000

319,000

¥471 ($5.06)

¥348 ($4.19)

264,000 283,000

234,400

254,000

264,000

283,000

¥1,161 ($12.48)

¥991 ($10.66)

¥530 ($5.70)

Yen (U.S. dollars)

Average of exercise prices �� Fair value of options at grant date ��

¥3,059 ($36.86)

¥3,046 ($36.70)

¥3,160 ($38.07)

¥2,973 ($35.82)

The assumptions used to measure the fair value of stock options decided at June 18, 2010 were as follows: Estimate method �� Expected volatility �� Expected life �� Expected dividend �� Risk-free interest rate ��

Black-Scholes option pricing model 27.70% 6 years ¥150 ($1.80) per share 0.44%


61

Note

12

Fair Value of Financial Instruments The carrying amounts, fair values and net unrealized gain (loss) of financial instruments as of March 31, 2011 and 2010 were as follows: Millions of yen


2011

Assets: Cash and cash equivalents �� Notes and accounts receivable - trade: Notes and accounts receivable - trade �� Allowance for doubtful receivables*1 �� Notes and accounts receivable trade - net �� Short-term investments and investment securities: Time deposits with more than 3 months to maturity �� Available-for-sale �� Held-to-maturity �� Total �� Liabilities: Notes and accounts payable - trade �� Bonds and debentures (current portion) �� Accounts payable - other �� Income taxes payable �� Bonds and debentures �� Long-term borrowings �� Total �� Derivative transactions*2: Non-hedge accounting (Foreign exchange forward contract) �� Hedge accounting (Interest-rate swap) Hedge-principle method �� Hedge-exceptional method �� Total ��

Carrying amount

Fair value

¥102,800

¥102,800

2011 Unrecognized gain (loss)

195,234 (89)

Carrying amount

Fair value

$1,238,554

$1,238,554

2,352,216 (1,072)

195,144

195,144

2,351,132

2,351,132

75,040 41,081 14,547 ¥428,614

75,040 41,081 14,827 ¥428,894

904,096 494,951 175,265 $5,164,024

904,096 494,951 178,638 $5,167,397

¥ 22,004 39,999 46,432 24,070 79,992 259,890 ¥472,389

¥ 22,004 40,068 46,432 24,070 82,412 263,951 ¥478,941

$ 265,108 481,915 559,421 290,000 963,759 3,131,204 $5,691,433

$ 265,108 482,746 559,421 290,000 992,915 3,180,132 $5,770,373

¥

¥

$

$

(170)

(1,369) ¥ (1,539)

Unrecognized gain (loss)

¥ 280 ¥ 280

¥

69

2,420 4,061 ¥6,551

(170)

(1,369) (2,613) ¥ (4,153)

(2,048)

(16,493) ¥(2,613) ¥(2,613)

$ (18,542)

$ 3,373 $ 3,373

$

831

29,156 48,927 $78,927

(2,048)

(16,493) (31,481) $ (50,036)

$(31,481) $(31,481)

Unlisted equity securities and investments in associated companies (Carrying amount: Unlisted equity securities ¥2,474 million ($29,807 thousand), Investments in associated companies ¥275 million ($3,313 thousand)) were not included in “Short-term investments and investment securities” because they had no market price and their fair values were therefore deemed as being infeasible to accurately determine.

62


Millions of yen

2010

Assets: Cash and cash equivalents �� Notes and accounts receivable - trade: Notes and accounts receivable - trade �� Allowance for doubtful receivables*1 �� Notes and accounts receivable - trade - net �� Short-term investments and investment securities: Time deposits with more than 3 months to maturity �� Available-for-sale �� Held-to-maturity �� Total �� Liabilities: Short-term borrowings �� Notes and accounts payable - trade �� Accounts payable - other �� Income taxes payable �� Bonds and debentures �� Long-term borrowings �� Total �� Derivative transactions*2: Non-hedge accounting (Foreign exchange forward contract) �� Hedge accounting (Interest-rate swap) Hedge-principle method �� Hedge-exceptional method �� Total ��

Carrying amount

Fair value

¥115,128

¥115,128

207,219 (239) 206,980

206,980

34,544 50,179 15,748 ¥422,581

34,544 50,179 16,052 ¥422,884

¥ 303 ¥ 303

¥ 24,000 20,314 67,913 6,555 119,987 265,824 ¥504,595

¥ 24,000 20,314 67,913 6,555 123,684 270,608 ¥513,076

¥3,696 4,784 ¥8,481

¥

¥

(454)

(1,032) ¥ (1,487)

Unrealized gain (loss)

(454)

(1,032) (2,835) ¥ (4,322)

¥(2,835) ¥(2,835)

Unlisted equity securities and investments in associated companies (Carrying amount: Unlisted equity securities ¥2,482 million, Investments in associated companies ¥174 million) were not included in “Short - term investments and investment securities,” because they had no market price and their fair values were therefore deemed as being infeasible to accurately determine. *1 Allowance for doubtful receivables was deducted from notes and account receivable-trade. *2 Net receivables and payables derived as the result of derivative transactions were presented. Values in parentheses show net liabilities. (Note 1) Method used to calculate fair value of financial instruments Assets Cash and cash equivalents (excluding MMF), Notes and accounts receivable - trade, Time deposits with more than 3 months to maturity Carrying values are used as fair values of these items because the fair values are nearly equal to such carrying values as they are settled within a short period. Cash and cash equivalents (MMF portion), Available-for-sale securities, Held-to-maturity securities Fair values of equity securities traded on securities exchanges are based on the market value and values offered by correspondent financial institutions are used for debt securities. Liabilities Notes and accounts payable - trade, Accounts payable - other, Income taxes payable, Short-term borrowings Carrying values are used as fair values of these items because the fair values are nearly equal to such carrying values as they are settled within a short period. Bonds and debentures (current portion), Bonds and debentures Market values offered by correspondent financial institutions are used as fair values of Eisai’s corporate bonds.


63

Long-term borrowings With regard to variable interest rate borrowings, carrying values are used as fair values of these items because the fair values are nearly equal to such carrying values as the market rate is reflected in a short period. On the other hand, as for fixed interest rate borrowings, fair values of these items are calculated by discounting the total amount of principal and interest by using the interest rates that would presumably apply if similar borrowings were newly made. Derivative transactions Market values offered by correspondent financial institutions are used as fair values. The amounts of fair value of gain (loss) on foreign exchange forward contracts were included in the fair value of accounts receivable – trade.

Note

13

Leases The Group leases certain equipment, computers, office space and other assets. The minimum rental payments under noncancelable operating leases as of March 31, 2011 and 2010 were as follows: Thousands of U.S. dollars

Millions of yen

2011

Due within 1 year �� Due over 1 year �� Total ��

Note

14

¥ 2,510 15,675 ¥18,185

2010

¥ 2,602 16,342 ¥18,945

2011

$ 30,240 188,855 $219,096

Business Combination The business combination for the year ended March 31, 2010 was as follows: Acquisition of AkaRx, Inc. by share purchase 1) Outlines i) Name of company acquired:

AkaRx, Inc. (U.S.)

ii) Description of acquired business:

Development, marketing and manufacture of AKR-501 (agent to treat thrombocytopenia)

iii) Reason and purpose of acquisition:

In order to obtain the exclusive worldwide rights to develop, market and manufacture AKR-501 which is expected to demonstrate its effects in various diseases associated with thrombocytopenia to further enhance its portfolio of pipeline products

iv) Date of acquisition:

January 6, 2010 (U.S. Eastern Standard Time)

v) Legal form of share purchase:

Eisai Inc. exercised an option to acquire AkaRx, Inc. that was obtained through the acquisition of MGI PHARMA, INC. (U.S.) in January 2008. A special-purpose entity for acquisition, which Eisai Inc. had established, paid cash as compensation for the merger to the shareholders of AkaRx, Inc. As a result of the transaction, AkaRx, Inc., the surviving company, merged with the special-purpose entity and became a wholly-owned subsidiary of Eisai Inc.

vi) Name of the company after acquisition:

AkaRx, Inc.

vii) Acquired voting rights:

100%

2) Description of acquisition costs Cash paid: Direct costs relating to the acquisition: Total acquisition costs:

$ 255 million $ 2 million $ 257 million

3) Description of the purchase price allocated to R&D expenses Amount: Accounts:

$ 257 million R&D expenses

Despite the lack of equity ownership, in accordance with U.S. GAAP, AkaRx, Inc. has been treated as a consolidated subsidiary of Eisai from the time of Eisai’s acquisition of MGI PHARMA, Inc.

64


Note

15

Comprehensive Income The Group has adopted the Accounting Standard “Accounting Standard for Presentation of Comprehensive Income” (ASBJ No. 25 issued on June 30, 2010) in the year ended March 31, 2011. Comprehensive income for the year ended March 31, 2010 was as follows: Millions of yen

2010

Income before minority interests Other comprehensive income Net unrealized gain (loss) on available-for-sale securities Deferred gain (loss) on derivatives under hedge accounting Foreign currency translation adjustments Total other comprehensive income Comprehensive Income Comprehensive income attributable to shareholders of the parent company Comprehensive income attributable to minority interests

Note

16

Reconciliation of the differences between basic earnings and diluted earnings per share (“EPS”) for the years ended March 31, 2011 and 2010 was as follows:

Net income

For the year ended March 31, 2011: Basic EPS: Net income available to common shareholders �� Effect of dilutive securities: Stock options �� Diluted EPS: Net income for computation �� For the year ended March 31, 2010: Basic EPS: Net income available to common shareholders �� Effect of dilutive securities: Stock options �� Diluted EPS: Net income for computation ��

17

3,791 (171) (16,060) (12,440) ¥ 28,421 ¥ 27,782 638

Earnings Per Share

Millions of yen

Note

¥ 40,861

¥67,394

Thousands of shares Weighted average shares

284,937

Yen

U.S. dollars EPS

¥236.52

$2.85

$2.85

16 ¥67,394

284,954

¥236.51

¥40,338

284,909

¥141.58

44 ¥40,338

284,954

¥141.56

Segment Information The Group has adopted the Accounting Standard “Accounting Standards for Disclosure about Segments of an Enterprise and Related information” (ASBJ Statement No. 17, issued on March 27, 2009) and ASBJ Guideline No. 20 “Guidance on Accounting Standard for Disclosures about Segments of an Enterprise and Related Information” (issued on March 21, 2008) in the year ended March 31, 2011. (a) Overview of reporting segments The Eisai Group defines its reporting segments as follows: units that comprise the Group for which it can obtain independent financial information; and units for which top management undertakes a periodic review in order to determine the allocation of management resources and to evaluate performance.


65

The Group’s Pharmaceuticals business encompasses operations in five regions worldwide: Japan, the United States, Europe, Asia (including China) and New Markets (India, Middle East, etc.), each of which pursues strategies tailored to the specific characteristics of each region or market. In the Pharmaceuticals business, the Group is mainly engaged in the manufacture and sale of prescription drugs. The Group’s segments comprise the Pharmaceuticals and Other businesses, with the Pharmaceuticals business of each region being identified as a reporting segment. (b) Methods to determine reporting segment sales, profit (loss), assets, liabilities and other items The accounting method applied for reporting segments is the same as that described in “Changes in Significant Basic Items for Consolidated Financial Statements.” Figures in reporting segments represent sales to external customers and operating income thereof. R&D expenses and certain selling, general and administrative expenses are not allocated to any particular reporting segment as the Group does not manage such expenses on a regional basis. Investment in assets is determined by taking the optimized allotment of management resources throughout the Group into consideration. The amounts of assets and expense items relating to depreciation and amortization of long-lived assets of the reporting segments are not provided due to the inherent difficulties in determining such amounts by reporting segments. (c) Information concerning sales and profit (loss) by reporting segment Millions of yen

2011 Reporting Segment Pharmaceuticals Business Japan

Sales to external customers �� Segment profit (loss) ��

¥350,355 ¥145,009

United States

¥303,035 ¥ 94,406

New Markets

Europe

Asia

¥44,351 ¥ 4,694

¥31,348 ¥ 5,854

¥ 970 ¥(735)

Other* (Note)

Sub-total

¥730,061 ¥249,229

¥38,853 ¥17,699

Total

¥768,914 ¥266,929

Millions of yen


Sales to external customers �� Segment profit (loss) ��

¥322,214 ¥133,432

United States

¥358,829 ¥106,610

New Markets

Europe

Asia

¥49,516 ¥ 6,386

¥31,128 ¥ 8,142

¥757 ¥(262)

Other* (Note)

Sub-total

¥762,445 ¥254,309

¥40,706 ¥17,827

Total

¥803,152 ¥272,136



Sales to external customers �� $4,221,144 Segment profit (loss) �� $1,747,096

United States

Europe

Asia

$3,651,024 $534,349 $377,686 $1,137,421 $ 56,554 $ 70,530

New Markets

Other* (Note)

Sub-total

$11,686 $8,795,915 $468,108 $(8,855) $3,002,759 $213,240

Total

$9,264,024 $3,216,012

* “Other” was a business segment not included in reporting segments. Pharmaceutical raw materials and machinery businesses were included in this segment.

(d) A mount and main components of difference between reporting segment total and consolidated statements of income (items concerning difference adjustment) Thousands of U.S. dollars

Millions of yen

Sales Reporting segment total �� Sales included in “Other” �� Sales as reported in the consolidated financial statements ��

66


2011

¥730,061 38,853 ¥768,914

2010

2011

¥762,445 40,706 ¥803,152

$8,795,915 468,108 $9,264,024


Millions of yen

Profit Reporting segment total �� Profit included in “Other” �� R&D expenses (Note 1) �� Group headquarters management costs and other expenses (Note 2) �� Operating income as reported in the consolidated financial statements ��

2011

¥ 249,229 17,699 (145,030) (8,781) ¥ 113,117

2010

2011

¥ 254,309 17,827 (179,082) (6,647) ¥ 86,406

$ 3,002,759 213,240 (1,747,349) (105,795) $ 1,362,855

*1 R&D expenses were not allocated to any particular segment as the Group manages such expense on a global basis. *2 Group headquarters management costs and other expenses were not allocated to any particular segment as this was the cost covering Group-wide operations.

(e) Related Information 1) Information by product and service Millions of yen

2011

Sales to external customers ��

Aricept

Pariet/ Aciphex

Oncologyrelated products

¥290,360

¥136,929

¥80,283

Other

Total

¥261,340

¥768,914


2011 Aricept

Sales to external customers ��

$3,498,313

Pariet/ Aciphex

$1,649,746

Oncologyrelated products

$967,265

Other

Total

$3,148,674

$9,264,024

2) Information by region i) Sales Millions of yen

2011 Japan

¥367,531

United States

¥311,451

Europe

¥54,590

Other

¥35,340

Total

¥768,914


2011 Japan

United States

$4,428,084

$3,752,421

Europe

$657,710

Other

$425,783

Total

$9,264,024

(Note) Sales were allocated into countries or regions based on customer locations. Major areas and countries included in this category other than Japan and the United States: 1) Europe: United Kingdom, France, Germany, etc. 2) Other: Asia, Latin America, etc.

ii) Property, plant and equipment Millions of yen

2011 Japan

¥91,129

United States

¥34,696

United Kingdom

¥15,992

Other

¥7,314

Total

¥149,132


2011 Japan

$1,097,939

United States

$418,024

United Kingdom

$192,674

Other

$88,120

Total

$1,796,771

(Note) Major countries included in other were India and China.


67

3) Information by major customer Thousands of U.S. dollars

Millions of yen

2011 Name of company

McKesson Corp. Alfresa Holdings Corporation AmerisourceBergen Corporation

2011

Sales

Related Segment

¥107,698 83,962 83,523

$1,297,566 1,011,590 1,006,301

U.S. Pharmaceuticals Business Japan Pharmaceuticals Business U.S. Pharmaceuticals Business

(f) Information concerning loss on impairment of long-lived assets by reporting segment Millions of yen

2011 Japan Pharmaceuticals Business

Loss on impairment of long-lived assets ��

United States Pharmaceuticals Business

Europe Pharmaceuticals Business

Asia Pharmaceuticals Business

¥0

New Markets Pharmaceuticals Business

Total

¥33

¥34


2011 Japan Pharmaceuticals Business

Loss on impairment of long-lived assets ��




$5


Total

$397

$409

(Note) The amount of loss on impairment of long-lived assets not allocated to reporting segments in the year ended March 31, 2011 was ¥709 million ($8,542 thousand). The main contents were property, plant and equipment of ¥414 million ($4,987 thousand) in Other segment and unamortized sales rights, etc, of ¥294 million ($3,542 thousand).

(g) Information concerning amortization of goodwill and unamortized balance by reporting segment Millions of yen

2011

Amortization during the reporting fiscal year �� Balance at end of year ��




¥(324) ¥(487)

¥ 7,983 ¥127,811

¥119 ¥639



Total

¥ 7,777 ¥127,963


2011

Amortization during the reporting fiscal year �� Balance at end of year ��




$(3,903) $(5,867)

$ 96,180 $1,539,891

$1,433 $7,698



Total

$ 93,698 $1,541,722

(Note) Amortization during the reporting fiscal year and Balance at end of year in Japan Pharmaceuticals Business present negative goodwill recorded before April 1, 2010.

Note

18

Subsequent Events (a) Appropriation of retained earnings The following appropriation of retained earnings for the year ended March 31, 2011 was resolved by the Company’s Board of Directors on May 13, 2011: Millions of yen

Year-end cash dividends (¥80.00 ($0.96) per share) ��

¥22,796


$274,650

(b) Stock option plan The following stock option plan of the Company was approved at the General Shareholders’ Meeting and subsequently resolved at the Company’s Board of Directors, both held on June 21, 2011. Directors, executive officers and employees were granted new stock options totaling 3,110 units. These stock options will be issued on July 7, 2011, and can be exercised from June 22, 2013 to June 21, 2021. The number of shares to be issued by the exercise of each stock option unit shall be 100 shares.

68


Independent Auditors’ Report


69

Intellectual Property, Risk Factors

P ROTECTION AND REINFORCEMENT OF INTELLECTUAL PROPERTY The legal protection and effective utilization of products and technologies developed by Eisai are essential for the sustained growth and advancement of the Company, and for Eisai to continue to provide a stable supply of pharmaceuticals to patients. Therefore, we pursue a number of strategic intellectual property activities and strategies related to the Company’s product portfolio and product creation operations.

1. Intellectual Property Activities The Intellectual Property Department has stationed persons responsible for intellectual property at Eisai’s Production Creation Units and conducts activities worldwide relating to patents, trademarks, designs, and copyrights while working closely with each group, such as Eisai Product Creation Systems (EPCS). In particular, in global activities related to intellectual property, including those at overseas product creation facilities, the persons responsible for intellectual property at each company unit periodically share information to strengthen cooperative ties, and decisions are reached from a global perspective. Furthermore, the filing of patent applications and prior art searches are carried out through close collaboration between business divisions and product creation units. Companies within the Eisai network are given backing and support while respecting each company’s autonomy. In addition, when Eisai introduces new technologies and promising new candidate compounds, it cooperates with relevant organizations and emphasizes the steadfast protection of patent rights while ensuring compliance with relevant laws and regulations. In parallel with these activities, we are taking steps to build a firm base for intellectual property management from various perspectives, including through systematic intellectual property training that began in fiscal 2009, in order to make our management more focused on intellectual property.

2. Product Creation Activities and Intellectual Property Strategies Prescription pharmaceuticals account for most of Eisai’s total sales. Eisai files patent applications for the results of the initial phase of product creation activities such as genes, proteins,

70


screening methods, and so forth. With respect to promising compounds discovered as a result of initial product creation activities, the Intellectual Property Department works closely with each Product Creation Unit and effectively files patent applications and focuses on obtaining the rights for them, so that launched drugs are adequately protected. With respect to development-stage and launched drugs, in order to maximize the potential efficacy and increase the benefit to patients, we also pursue new formulations, new medical uses, and new administration methods and file patent applications to secure patent rights for those achievements as well.

3. Contributions to Licensing-Related Activities Rather than simply looking to third-party licensing fees on patents as a revenue source, we strive to create a strong patent portfolio that will contribute to our business success.

4. Number of Registered Patents To protect the results of our product creation activities, we diligently file patent applications in Japan and overseas. At the same time, to efficiently manage resources, we carefully evaluate the strategic importance of each inventive discovery and determine whether to file patents abroad and, if so, how many and in which country to file them.

can entirely avoid such risks as legal restrictions and socio-political uncertainty in the development of global business activities. In the event the Group faces such risks, there is a possibility that original projected earnings may not be achieved.

2. Uncertainty of New Drug Development Development of a drug candidate substance may be discontinued due to shortcomings in its effectiveness or safety profile. Even if clinical trials yield favorable results, approval may not be granted due to changes in pharma ceutical regulations implemented during the development of the product. As a result of the discontinuation of development of a new drug arising from the inherent uncertainties of drug development, future expected profits may not be achieved.

3. Risks Related to Dependence on Specific Products Aricept® and AcipHex®/Pariet®, the Group’s two major products, comprise a high level of total revenue, accounting for more than 50% of net sales on a consolidated basis. Risks such as a decline in sales as a result of the launch of new competing products or generic versions of these products after patent expiration, and specifically the expiration of the composition of matter patent for Aricept® in the U.S. in November 2010, may significantly impact business performance.

5. Trademarks Eisai develops product names for all pharmaceuticals that are protected by trademark rights, and the Intellectual Property Department implements brand strategies throughout the world in collaboration with the Marketing Division.

RISK FACTORS Risks that could cause significant fluctuations in the consolidated results of the Eisai Group or have a material effect on investment decisions are described below. These risks, however, have been evaluated and forecasted as of the disclosure date of the Financial Report.

1. Risks Related to Overseas Operations The Group conducts production/sales activities with Aricept® and AcipHex®/Pariet® and other major products in countries and regions including Japan, the U.S., Europe and Asia. However, there is no guarantee that the Group

4. Risks in Alliances with Other Companies The Group has comprehensive business alliances with other companies on its major products, Aricept® and AcipHex®/Pariet®, and obtains promotional assistance from business partners to cover the entire market and maximize product sales in the U.S. and major countries in Europe. If partner relationships are not sustained, sales may decrease and significantly impact business results. Furthermore, expected profits may not be achieved due to uncertainties associated with activities such as product acquisition/licensing.

5. Impact of Medical Cost Containment Measures In Japan, the government enacts price revisions for prescription drugs every two years as part of its efforts to contain medical costs. Efforts to reduce drug prices are intensifying

year after year in the U.S. as well as in countries in both Europe and Asia. Such efforts to contain costs may lead to a drop in sales.

6. Competition and Lawsuits with Generic Products Pharmaceutical patents have a limited term. Frequently, generic makers launch generic products upon the expiration of a patent for the original drug. Requiring less cost for development, such generic products are usually priced lower than the original products, and hence those generic products may have a significant impact on market share. Additionally, in countries such as the U.S., an application for a generic product is accepted even during the patent term.

7. Risks Related to Intellectual Property If a patent application is dismissed, a patent is found to be invalid after approval, or if there is a failure to properly protect a patent, com petitors may enter the market earlier than expected, which could potentially lead to a decrease in sales. Additionally, if the business activities of the Group infringe on the intellectual property of a third party, it may deteriorate the profitability as well as necessitate a change in business plan of the Group, as a result of the third party in question exercising the right, leading to a significant impact on business performance of the Group.

10. Risks Relating to Lawsuits Results of pending or future lawsuits may have a significant impact on the Group’s business results. Currently, the Group is involved in litigation concerning the pricing and sales promotion of bulk synthetic vitamin E products.

11. Plant Closure/Shutdown The Group may close or shutdown its plants due to technical problems, raw material shortages, influenza and other pandemics, fire, or earthquakes and other natural disasters. In such cases, the provision of products may become difficult, which could significantly impact business results.

12. Risks Concerning the Safety and Quality of Raw Materials If there is any concern over the safety and quality of raw materials, the Group may take action such as changing materials, conducting a recall, or suspending sales, which may have a significant impact on business results.

social reputation and significantly impact business results.

16. Risks Related to Financial Market Conditions and Currency Movement As the Group holds stocks and other marketable securities, a decline in the stock market could result in losses on stock sales or valuation losses. In addition, an increase in retirement benefits due to changes in the interest rate may have an impact on business results. Furthermore, foreign exchange fluctuations affect the yen conversion of sales of consolidated subsidiaries, which account for over half of consolidated net sales. The effects of foreign exchange fluctuations on export and import transactions also impact business results.

17. Risks Concerning Internal Control Systems

The Group outsources part of its operations, including research and production, to other companies. Business results may be significantly impacted when the provision of business commissioned to outside companies is disrupted due to the shutdown of operations of any of the subcontractors for whatever reason.

In accordance with assessment and audit standards as well as implementation standards for internal controls pertaining to financial reporting as mandated by the Financial Instruments and Exchange Law of Japan, the Group establishes effective internal control systems related to financial reporting and strives to appropriately manage those systems. However, major losses that arise due to the malfunction of internal control systems function properly or occurrence of unexpected problems related to internal control systems may have a significant impact on business results.

14. Environmental Risks

18. Risks Concerning Disasters

In case a serious environmental pollution event is reported at any of its business offices, the Group may be required to close the office in question or be subject to other proceedings required by law. Furthermore, the costs necessary to assume liability for payment of compensation to neighboring regions and improve the environment may significantly affect business results.

The occurrence of disasters, including natural disasters, such as earthquakes and tsunamis, as well as accidents, such as fires, could result in large-scale damage to business facilities and impact the business activities of the Eisai Group. In addition, repairs to facilities damaged by these disasters may cause the Company to incur significant expenses and have a major impact on business results.

13. Risks Associated with Outsourcing

8. Risks of Occurrences of Side Effects If a product is found to have any serious side effects, the Group may take measures such as suspending product prescriptions or conducting a product recall. The investigation into and communication of information on such side effects as well as the recall of the product in question may lead the Group to incur additional expenses.

9. Risks Regarding Regulations Because the Group’s pharmaceuticals business is subject to various controls including pharmaceutical regulations and product liability, enactment of a law or changes in the regulations may have a significant impact on business results. In the event regulatory nonconformity is found in a product, the Group may issue a product recall, have the product’s marketing approval revoked, or face liability claims.

15. Risks Concerning IT Security and Information Management Since the Group makes full use of various IT systems for business, its operations may be disrupted due to external factors such as inefficient systems and computer viruses. In addition, the Group faces the risk of technical accidents that involve personal information leakage outside of the Group, which may considerably damage the Group’s


71

Japan and Overseas Operations

u Head Office

u

4-6-10, Koishikawa, Bunkyo-ku Tokyo 112-8088, Japan TEL: 81-3-3817-3700

Major Overseas Business Offices North America 1 Eisai Inc.

t

100 Tice Boulevard Woodcliff Lake, New Jersey 07677, U.S.A. TEL: 1-201-692-1100 FAX: 1-201-746-3201

 Eisai Inc./Research Triangle Park (RTP)

y

68 q 7 -9 0 =r e w \

900 Davis Drive, P.O. Box 14505 RTP, North Carolina 27709, U.S.A. TEL: 1-919-941-6920 FAX: 1-919-941-6931

s f j

a d  g

 Eisai Inc./Andover Site (Research Laboratory)

h

]

p

4 Corporate Drive Andover, Massachusetts 01810, U.S.A. TEL: 1-978-794-1117 FAX: 1-978-794-4910

2 Morphotek, Inc.

[

i o u

678

h

210 Welsh Pool Road Exton, Pennsylvania 19341, U.S.A. TEL: 1-610-423-6100 FAX: 1-610-423-6199

3 H3 Biomedicine Inc. 300 Technology Square Cambridge, Massachusetts 02139, U.S.A. Tel: 1-617-252-5000 Fax: 1-617-252-5098

4 Eisai Machinery U.S.A. Inc. 90 Boroline Road Allendale, New Jersey 07401, U.S.A. TEL: 1-201-746-2111 FAX: 1-201-692-1972

5 Eisai Ltd. 2630 Skymark Avenue, Suite 701 Mississauga, Ontario L4W 5A4, Canada TEL: 1-905-361-7130 FAX: 1-732-791-1212

Europe

8 Eisai Manufacturing Ltd.

- Eisai Machinery GmbH

European Knowledge Centre Mosquito Way, Hatfield, Hertfordshire AL10 9SN, U.K. TEL: 44-845-676-1400 FAX: 44-845-676-5050

Mathias Brueggen Strasse 142 D-50829 Koeln, Germany TEL: 49-221-9564590 FAX: 49-221-9564599

9 Eisai GmbH

Tour Manhattan, 5-6 Place de I’Iris 92095 Paris La Défense 2 Cedex, France TEL: 33-1-47670005 FAX: 33-1-47670015

Lyoner Strasse 36 D-60528 Frankfurt am Main, Germany TEL: 49-69-665850 FAX: 49-69-6658585

6 Eisai Europe Ltd.

0 Eisai GesmbH

European Knowledge Centre Mosquito Way, Hatfield, Hertfordshire AL10 9SN, U.K. TEL: 44-845-676-1400 FAX: 44-845-676-1300

Saturn Tower, Leonard-Bernstein-Strasse 10 A-1220 Wien, Austria TEL: 43-1-5351980-0 FAX: 43-1-5351980-80

7 Eisai Ltd. European Knowledge Centre Mosquito Way, Hatfield, Hertfordshire AL10 9SN, U.K. TEL: 44-845-676-1400 FAX: 44-845-676-1401

Eisai GmbH Magyarorszagi Kereskedelmi Kepviselete Frangepan utca 5-7, H-1139 Budapest, Hungary TEL: 36-1-230432-0 FAX: 36-1-236000-5

Eisai GmbH Organisational Branch Holusicka 2253/1 148 00 Prague 4 - Chodov Czech Republic TEL: 420-2424-85839 FAX: 420-2424-85840

72


= Eisai S.A.S.

q Eisai B.V. Strawinskylaan 909, 1077 XX Amsterdam, The Netherlands TEL: 31-20-575-3340 FAX: 31-20-575-3341

w Eisai Farmacéutica S.A. C/Arturo Soria 336, 3a Planta 28033 Madrid, Spain TEL: 34-91-455-9455 FAX: 34-91-721-0506

e Eisai S.r.l. Via dell’Unione Europea 6 20097 San Donato Milanesse (MI), Italy TEL: 39-02-518-1401 FAX: 39-02-518-14020

u

] HI-Eisai Pharmaceutical Inc.

1

20th Floor, Multinational Bancorporation Centre 6805 Ayala Avenue, 1226 Makati City, Philippines TEL: 63-2-887-1047 FAX: 63-2-887-5172

\ Eisai Korea Inc. 10F Revessant, 147-17 Samseong-dong, Gangnam-gu Seoul 135-878, Korea TEL: 82-2-3451-5500 FAX: 82-2-3451-5599



a Eisai Taiwan Inc. 9th Floor, No. 18, Chang An E. Road, Sec. 1 Taipei, Taiwan TEL: 886-2-2-531-4175 FAX: 886-2-2-531-0063

5 2 3 1 4 

 Tainan Factory No. 54, Gong-Yeh West Road, Guan Tyan Hsiang, Tainan Hsien, Taiwan TEL: 886-6-698-5180 FAX: 886-6-698-7539

s Eisai China Inc.



39th-40th Floor, Park Place, No.1601, Nanjing Xi Road, Shanghai City, 200040 China TEL: 86-21-2419-2888 FAX: 86-21-2419-2881

 Suzhou Factory Bai Yu Road #32, Suzhou Industrial Park, Suzhou, Jiangsu Province, 215021 China TEL: 86-512-6761-3211 FAX: 86-512-6761-8640

d Eisai (Hong Kong) Co., Ltd. Room 2008, Fortress Tower 250 King’s Road, North Point Hong Kong, China TEL: 852-2516-6128 FAX: 852-2561-5042

r Eisai Pharma AG

 Bogor Factory

Schaffhauserstrasse 611, 8052 Zurich, Switzerland TEL: 41-44-306-1212 FAX: 41-44-306-1280

JI. Lanbau Desa Karang Asem Barat, Kecamatan Citeureup, Kabupaten Bogor, 16810 Jawa-Barat, Indonesia TEL: 62-21-875-3202 FAX: 62-21-876-4886

t Eisai AB Svardvagen 3A, Danderyd P.O. Box 23060 104 35 Stockholm, Sweden TEL: 46-8-501-01-600 FAX: 46-8-501-01-699

y Eisai Farmacêutica, Unipessoal Lda. Lagoas Park, Edifício 5A, Piso 6 2740-298 Porto Salvo, Portugal TEL: 351-21-487-55-40 FAX: 351-21-487-55-48

Asia u PT Eisai Indonesia Sentral Senayan II, 12 Floor, Jl. Asia Afrika No. 8, Senayan, Jakarta 10270, Indonesia TEL: 62-21-5795-1994 FAX: 62-21-5795-1995

i Eisai (Singapore) Pte. Ltd. 152 Beach Road #15-05/08, Gateway East, Singapore 189721 TEL: 65-6296-6977 FAX: 65-6296-6577

o Eisai Clinical Research Singapore Pte. Ltd. 152 Beach Road #15-05/08, Gateway East, Singapore 189721 TEL: 65-6297-6624 FAX: 65-6297-6328

p Eisai (Malaysia) Sdn. Bhd. Lot 6.1, 6th Floor, Menara Lien Hoe No. 8, Persiaran Tropicana 47410 Petaling Jaya, Malaysia TEL: 60-3-7803-9096 FAX: 60-3-7803-0060

[ Eisai (Thailand) Marketing Co., Ltd.

f Eisai Machinery China Co., Ltd. 5F-F, 2272, Hongqiao Road, Shanghai, 200336 China TEL: 021-5216-1341 FAX: 021-5216-1343

g Eisai Pharmaceuticals India, Pvt. Ltd. 1st Floor, B-Wing, Marwah Centre Krishanlal Marwah Marg, Andheri (East) Mumbai 400072, MH, India TEL: 91-22-2857-9740 FAX: 91-22-2857-9720

h Eisai Pharmatechnology & Manufacturing

Pvt. Ltd. Ramky Pharma City (SEZ), Plot Nos. 96, 97, 98, 124 & 126 Parawada -531 021, Visakhapatnam District, Andhra Pradesh, India TEL: 91-892-428-2500 FAX: 91-891-2711-203

j Eisai Asia Regional Services Pte. Ltd. Bahrain Regional Office P.O. Box 18681, 601, Almoayyed Tower, Building 2504, Road 2832 Al Seef 428 Manama, Kingdom of Bahrain TEL: 973-1758-5340 FAX: 973-1758-5348

6th Floor, GPF Witthayu Tower A 93/1 Wireless Road, Bangkok 10330, Thailand TEL: 66-2-256-6296 FAX: 66-2-256-6299 Eisai Co., Ltd. Annual Report 2011

73

8

Major Domestic Subsidiaries EIDIA Co., Ltd.

1

9

1-10-6, Iwamoto-cho, Chiyoda-ku Tokyo 101-0032 TEL: 81-3-3865-4311 FAX: 81-3-3864-5644

Sannova Co., Ltd. 3038-2, Serada-cho, Ota-shi Gunma 370-0426 TEL: 81-276-52-3611 FAX: 81-276-52-1341 2

6

5

9 4

7

8 3-0

Elmed Eisai Co., Ltd. 3-23-5, Higashi-Ikebukuro Toshima-ku, Tokyo 170-0013 TEL: 81-3-3980-6633 FAX: 81-3-3980-6634

KAN Research Institute, Inc.

-

3rd Floor, Kobe MI R&D Center 6-7-3, Minatojima-minamimachi, Chuo-ku Kobe-shi, Hyogo 650-0047 TEL: 81-78-306-5910 FAX: 81-78-306-5920

Eisai Distribution Co., Ltd. 3039-1, Aza-Daichido, Iiyama Atsugi-shi, Kanagawa 243-0213 TEL: 81-46-248-2655 FAX: 81-46-248-5909

Japan Business Sites Communication Offices 1 Sapporo Communication Office 4-3-1, Sakaedori, Shiroishi-ku Sapporo-shi, Hokkaido 003-0021 TEL: 81-11-851-6171 FAX: 81-11-853-3523

2 Sendai Communication Office 26-3, Aza-Tatsuzawa, Goroku, Aoba-ku Sendai-shi, Miyagi 989-3121 TEL: 81-22-226-2111 FAX: 81-22-226-1107

3 Tokyo Communication Office 2nd Floor, Sumitomo Fudosan Iidabashi First Building, 2-5-1, Koraku Bunkyo-ku, Tokyo 112-0004 TEL: 81-3-3817-5285 FAX: 81-3-3811-5202

4 Nagoya Communication Office 2-13-23, Izumi Higashi-ku Nagoya-shi, Aichi 461-0001 TEL: 81-52-931-1331 FAX: 81-52-932-5547

5 Osaka Communication Office 10th Floor, Nakanoshima Mitsui Building 3-3-3, Nakanoshima, Kita-ku Osaka-shi, Osaka 530-0005 TEL: 81-6-6448-9001 FAX: 81-6-6448-9011

* In addition, Eisai has communication offices in 60 locations in Japan.

74


6 Hiroshima Communication Office 7-22, Naka-machi Naka-ku, Hiroshima-shi Hiroshima 730-0037 TEL: 81-82-244-1212 FAX: 81-82-246-6853

7 Fukuoka Communication Office 2-26-1, Mizuki, Dazaifu-shi Fukuoka 818-0131 TEL: 81-92-924-1112 FAX: 81-92-925-3879

Production Facilities, Research Laboratory 8 Misato Plant 950, Oaza-Hiroki, Misato-machi Kodama-gun, Saitama 367-0198 TEL: 81-495-76-3111 FAX: 81-495-76-1841

9 Kawashima Industrial Complex 1, Takehaya-machi, Kawashima Kakamigahara-shi, Gifu 501-6195 TEL: 81-586-89-3115 FAX: 81-586-89-3848

0 Kashima Plant 22, Sunayama, Kamisu-shi Ibaraki 314-0255 TEL: 81-479-46-1155 FAX: 81-479-46-1095

- Tsukuba Research Laboratories 5-1-3, Tokodai, Tsukuba-shi Ibaraki 300-2635 TEL: 81-29-847-5900 FAX: 81-29-847-8489

Sunplanet Co., Ltd. 3-5-10, Otsuka, Bunkyo-ku Tokyo 112-0012 TEL: 81-3-5978-1941 FAX: 81-3-5978-1970

Eisai Seikaken Co., Ltd. 312-4, Toriko, Nishiharamura, Aso-gun Kumamoto 861-2401 TEL: 81-96-279-3133 FAX: 81-96-279-2897

Palma Bee’Z Research Institute Co., Ltd. 3262-12, Yoshiwara Ami-machi Inashiki-gun, Ibaraki 300-1155 TEL: 81-29-833-6033 FAX: 81-29-889-1137

Bracco-Eisai Co., Ltd. 3-11-6, Otsuka, Bunkyo-ku Tokyo 112-0012 TEL: 81-3-5319-3381 FAX: 81-3-5319-3387

Eisai Food & Chemical Co., Ltd. 2-13-10, Nihonbashi, Chuo-ku Tokyo 103-0027 TEL: 81-3-3548-3560 FAX: 81-3-3273-2084

Eisai Machinery Co., Ltd. 3-5-10, Otsuka, Bunkyo-ku Tokyo 112-0012 TEL: 81-3-5319-2202 FAX: 81-3-3942-2735

Corporate Data (As of March 31, 2011)

Year Founded 1941 Corporate Name Eisai Co., Ltd. Corporate Address and Telephone Number 4-6-10, Koishikawa, Bunkyo-ku, Tokyo 112-8088, Japan Tel: 81-3-3817-3700 Annual Meeting The annual shareholders’ meeting of Eisai Co., Ltd., is held in June. Stock Exchange Listings Eisai common stock is listed on the Tokyo Stock Exchange and the Osaka Securities Exchange. Securities Code Number 4523 Independent Public Accountants Deloitte Touche Tohmatsu LLC MS Shibaura Bldg., 4-13-23, Shibaura, Minato-ku, Tokyo 108-8530, Japan

Paid-in Capital ¥44,985 million Number of Employees 4,322 (Non-consolidated basis) 11,560 (Consolidated basis) Number of Shares Outstanding 296,566,949 Number of Shareholders 133,389 Transfer Agent Mitsubishi UFJ Trust and Banking Corporation epositary for Eisai American Depositary D Receipts JPMorgan Chase Bank, N.A. 1 Chase Manhattan Plaza, Floor 58 New York, NY 10005, U.S.A. ADR Ticker Symbol ESALY Public Notices Available online at http://www.eisai.co.jp/fr/index.html However, if circumstances so dictate, publication will be made in the Nihon Keizai Shimbun.

For further information: Investor Relations Eisai Co., Ltd. 4-6-10, Koishikawa, Bunkyo-ku, Tokyo 112-8088, Japan Tel: 81-3-3817-5327 Fax: 81-3-3811-6032

http://www.eisai.com/


75

4-6-10 Koishikawa, Bunkyo-ku, Tokyo 112-8088, Japan http://www.eisai.co.jp/index-e.html