JPMA Member Companies Financial Summary for Fiscal 2005 and Prospects for Fiscal 2006

Overall sales increased in fiscal 2005, led by brisk overseas sales.

Furthermore, the cost to sales ratio continued to improve, helped by the effects of business restructuring. Profitability advanced amid substantially increased R&D expenses. As a result, overall non-consolidated operating income, ordinary income and net income for fiscal 2005 increased. However, the operating results for each individual company varied.

1. Sales
   1. Overall sales rose 5.7% compared with the previous year. (Increase: 21 companies Decrease: 9 companies)
   2. Despite the NHI price revision, the domestic sales rose by 3.3% on a year-on-year basis, assisted by special positive factors, including large-scale corporate mergers and M&As and sharp growth in the sales of medicines for lifestyle-related diseases as well as specific drugs due to the effect of the prevalence of influenza. There were also negative factors, such as the turning over of business and the transfer of distributorships for some medicines as a result of business restructuring as well as intensified intercorporate competition.
   3. In overseas sales, in-house products for mass sale continued to grow mainly in the USA and Europe, and, in particular, those of the top ranking companies expanded sharply. The overall overseas sales increased 196.4 billion yen (up by 12.1% ) compared with the same period last year to 1,816.7 billion yen. The overseas sales ratio was 28.5%, up by 1.6 points over the previous year.
2. Gross income increased by 7.9% compared with a year earlier, thanks to an improvement in the cost to sales ratio by 1.4% to 31.3% resulting from management efforts, including business restructuring.
3. Selling, general and administrative expenses expanded by 8.2% compared with the previous term due to an increase in R&D, foreign selling and other expenses, which were 935.6 billion yen, an increase by 12.3% on a year-on-year basis.
4. As a result, operating income grew by 7.1% year-on-year (number of companies on the upturn: 17, number of companies on the downturn: 12, number of company with no change: 1). Ordinary income grew by 10.5% over the preceding year (number of companies on the upturn: 17, number of companies on the downturn: 13). However, operating results for individual companies varied.
5. Net income grew by 18.4% compared with the preceding year, which exceeded the growth rate of ordinary income, helped by a reduction in extraordinary losses owing to a decline in mergers and business restructuring related expenses, as well as an improvement in extraordinary gains (number of companies on the upturn: 21, number of companies on the downturn: 9).

1. Data in FY2005 (Adjusted) was calculated by adding the operating results for the first half of fiscal 2005 of the former Sumitomo Pharmaceuticals and the former Grelan Pharmaceutical. However, as for the former Grelan Pharmaceutical, half of the amount of the operating results for FY 2004 was adopted."
2. FY2006 (Prospected) covers data from 29 companies, including Daiichi Sankyo Co., Ltd., the holding company of Daiichi and Sankyo Pharmaceutical, instead of both companies, and also adopts data from Kyorin Co., Ltd. instead of Kyorin Pharmaceutical Co., Ltd.

The pharmaceutical industry is expected to face severe market conditions, including a reduction in drug prices by 6.7% on an industry average basis, expansion of the number of hospitals subject to DPC, and further progress in the use of generic products. Under these circumstances, overall sales (on a comparison basis) are estimated to stay flat at the nearly same level as the last year (up by 0.1%), though overseas sales will continue to grow. On the other hand, ordinary income is prospected to decline by 6.6% on a year-on-year basis, due to an increase in R&D expenses. Net income will decrease by 5.7% compared to the preceding year.