JPMA Member Companies Financial Summary for Fiscal 2004 and Prospects for Fiscal 2005

The domestic pharmaceutical market in fiscal 2004 remained in a severe condition, as the NHI drug prices were reduced in April 2004 (the industry's average: a 4.2% reduction). However, domestic sales recovered after two years of decline, assisted by special factors, including the prevalence of influenza and record-high massive pollen dispersal. In addition, overseas sales continued to grow, and overall sales increased in fiscal 2004. With improvement in the cost to sales ratio, operating income and ordinary income continued to rise favorably. Net income also secured growth, but the growth rate was less than that of both operating income and ordinary income, hit by expanded extraordinary losses. Summing up, the domestic pharmaceutical market in fiscal 2004 was supported by the recovery of domestic sales and increasing overseas sales under the circumstances of accelerated mergers and restructuring in the industry, in additon to the special factors mentioned above.

1. Sales
   1. Overall sales rose 2.2% compared with the previous year. (Number of companies on the upturn: 21, that of companies on the downturn: 10)
   2. Domestic sales started edging up 2.0% from a year earlier for the first time in 3 years, due partly to the special factors mentioned above, despite managerial movements to review business fields, including withdrawal from non-medical businesses.
   3. Overseas sales rose 42.5 billion yen (+2.7%) from the previous year to 1,620.6 billion yen, aided by sales from large projects mainly in the US and Europe, and increased revenues from royalties resulted from entrance into overseas markets, covering the negative effects of the sale of consolidated companies and the stronger yen.
2. Gross income recorded a modest upturn of 3.3% from the previous year, since the cost to sales ratio improved by 0.8% due to management efforts, including restructuring measures.
3. Selling, general and administrative expenses increased 1.2% compared with fiscal 2003, owing to rises in R&D expenses and selling expenses in overseas. R&D expenses were 833.5 billion yen, up by 17.4 billion yen (+2.1%) from the previous term.
4. As a result, operating income grew by 8.6% on a year-on-year basis (number of companies on the upturn: 23, that of companies on the downturn:and ordinary income increased 7.4% over the preceding year (number of companies on the upturn: 22, that of companies on the downturn: 9).However, operating results for individual companies varied depending on overseas developments and so on.
5. Net income slightly increased by 2.6% from a year earlier, hit by notably expanded extraordinary losses compared with the previous year due to mergers and business reconstruction efforts. (Number of companies on the upturn:20, that of companies on the downturn: 11)

It is considered that the pharmaceutical industry in fiscal 2005 will continue to face severe market conditions such as the expanded application of the comprehensive assessment in acute phase hospitals based on the introduction of DPC and further progress in the use of generic products. Under these circumstances, overall sales are estimated to rise 2.0% from the fiscal 2004 level on an adjusted basis, since overseas sales are expected to grow steadily. On the other hand, ordinary income will edge down by 1.2%, due to an increase in R&D expenses, but net income is estimated to rise by 4.3% compared to the preceding year due to a decrease in extraordinary losses.