Sumitomo Dainippon Pharma Annual Report 2017

Operating Results and Financial ConditionOverview of Overall Operating ResultsDuring the fiscal year ended March 31, 2017, the Japanese economy remained on a mild recovery path, with corporate earnings showing improvements due to a pick-up in consumer spending and exports. In overseas economy, the U.S. economy continued to expand, driven chiefly by increased consumer spending, and the Chinese economy showed signs of a turnaround as government economic packages began to take effect. Going forward, the U.S. and British governments’ policy developments, prospects of Chinese and other emerging economies, and impacts of financial and capital market fluctuations all warrant attention.In the pharmaceutical sector, authorities around the world are attempting to come up with a series of measures to curb prices of brand-name drugs and promote use of generic drugs in a bid to put the brakes on their ever-increasing social security benefits expenditures, which serves to lower businesses’ visibility. Amid these circumstances, the increasing difficulty of developing new drugs, rising R&D expenses, and intensifying international competition are forcing businesses to run high risks.Against this backdrop, the Group strove to boost sales of three of its strategic products, namely, AIMIX® (therapeutic agent for hypertension), TRERIEF® (therapeutic agent for Parkinson’s disease), and LONASEN® (atypical antipsychotic; generic name: blonanserin), in Japan, while at the same time providing scientific information on Trulicity® (GLP-1 receptor agonist indicated for type 2 diabetes), which was launched in FY2016, in order to accelerate its penetration into the market.In North America, Sunovion Pharmaceuticals Inc. (hereinafter referred to as “Sunovion”) continued to pour its resources into expanding sales of the global strategic product LATUDA (atypical antipsychotic; generic name: lurasidone hydrochloride) and other mainstay products. For the purpose of gaining a Psychiatry & Neurology pipeline, in October 2016 Sunovion acquired Cynapsus Therapeutics Inc., a Canadian biotechnology company that specializes in the Psychiatry & Neurology area (hereinafter referred to as “Cynapsus”). In December 2016, Sunovion then acquired the exclusive rights to market three approved therapeutic agents for patients with chronic obstructive pulmonary disease (COPD) in the U.S. from two Novartis affiliates (hereinafter referred to as “Novartis”) with a view toward expanding its respiratory portfolio.In the Oncology area, Boston Biomedical, Inc. (hereinafter referred to as “Boston Biomedical”), expedited clinical development of napabucasin (product code: BBI608) by placing top priority on an early U.S. launch of the drug. In January 2017, the Company acquired the U.S. biotechnology company Tolero Pharmaceuticals, Inc. (hereinafter referred to as “Tolero”), which specializes in research and development of therapeutic agents in the oncology and hematologic disorders areas, through a U.S. holding company that is wholly owned by the Company.Operating ResultsNet SalesNet sales in Japan during the fiscal year ended March 31, 2017 decreased, with the April 2016 NHI price revisions and a drop in sales of long-listed products having a significant impact, while North America saw a substantial sales increase on the back of steady growth for LATUDA® and other mainstay products. On a consolidated basis, net sales increased by 2.1% year-on-year to 411,639 million yen.Operating IncomeOperating income increased by 42.9% year-on-year to 52,759 million yen as, in addition to the lower cost of sales, selling, general, and administrative expenses showed a decrease due to reduction of selling and other expenses in Japan.Other income (expenses) and net income attributable to owners of the parentNet income attributable to owners of the parent increased by 17.4% year-on-year to 28,991 million yen, as the Company reported a gain on sales of investment securities under extraordinary income and business structure improvement expenses under extraordinary loss due to implementation of the Early Retirement Program.Financial ConditionSummary of assets, liabilities, and net assets-AssetsCurrent assets decreased by 45,131 million yen from the previous fiscal year-end, as marketable securities and short-term loans receivable decreased while cash and time deposits increased. Fixed assets decreased due to sales of some equity holdings, but nevertheless increased by 131,365 million yen from the previous fiscal year-end owing to a considerable rise in goodwill and in-process research and development following the acquisition of Cynapsus and Tolero. As a result, total assets increased by 86,234 million yen from the previous fiscal year-end to 793,951 million yen.-LiabilitiesTotal liabilities increased by 72,050 million yen from the previous fiscal year-end to 333,294 million yen, due mainly to an increase in reserve for sales rebates, as well as an increase in short-term loans, deferred tax liabilities, and fair value of contingent consideration on account of the acquisitions, although there was a decrease in payment of income taxes payable, as well as payment of long-term loans payable and redemption of bonds payable.-Net assetsNet assets increased by 14,184 million yen from the previous fiscal year-end to 460,657 million yen, due primarily to an Financial SectionSumitomo Dainippon Pharma Co., Ltd. Annual Report 201763

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