Profile - ono.co.jp · Inc. (“OPUS”) in May 2008, one of our overseas development bases, in...

Profile

Dedicated to Man’s Fight against Disease and Pain

Ever since being founded in 1717, Ono Pharmaceutical has for more than 290

years dedicated itself to man’s fight against disease and pain, contributing to

a healthier, happier life for people everywhere.

We have utilized our long years of experience and know-how to develop

innovative therapeutic drugs. And, because all our major products are

developed in-house, we have been able to maintain consistent profitability

and have built up a reputation for quality and innovation within the Japanese

pharmaceutical industry. We are well known for achieving the world’s first

successful development of prostaglandin-based drugs in 1973, and for our

later development of various enzyme inhibitors. Ono Pharmaceutical’s

commitment to research and development continues today in such new fields

as neuroscience, intracellular signaling, and genomic-based drugs.

Dedicated to serving humanity, Ono Pharmaceutical continues the relentless

search for highly safe and effective new therapeutic drugs to meet the new

and unmet medical needs of people throughout the world.

Contents

Financial Highlights ················································································ 1

Message from the Management ···························································· 2

Aiming at Developing Original New Drugs to Global Standards ······· 4

Review of Products ················································································· 12

Corporate Governance ··········································································· 13

Environment Management ····································································· 14

Financial Section ····················································································· 16

Corporate Information ··········································································· 41

Millions of yen Thousands of U.S. dollars

2008 2007 2008

Net sales ·························································· ¥ 145,898 ¥ 141,712 $1,458,980R&D expenditures ·········································· 38,987 35,384 389,870Operating income ·········································· 52,287 52,842 522,870Net income ······················································ 35,047 35,272 350,470

Working capital ·············································· 182,647 172,572 1,826,470

Property, plant and equipment ···················· 51,262 53,216 512,620Total assets ····················································· 477,341 504,815 4,773,410Total equity ····················································· 430,263 446,805 4,302,630

Per common stock: Yen U.S. dollars

Net income ······················································ ¥ 306.80 ¥ 302.73 $ 3.07Cash dividends applicable to the year ········ 202.00 100.00 2.02

(U.S. dollar amounts are translated at a rate of U.S.$1 = ¥100. See Notes to consolidated financial statements.)

1ANNUAL REPORT 2008 Ono Pharmaceutical Co., Ltd.

Financial HighlightsOno Pharmaceutical Co., Ltd. and SubsidiariesYears ended March 31, 2008 and 2007

2005

145,302148,672

28,400

35,272 35,047

39,322

36,147

2006 2007 2008 2009(Forecast)

2005 2006 2007 2008 2009(Forecast)

100,000

50,000

150,000

Net Sales (millions of yen) Net Income (millions of yen) R&D Expenditures (millions of yen)

141,712145,898

134,400

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

39,600

35,384

30,636

34,067

38,987

2005 2006 2007 2008 2009(Forecast)

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

2 ANNUAL REPORT 2008 Ono Pharmaceutical Co., Ltd.

Message from the Management

Gyo SagaraPresident, Representative Director and CEO

In new drug research, we will strive to

achieve commercialization of innovative

new drugs on a worldwide basis, focusing

on the company’s four priority areas:

prostaglandins, enzyme inhibitors,

neuroscience, and intracellular signaling,

where we can fully benefit from the

technologies we have accumulated in the

past, and by employing genomic drug

discovery in addition to these four areas.

We established Global Discovery Research

Alliance Headquarters at Ono Pharma USA,

Inc. (“OPUS”) in May 2008, one of our

overseas development bases, in order to

further strengthen strategic alliances in

discovery research. This newly formed

section will advance our drug discovery

research by proactively promoting

discovery alliances with bio-pharmaceutical

companies in the US and Europe with

leading-edge technologies, plus research

collaborations with research institutions

and universities aiming at seeking

breakthrough discovery seeds.

Furthermore, in addition to in-licensing of

late stage compounds, we are directing our

efforts toward acquiring commercialization

rights to new drug candidates in early

development stages (preclinical or Phase I

stage), coordinating with OPUS and Ono

Pharma UK Ltd. in order to expand the

development pipeline.

For the purpose of further strengthening

our global competitive position in new

drug development, the Global Development

(1) Basic management policyThe Ono Pharmaceutical Group is

“Dedicated to Man’s Fight against Disease

and Pain.” Under this management

philosophy, we are committed to fulfilling

unmet medical needs. We aim to develop

innovative new drugs that deliver true

benefit to patients, and we strive to serve

as an R&D-oriented, international

pharmaceutical company specializing in

defined areas.

We are highly aware of our responsibility

as a pharmaceutical company dealing in

medicinal drugs upon which human lives

depend, and we are working to further

strengthen our level of compliance to

ensure that all our actions not only fully

comply with all legal regulations but also

are based on higher ethical standards.


Message from the Management

Headquarters at OPUS were newly

established in May 2008. It takes on overall

management of clinical development in

Japan, the US and Europe, hence clinical

studies are performed more proactively

than ever. We are working on further

speeding up development in Japan by

leveraging multi-national clinical trials and

global data for globally leading

development programs, while continuing

to direct efforts toward obtaining early

approval for compounds in late stage

development in Japan for local development

programs.

The marketing division is actively working

to enhance the reputation of Ono’s

innovative pharmaceuticals through

presenting its scientific data mainly at

workshop and lecture meetings and

through the dissemination of high-quality

information that is always backed by the

latest medical knowledge, in order that we

fulfill the diversifying needs of healthcare

professionals.

We envision that the NHI price revision and

implementation of various healthcare cost

containment policies may significantly and

adversely affect our business. However, we

will strive to attain stable growth by

launching new products and by enhancing

sales of existing products.

With top priority given to the pursuit of

quality assurance of our products, the

manufacturing division is placing stronger

emphasis on improving both its hardware

and software, and establishing an efficient

production management system.

(2) Basic policy concerning dividendsDistribution of profits to all our shareholders

is one of our key management policies, and

we place great importance on the

maintenance of stable dividends based on

business performance. The company has

set 100% for a total payout ratio as its

target on a free cash flow basis,

aggregating dividends and acquisition of its

own shares during the three year period

from Fiscal 2007 to Fiscal 2009.

Gyo SagaraPresident, Representative Director and CEO


“Develop original and first-in-class drugs that donot exist anywhere and that no one has dealtwith before.” This is the unchangeablephilosophy inherited by all Ono researchers.As a manufacturer engaged in drug discovery,Ono will continue to set as its research anddevelopment principle, “Challenge diseases thathave yet to be conquered and contribute to thesociety by developing drugs that truly benefitpatients”. We also will set (1) placing priority onour strategic areas, (2) committing ourselves toa compound-oriented research, (3) dealing withthe world’s leading-edge technologies, and (4) pursuing quality and speed of research asthe management policy of our R&D activities,and aim at development of global new drugs.

Aiming at Developing Original New Drugs to Global Standards

Gaining a world lead throughaccumulating top-qualitytechnology and know-how inthe four priority areas,prostaglandins (PGs), enzymeinhibitors, neuroscience, andintracellular signaling

Pharmaceutical manufacturers working onthe development of new drugs invest a greatamount of time and money into drugdiscovery research. It takes a long period oftime, possibly between 9 and 17 years, andan enormous amount of R&D expenditurefrom the time a useful new substance isdiscovered until it is approved as a newdrug. Yet, there is no guarantee that a newcandidate drug can be developed toapproval, no matter how much time ormoney is spent. The probability of successis about one out of every 19,000 compoundsdiscovered. In order to develop Ono’s original andinnovative new drugs, we have narrowedour priority areas to prostaglandins,enzyme inhibitors, neuroscience, andintracellular signaling, where we canoptimize the technologies we haveaccumulated in the past, plus employgenomic drug discovery in addition to thesefour areas. By concentrating researchresources on these areas we are pursuinginnovative drug discovery research to aglobal standard.

Prostaglandins — An area with largepotential in the treatment of increasinglifestyle-related diseases.

Prostaglandins (PGs) are substancesproduced at the cell membrane that areinvolved in biological defensive responsesagainst various stimuli. It has beendiscovered that a number of diseases areassociated with the impairment of the

R&D —Ono Pharmaceutical’sFoundation and CoreCommitment


balance in the production of various PGs.After successfully establishing the world’sfirst manufacturing process for thecomplete chemical synthesis of PGs, Onohas gone on to develop a number of new PGbased drugs such as Prostandin® andOpalmon® in the cardiovascular area. Withtheir many still unknown aspects, PG agentshave large hidden potential as a therapy forlifestyle-related diseases and diseases thatare, as yet, not fully treatable by modernmedicine. Ono continues to pursue second-and third-generation PG based research forimproved efficacy and safety. This researchis progressing steadily and is expected tofurther accelerate the research in the futureon bioactive lipids such as PGs by utilizinggenome information.

Enzyme inhibitors — Focus on enzymesthat cause intractable diseases.Expanding research areas.

Disseminated intravascular coagulation(DIC), chronic pancreatitis, diabeticperipheral neuropathy, etc. are diseasesthat are said to be particularly intractabledespite the best efforts of modernmedicine. Ono has focused its attention onendogenous enzymes that cause suchdiseases, and has carried out R&D ondrugs that inhibit and/or regulateabnormally activated enzymes. Thus far,we have created FOY ®, a therapeutic agentfor DIC and acute pancreatitis that is highlyappraised at clinical sites; Foipan®, theworld’s first therapeutic agent for chronicpancreatitis; Kinedak®, indicated for thetreatment of diabetic peripheral neuropathy;Cataclot ®, used for treatment of cerebralthrombosis during the acute phase andcerebral vasospasms following surgery forsubarachnoid hemorrhage; and Elaspol ®,the world’s first drug for treating acutelung injury associated with systemicinflammatory response syndrome. We are


further searching for new targets existingwithin the body and expanding research inthose areas.

Research in the areas of neuroscienceand intracellular signaling is alsoprogressing rapidly.

While exploiting the most of the know-howand technology cultivated in the areas ofPG and enzyme inhibitors, in our quest todevelop original and innovative drugs, wehave broadened our scope of research toinclude such rapidly advancing areas asneuroscience and intracellular signaling.

Highly anticipated “genome-based” drugdiscovery towards next-generation drugdiscovery

The entire sequence of the human genomehas been decoded. If, as a next step, thefunctions and the control of genes areidentified, the entire biochemicalinformation could thentheoretically be predicted, whichshould clarify the causes andtreatment of diseases. In addition,it is expected that the mechanismsof drug action and causes ofadverse drug reactions would alsobe revealed. It is said thatindividual differences, such asthose who are “more likely todevelop a disease” or “more likelyto develop adverse drugreactions,” would be identifiablebased on even slight differences ingenes. Ono has been conductingjoint research efforts withuniversities and researchinstitutions overseas to activelyutilize “genome” technology andinformation as a means for drugdiscovery for some time. Throughthese efforts, we have obtained

Copyright © 2006 Medarex, Inc. All rightsreserved. Used with permission.


many genes with novel sequences, and thefunctional analysis of these new genes andtheir protein products is progressingsmoothly. Among those for which functionshave been already clarified, there areseveral enzymes and receptors related toareas we are strong in, and these proteinsall closely relate to drugs. We wish tomaximize these gene assets for the next-generation drug discovery, for example, asbuilding blocks for antibody drugs.

A world-class compound-orientedresearch organization

For the development of original andinnovative drugs, unlike pharmaceuticalcompanies that narrow down researchareas by therapeutic class, Ono focuses itsattention on physiological substances thatare believed to play an important role inbiological processes and illnesses and hascommitted to “compound-oriented”research, in which search is focused onnew chemical entities that have effects onsuch substances, and then investigation iscarried out to identify diseases in whichthe entities show therapeutic efficacy.Compounds that are discovered anddeveloped without being limited to specificdisease areas could have efficacy in abroad range of diseases. From a singlecompound, Ono has been able to create anumber of world-recognized products oneafter another.

A research structure that breedsmotivation and fresh ideas

The development of original new drugs isdriven by the motivation of individualscientists and their ability to think alongnew paths.Ono sets out clear research targets toenhance such motivation and creativethinking of its researchers. Our researchorganization is based on project teamswhose members have cutting-edgeexpertise in different areas.

Refining the most advanced techniquesand data to develop new drugs

Research to develop new drugs is the lifelineof any pharmaceutical manufacturer. Onohas a distinguished record of creating manyfirst-in-class drugs, and our ongoing basic andapplied research programs serve the goal ofcontinued development of original new drugs.

(Tsukuba)The Tsukuba Research Institute consists ofExploratory Research Laboratory andPharmacokinetic Research Laboratory.The former utilizes the latest genometechniques to identify compounds withtherapeutic potential and investigates theprecise links between various compoundsand illnesses, and the latter conductspharmacokinetic research for newcompounds discovered by Ono.

Preparation of DNA Microarrays3-D Molecular Modeling


(Minase)The Medicinal Chemistry ResearchLaboratory is engaged in the discovery ofnew compounds by utilizing advancedcomputing techniques to designcompounds and an array of high-speedsynthesizing and screening devices toefficiently synthesize compounds.The Pharmacological Research Laboratoryis engaged in the search for new researchseeds by focusing on targets with uniquemechanisms of action. It also carries outevaluations of compounds as pharmaceuticalproducts. In the priority research areas ofprostaglandins, enzyme inhibitors andneuroscience, the Laboratory strives todiscover and develop new drugs that arehighly innovative and original.The Pharmaceutical Development Laboratoryconducts research into drug formulation ofcandidate drugs as well as their qualityassurance as pharmaceutical products.

(Fukui)Studies using state-of-the-art equipment atthe Fukui Safety Research Laboratorycover the potential general toxicity,carcinogenicity, reproductive toxicity, andgenotoxicity of compounds underevaluation for pharmaceutical use. TheFukui Chemical Process ResearchLaboratory conducts research to enablelarge-scale synthesis of drug substancesfor mass production, actively developingsynthesizing techniques required for massproduction and reducing costs.

Clinical Studies and Development inJapan, US and Europe Aimed at SpeedyDevelopment of Innovative New Drugs

Ono actively carries out clinical studiesand development at its three bases inJapan, the US and Europe. The overseasdevelopment bases are Ono Parma USA,Inc. in New Jersey and Ono Parma UK Ltd.in London, both established as the localcompanies in 1998.Ono’s clinical-stage development revolvesaround the speedy confirmation of theefficacy and safety, in Japan, the US andEurope for a number of diseases, of uniqueand innovative new drug candidatesdiscovered thanks to our compound-oriented research approach. We want todeliver a breakthrough drug as quickly aspossible for the benefit of patients who are


The Fukui Research Institute in Fukui

The Tsukuba Research Institute in Ibaraki

The Minase Research Institute in Osaka


suffering from the ravages of a disease thathas yet to be conquered. Thus our aim isto conduct clinical trials that are speedy aswell to ensure a high degree of certainty indevelopment. To improve the certainty, wehave created our own system of clinicalstudies and development, including thestrategy of focusing on patients withgreater expectation in exhibiting efficacy inthe light of the drug’s mechanism of action.For candidate compounds that wouldbenefit from the use of overseas clinicalstudies in expediting their developmenttime, for example in disease areas wheremethods are already established in Europeand America on properly evaluatingefficacy and safety of drugs in a short time,we make active use of overseas trials in theform of US/Europe-leading development.

Global DevelopmentHeadquarters Set Up To BoostInternational Competitivenessin New Drug Development

Ono had always given top priority togaining approval in the US. Thus we havebeen active in clinical development effortscentering on the United Sates. In May 2008,the Global Development Headquarterswere set up in Ono Pharma USA, Inc., theAmerican subsidiary, for the purpose offurther strengthening our globalcompetitive position in new drugdevelopment. The Global DevelopmentHeadquarters functions as the core ofclinical development in Japan, the US andEurope, hence clinical studies areperformed more proactively than ever.

Ono Pharma USA, Inc. (USA)Head Office (Japan)Ono Pharma UK LTD (UK)



Global Discovery ResearchAlliance Headquarters Set Up ToBoost Drug Discovery Capacity

In an effort to pursue discovery allianceswith bio-pharmaceutical companies inEurope and America that offer leading-edgetechnologies, plus research collaborationswith academic institutions to aid the searchfor breakthrough drug discovery seeds, ouractivity base has been transferred to theGlobal Discovery Research AllianceHeadquarters newly established at OnoPharma USA, Inc. in May 2008. This sectionwill actively promote researchcollaborations and joint research projectswith both Japanese and overseas universities,and research institutions that havetechnological expertise in specialized areas.The resulting exploration of drug discoveryseeds and importing of leading-edgetechnologies will serve to strengthen Ono’sdrug discovery capability, and to expandour discovery pipeline. In discovery allianceswith bio-pharmaceutical companies, we willengage in the discovery of highly originalcompounds in areas where we can exploitour current stockpile of technologies andknow-how. The focus therefore will be onkinase and protease inhibitors, ion channelagonists, lipid receptor agonists, and bio-technology based medicines. Strongongoing alliances are in place with the UScompanies, Array BioPharma Inc. andLocus Pharmaceuticals, Inc., with regard todrug discovery of kinase inhibitors, andwith Evotec AG of Germany with regard todrug discovery of protease inhibitors.

In- and Out-licensing of DrugCandidates Actively Pursued

The Strategic Alliance Headquarters wasdismantled to a positive effect and reborn

as Business Development & Licensing. Thisunit is pushing forward in both in- and out-licensing of drug candidates. No specifictherapeutic areas are stipulated for in-licensing. The concept adopted is medicalneeds orientation, a patient-centricapproach, focusing on compounds thathave significance in treatment of diseasethat are currently not receiving propermedication regimes and also show promiseof becoming distinctive products. We canalready count numerous successes, suchas the licensing of compounds in latedevelopment stages, that involve a lowdevelopment risk. However, we aim toexpand our horizons to compounds inearly development stages (preclinical andPhase I stages) by maintaining close liaisonwith our overseas subsidiaries. Throughsuch efforts, we aim to improve ourdevelopment pipeline. Meanwhile, we areready to out-license products to majorpharmaceutical companies overseas if wecan in turn acquire promising in-licensingcompounds or if we can expeditemarketing, in the interest of delivering theoriginal drugs developed by Ono as quicklyas possible worldwide to patients sufferingfrom disease.

New Drugs in Development (as of August 5, 2008)

In our ongoing effort to create productsthat will promote the health of morepeople worldwide, Ono has many new drugformulations under development, includingthe following major drugs:

Recalbon® Tablets (ONO-5920 / YM529)Recalbon®, a drug for the treatment ofosteoporosis, is one of the most potentbisphosphonates, rapidly preventing boneresorption at low doses and increasing inbone mineral density. The drug ischaracterized by having the high efficacy,


and by having less adverse reaction on thedigestive tract.Japan: NDA filed / Osteoporosis (co-development with Astellas Pharma Inc.)

Emend ® Capsules (ONO-7436 / MK-0869)Emend ® is the first neurokinin (NK) 1antagonist in the world. The drug iseffective not only for acute phase ofchemotherapy-induced nausea andvomiting, but also for delayed phase (24 hours or later after start ofchemotherapy) for which there was noeffective drug.Japan: NDA filed / Chemotherapy-inducednausea and vomitingOverseas: Marketed (Merck & Co., Inc.)

Glactiv® Tablets (ONO-5435 / MK-0431)Glactiv ®, a dipeptidyl-peptidase (DPP) IVinhibitor, is a new class of drug for type IIdiabetes and is expected to be useful forcontrol of postprandial hyperglycemia withlow risks of hypoglycemia and weight gainin type II diabetes patients.Japan: NDA filed / Type II diabetes (co-development with Banyu PharmaceuticalCo., Ltd.)Overseas: Marketed / Type II diabetes(Merck & Co., Inc.)

ONO-2540 / ENA713D (transdermal patch)ONO-2540 or rivastigmine patch is a drugfor the treatment of Alzheimer’s diseasewith an inhibitory action on bothacetylcholinesterase (AChE) andbutyrylcholinesterase (BuChE). The druginhibits not only AChE which is known asan enzyme deeply involved in Alzheimer’sdisease, but also BuChE which reportedlyincreases as the disease progresses.Therefore, the drug is expected to have aneffect in patients who do not respond toexisting drugs. The rivastigmine patch is thefirst transdermal system developed for thedisease and is expected to provide greaterconvenience, e.g. caregivers can easilyconfirm the administration of the drug.

Japan: Phase III / Alzheimer’s disease (co-development with Novartis Pharma K.K.)Overseas: Marketed / Alzheimer’s disease(Novartis AG)

Arocyte® for Injection (ONO-2506 / MK-0724)Arocyte® is a drug to prevent expansion ofcerebral infarction by improving function ofastrocyte, a kind of glial cells in the brain. Inthe late phase II study in Japan, safety andefficacy of Arocyte® in patients with acuteischemic stroke has been confirmed.Japan: Phase II / III / Acute ischemic strokeNorth America: Phase II / Acute ischemicstroke (Merck & Co., Inc.)

Cereact ® Capsules (ONO-2506PO)Cereact ® is a drug with a novel mechanismof action for the treatment ofneurodegenerative diseases. It is expectedto inhibit the occurrence and progressionof neurodegenerative diseases, such as the“intractable” disease amyotrophic lateralsclerosis (ALS), by improving the abnormalactivation of astrocytes.Europe: Phase II / ALS

ONO-7643 / RC-1291 (tablet)ONO-7643 is a small-molecule ghrelinmimetic being developed for canceranorexia / cachexia. The drug has similarpharmacological actions to ghrelin, acirculating peptide hormone with multiplephysiological actions, including appetitestimulation, muscle-building (anabolic) andmodulation of gastrointestinal functions.The compound is therefore expected to bea breakthrough drug that improves qualityof life (QOL) for patients impaired by asystemic wasting condition characterizedby anorexia, lipolysis and muscle lossassociated with the progression of cancer.Japan: Phase I / Cancer anorexia / cachexiaUS: Phase II / Cancer anorexia / cachexia(Sapphire Therapeutics, Inc.)

ONO-5334 (tablet)ONO-5334, a cathepsin K inhibitor, is being


developed for osteoporosis with a novelmechanism of action. Unlikebisphosphonates, the drug only inhibitsbone resorption without having impact onbone formation.Japan: Phase I / OsteoporosisEurope: Phase II / Osteoporosis

ONO-4538 / MDX-1106 (injection)ONO-4538, a fully human anti-PD-1antibody, is expected to be a potentialtreatment for cancer and other diseases.PD-1 is one of the receptors expressed onactivated lymphocytes, and is involved inthe negative regulatory system to suppressthe activated lymphocytes. It has beenreported that tumor cells utilize thissystem to escape from the host immuneresponses. It is anticipated that blockadeof the negative regulatory signal mediatedby PD-1 will promote the host’s immuneresponse, in which tumor cells arerecognized as foreign and eliminated.US: Phase I / Cancer and hepatitis C (co-development with Medarex, Inc.)

ONO-8539 (tablet)ONO-8539 is a selective antagonist of EP1,one of subtype receptors of prostaglandinE2, and overactive bladder is the firstindication for its clinical developmentprogram. It is expected that the drug canbe given to the patients who arecomplicated with glaucoma for which useof anticholinergics is limited due to itsmechanism of actions and with lowerurinary obstruction including benignprostatic hypertrophy.Japan: Phase I / Overactive bladderEurope: Phase I / Overactive bladder

ONO-4641 (tablet)ONO-4641 is a sphingosine-1-phosphate(S1P) receptor agonist, being developed forthe treatment of multiple sclerosis. Thedrug is a low molecular weight substancethat keeps lymphocytes in lymph nodes andreduces the lymphocyte count in the blood,

as a result inhibiting the infiltration oflymphocytes into lesions. The compound istherefore expected to be an innovative drugfor the treatment of auto-immune diseasessuch as multiple sclerosis, which isregarded as an intractable disease.US: Phase I / Multiple sclerosis

ONO-7847 / MK-0517 (injection)ONO-7847 is a neurokinin (NK) 1 receptorantagonist, the prodrug of ONO-7436(Emend ® Capsule) available in injectableform. Development for the prevention ofchemotherapy-induced nausea andvomiting has been pursued.Japan: Phase I / Chemotherapy-inducednausea and vomitingOverseas: Phase III / Chemotherapy-induced nausea and vomiting (Merck & Co.Inc.)

ONO-5920 / YM529 (tablet)ONO-5920 / YM529 is an intermittent oralversion of Recalbon® Tablets, a drug for thetreatment of osteoporosis.Japan: Phase I / Osteoporosis (co-development with Astellas Pharma Inc.)

Onoact ® for InjectionJapan: Phase II / Improvement of multisliceCT coronary imaging ability

Elaspol ® for InjectionJapan: Phase II / Acute respiratory failureassociated with community-acquiredpneumonia

Changes from the Annual Flash Report for the FiscalYear ended March 2008 announced on May 14, 2008

Ono had previously pursued development of ONO-2333Ms for the treatment of depression and anxietydisorder in Japan and the US, however discontinued itsdevelopment in July this year as the compound failed todemonstrate the expected efficacy for treatment ofdepression in Phase II studies performed in the US.



Sales of Products in FY2007 (April 2007 - March 2008)

Sales for the fiscal year ended March 2008totaled ¥145.8 billion, a 3% rise of ¥4.1billion over the previous year.A review of the performance of majorproducts indicates that Opalmon® Tablets,peripheral circulation improving agent,grew in sales by a remarkable amount to¥37.3 billion, increasing ¥3.5 billion (10.4%)year on year, receiving even greaterappraisal, particularly in the area of lumbarspinal canal stenosis. Onon® Capsules sold¥27.1 billion, increasing ¥0.2 billion (0.8%)year on year, rewarding energetic activitiespromoting dissemination of scientificinformation deployed for this bronchialasthma and allergic rhinitis drug. Kinedak®

Tablets for the treatment of diabeticperipheral neuropathy showed a healthyperformance at ¥17.4 billion, an increase of¥0.1 billion (0.4%) over the previous year,thanks to development efforts of itspotential market through numerouscommunity-based study groups and lecturemeetings. Onoact ® for Injection, a drug forintraoperative tachyarrhythmia, gainedapproval in October 2006 for additionalpostoperative indications, resulting in salesof ¥1.9 billion, an increase of ¥1 billion overthe previous year. Styabla® Tablets, a drugfor overactive bladder, newly launched inJune 2007, achieved sales of ¥0.5 billion.Onon® Dry Syrup for the treatment ofbronchial asthma, mainly used by pediatricpatients, dropped to ¥11.0 billion, adecrease of ¥0.4 billion (4.1%) year on year,suffering from the impact of genericcompetition. Foipan® Tablets for thetreatment of chronic pancreatitis andpostoperative gastroesophageal refluxgenerated sales of ¥13.4 billion, a ¥0.5 billion(3.8%) decrease year on year and Cataclot ®

for Injection for the treatment of acutecerebral thrombosis sold ¥5.5 billion, a ¥0.4billion (6.8%) decrease year on year.

• Onon® Capsules & Onon® Dry Syrup ¥38,129 million

• Opalmon® Tablets ¥37,395 million

• Kinedak® Tablets ¥17,418 million

• Staybla® Tablets ¥ 511 million

• Elaspol® for Injection ¥ 5,483 million

• Onoact® for Injection ¥ 1,976 million

• Diagnostic products ¥ 251 million

• Others ¥44,735 million

Sales by product in this fiscal term

Review of Products


Corporate Governance

Corporate Value Enhanced byHighly TransparentManagement and StrictUpholding of Corporate Ethics

To enhance corporate value, Ono believesthat our important management tasks lienot only in achieving strict compliance withlaws and regulations, but also in improvingtransparency in corporate managementand in strengthening the functioning ofmanagement control.To this end, the organizational framework ofOno’s management includes the (Board of)Auditors. Bolstering corporate governanceis a priority, focusing on functionalreinforcement of the Board of Directors andthe Board of Auditors.The Board of Directors meets at least once amonth as a rule to deliberate importantmanagement issues focusing on expeditingdecision-making by boosting dynamic action.For that purpose we endeavor to ensurethat the Board is comprised of theappropriate number of directors. In theprocess of decision-making by the Board,comments and advice from legal and otherexternal experts are obtained as necessaryso that appropriate consensus can beformed.The Board of Auditors fulfils its role throughits members attending the Board ofDirectors meeting and other key meetings,receiving reports from directors, andauditing the execution of duties by directorsvia interviews. As to external auditors, alawyer and a certified public accountant areon the Board, providing audit fromobjective and expert perspectives.Important management matters arediscussed in meetings at different levelsaccording to the significance and content ofthe business agenda, including the

Management Strategy Meeting attended bythe President and heads of headquarters,plus meetings organized by directors andheads of headquarters. Here again,appropriate operational managementshould take place, using mutual monitoring,in decision-making, and referral to theBoard of Directors being made throughcareful deliberation.With regard to our system of internalcontrol, the Board of Directors meeting heldon May 9, 2006 resolved that “a system forensuring appropriateness of the company’soperations” should be in place. To this end,such a system was created and is constantlyunder review, so as to strengthen andimprove operational compliance as well asoverall internal control. As part of ourcorporate compliance efforts, we adopt afirm stance against any antisocial force ororganization that may threaten social orderor security.

Appointment

Appointment

Annual General Meeting of Shareholders

Appointment

Report Auditing

BusinessAudit

Advice/Guidance

Accounting Audit

Report

Appointment

Business OrganizationCorporateAuditor

Legal&

OtherAdvisors

Board of Auditors•Auditors•External Auditors

Board of Directors

•Directors

Divisions & Offices•Employees & Others

RepresentativeDirector

CorporateEthics

Committee

Business AuditDivision

ManagementStrategy Meeting

&Other Meetings

Corporate Governance Structure


Environment Management

Protecting the Environment

As awareness of environmental problemsgrows throughout the world, protection ofthe environment and limited naturalresources has become not only the clearresponsibility but also a social mission ofevery company doing business. As part ofour company-wide efforts to makeenvironmental protection a top priority,Ono established an EnvironmentalManagement Office in July 1998 andformulated an Environmental Self-regulatingAction Plan, which declineates Ono’s courseof action in environmental protection.Certification of compliance with ISO 14001environmental management standards hasbeen obtained for both the Fujiyama Plant(November 2002) and the Joto Plant(February 2004). We remain committed tomaintaining our environmental managementsystem and engaging in environmentalprotection throughout our operations.

Environmental Guidelines

We recognize that our company has asocial responsibility regarding theenvironment, and we will work to protectand preserve the global environment in allof our business operations.

•In addition to fully complying with allenvironment-related laws andregulations, we will establish targets andaction plans in a continuous effort toprotect and preserve the environmentand natural resources.

•In all of our business operations we willimplement environment-focusedmeasures such as saving resource andenergy, recycling, reducing waste andpreventing pollution.

•We will endeavor to produce eco-friendly products and will cooperatewith society.

•With the participation of everyemployee, we will strive to furtherunderstand environmental issues and topromote environment-related activities.

Environmental ManagementOrganization

The Environmental Management Office isresponsible for all environment-relatedissues at Ono. Meanwhile, theEnvironmental Management Committeeconsisting of members from sections acrossthe company gages the current situationand promotes environmental management.In addition, facilities that have greaterenvironmental impact such as a researchinstitute or a manufacturing plant has asubcommittee at each site working onenvironmental issues.

Environmental Self-regulatingAction Plan

In compliance with the EnvironmentalGuidelines, we have set specific action plansand targets in 6 areas and strive to achievethese targets. Because we do not conductany synthesis of pharmaceutical substancesat Ono, our discharge volumes of CO2,wastes and chemical substances have beenlower than the industry average and arewithin ranges that do not cause concerns tosociety. We have never experienced any

President

Fujiyama Plant

Joto Plant

MinaseResearch InstituteEnvironmental

ManagementOffice

Environmental ManagementCommittee

FukuiResearch Institute

TsukubaResearch Institute

Head Office, Branches and Other Offices


environment-related accidents or litigations,and have never received any complaintsconcerning noise, malodor or vibration.

However, the Kyoto Protocol requiresreduction by 2010 of the total volume ofCO2, waste and chemical substances downto below 1990 levels: the volumesdischarged at Ono are higher than the 1990levels. This is attributable to thecompany’s growth resulting in thedoubling of sales and tripling of R&Dexpenditures compared to those in 1990.

Despite our continued efforts to reduceenvironmental impact during the period,increase of environmental impactassociated with company growth hasexceeded the volume that has beenreduced. We recognize that futurereduction of the environmental impactmeasured by total volume will continue tobe an agenda for Ono to tackle. We willcontinue our efforts to consider all aspectsof environmental action and achieve thetargets in volume reduction before 2010.

Measures to save energy and to counter global warming

Community relations

Energy consumption in terms of CO2 emission in 2010 will be reduced to a level lower than that in 1990.

Discharge and displacement of first class PRTR chemicals is around 10 tons or less. However, we will not only strengthen compliance with laws and regulations but also tackle as much discharge reduction as possible.

By 2010 final disposal of wastes will be reduced to 20% of the volume disposed in 1990.

Emission standards will be thoroughly complied with and our efforts will continue so as to prevent any environmental accident or complaint from local communities.

In local communities, we participate in cleanup activities. We endeavor to prevent any workplace accidents involving employee injury.

Environmental accounting Environmental accounting has been disclosed in accordance with the guidelines of the Ministry of the Environment.

Objectives Targets

Measures against air and water pollution

Waste reduction measures

Control of chemical substances

Environment Management


Contents

Financial Review ······································································ 16

Consolidated Financial Data:

Consolidated Balance Sheets ·············································· 20

Consolidated Statements of Income ··································· 22

Consolidated Statements of Changes in Equity ················ 23

Consolidated Statements of Cash Flows ···························· 24

Notes to Consolidated Financial Statements ···················· 25

Independent Auditors’ Report ············································ 40

Financial Review

The following is a summary of the consolidatedbusiness results for this fiscal year ended March 31,2008.

Area of BusinessOno Pharmaceutical Co., Ltd. and its subsidiaries areengaged primarily in pharmaceutical-relatedbusinesses. (See Notes 2 and 18 of the Notes to ConsolidatedFinancial Statements.)

Results for Fiscal Year Ended March 31, 2008The environment for the Japanese pharmaceuticalindustry in this fiscal year remained very challengingas with last year, due to the continuing harsh businessclimate associated with further pressures of variousmedical cost-containment measures by thegovernment and intensified competition both in Japanand abroad.The Ono Pharmaceutical Group responded to thisdifficult business environment by focusing on our ownunique approach to new drug development,strengthening its R&D capabilities, energeticallypromoting dissemination of scientific informationrelating to our main strategic products, and workingto improve operating efficiency.

ThousandsMillions of yen of U.S. dollars

Net sales ¥ 145,898 $ 1,458,980

Operating income 52,287 522,870

Net income 35,047 350,470

SalesLooking at net sales for some key individual products,Opalmon® Tablets for peripheral circulation improvingagent, which won greater appraisal in its area ofapproved indication pertaining to the treatment oflumber spinal canal stenosis, performed solidly and

Financial Section


registered sales of ¥37,395 million (US$373,950thousand), an increase of ¥3,524 million (US$35,240thousand) or 10.4% compared to the previous fiscalyear. Onon® Capsules for the treatment of bronchialasthma and allergic rhinitis, thanks to strong driveswe made in scientific information activities, achievedsales of ¥27,123 million (US$271,230 thousand), anincrease of ¥223 million (US$2,230 thousand) or 0.8%over the previous fiscal year. The sales of Kinedak ®

Tablets for the treatment of diabetic peripheralneuropathy also reaped rewards from strong effortsdirected into developing potential markets by hostingcommunity-based study groups and academiclectures: sales figures were healthy at ¥17,418 million(US$174,180 thousand), a rise of ¥71 million (US$710thousand) or 0.4% over the previous year. Onoact ® forInjection for the treatment of tachyarrhythmia wasgiven marketing approval for post-operative indicationin October 2006 in addition to its already approveduse during operations: sales increased to ¥1,976million (US$19,760 thousand), up by ¥990 million(US$9,900 thousand). Our new member of the productlaunched in June last year, Staybla® Tablets for thetreatment of overactive bladder, sold ¥511 million(US$5,110 thousand).Onon® Dry Syrup for the treatment of bronchial asthmamainly used by pediatric patients suffered the impactof generic competition and fell in sales to ¥11,006million (US$110,060 thousand), which was a drop of¥473 million (US$4,730 thousand), down by 4.1% yearon year.Foipan® Tablets for the treatment of chronicpancreatitis and post-operative gastro-esophagealreflux totaled ¥13,491 million (US$134,910 thousand)in sales, a year-on-year decrease of ¥527 million(US$5,270 thousand), down by 3.8%. Cataclot ® forInjection for the treatment of acute-phase cerebralthrombosis sold ¥5,596 million (US$55,960 thousand),which was a decrease of ¥409 million (US$4,090thousand), down by 6.8% year on year.

Operating IncomeSales for the fiscal year ended March 31, 2008 totaled¥145,898 million (US$1,458,980 thousand), which was a

year-on-year increase of ¥4,186 million (US$41,860thousand) or 3.0%. Cost of sales fell to ¥20,861 million(US$208,610 thousand), a year-on-year decrease of¥224 million (US$2,240 thousand), down by 1.1%.Selling, general and administrative expenses were¥72,750 million (US$727,500 thousand), a year-on-yearincrease of ¥4,965 million (US$49,650 thousand) or7.3%. Overall, these resulted in a decline of tooperating income to ¥52,287 million (US$522,870thousand), a year-on-year decrease of ¥555 million(US$5,550 thousand), down by 1.0%.Among, SG&A expenses, R&D expenses rose to ¥38,974million (US$389,740 thousand), an increase of ¥3,624million (US$36,240 thousand), up by 10.2% over theprevious fiscal year: we continued to make aggressiveinvestment into R&D, which led to larger costs ofoutsourcing clinical studies and of laboratory worksfor in-house research, and we made lump-sumpayments to Nissan Chemical Industries Ltd. for thein-licensing of a drug to treat thrombocytopenia andto Kyorin Pharmaceutical Ltd. in conjunction with theapproval of Staybla® Tablets for the treatment ofoveractive bladder.Other SG&A expenses increased to ¥33,776 million(US$337,760 thousand), a rise of ¥1,341 million(US$13,410 thousand) or 4.1% over the previous fiscalyear, the reasons being the increase in marketingcosts associated with the launch of Staybla® Tabletsand the strong input of workshops and academiclectures on core products.(See Note 10 of the Notes to Consolidated FinancialStatements.)

Net IncomeOther income included ¥3,060 million (US$30,600thousand) in interests and dividends income, ¥5,393million (US$53,930 thousand) in gain on the sales ofinvestment securities and ¥642 million (US$6,420thousand) in gain on equity swap; however, an loss of¥1,625 million (US$16,250 thousand) was incurred dueto loss in valuation of investment securities; thus,other income decreased year on year by ¥1,528 million(US$15,280 thousand). Meanwhile, tax liabilitiesdecreased by ¥1,971 million (US$19,710 thousand).

Financial Section


As a result, net income for this fiscal year was ¥35,047million (US$350,470 thousand), falling ¥225 million(US$2,250 thousand) or 0.6% down year on year. (See Notes 7, 9 and 13 of the Notes to ConsolidatedFinancial Statements.)

R&D ExpendituresWe face global competition in the development of newdrugs. To win this fierce battle, we requiredevelopment speed and high-quality data. To this end,we had given top priority to obtaining marketingapproval in the US and had actively engaged in clinicaldevelopment focusing on the United States. We willcontinue to pursue the strategy of US-Europe leadingdevelopment. If all goes smoothly to plan, the numberof development programs overseas will increaseconsiderably. In view of this expectation, managementdecision was made to expand the functions deliveredby our US development base, Ono Pharma USA Inc.(OPUS). In May this year, the Global DevelopmentHeadquarters were newly established in OPUS, aimedat reinforcing global competitiveness in new drugdevelopment. The Global Development Headquartersfunctions as the core of clinical development in Japan,the US and Europe, providing even stronger impetusto our thrust in conducting clinical trials.As for product development in Japan, we will continuein our strong effort towards obtaining early marketingapproval on compounds that are in late developmentstages. With regards compounds being developed onan overseas-leading basis, we will endeavor toexpedite development speed in Japan by leveragingmulti-national clinical trials and global data.To promote strategic alliances in new drug discovery,the Global Discovery Research Alliance Headquarterswere set up in OPUS in May this year. The StrategicAlliance Headquarters that were initiated in March2007 had succeeded in reaching partnershipagreements with the US companies; on kinases inaddition to existing collaboration with ArrayBioPharma Inc., new alliance started with LocusPharmaceuticals, Inc. in November last year; on aprotease inhibitor we formed new collaboration withEvotec AG of Germany on protease inhibitors in March

this year. However, to enable us to forge more drugdiscovery alliances with American and European bio-pharmaceutical companies with cutting-edgetechnologies and to more actively pursue researchcollaborations with academic institutions in search ofbreakthrough drug seeds, the activity base has beentransferred to the United States in May this year and isnow known as the Global Discovery Research AllianceHeadquarters.Meanwhile, we have successfully achieved in in-licensing of new drug candidates such as short-actinggeneral anesthetic from the UK company, CeNeSLimited last August, and treatment drug forthrombocytopenia from Nissan Chemical IndustriesLtd. last December. In close coordination with OPUSand Ono Pharma UK Ltd., we will strongly pursue in-licensing of not only late development stagecompounds but early-stage compounds (pre-clinicaland Phase I) as well.

As for in-house research, our aim is to identify bettercompounds in a more reliable stream: from the initialstages of compound discovery, Ono’s new systemallows to investigate not only efficacy but alsochemical properties, pharmacokinetics, and safety.Ono’s innovative drug discovery research in fourpriority areas (prostaglandins, enzyme inhibitors,neuroscience, and intracellular signaling) yielded anew EP1 receptor antagonist that shows promise forthe treatment of overactive bladder and an S1Preceptor agonist as a new candidate drug for multiplesclerosis. Both are already under clinicaldevelopment. Many new compounds are also at theirfinal stages of research. Drug discovery research isalso actively underway using our gene assets. Toillustrate, collaborative research is ongoing withMedarex Inc. of the United States on fully human PD-1antibody aimed at developing a new compoundactivating immune response that is a new mechanismof action and may become a drug against cancer orhepatitis C. Clinical development is already underway. The fiscal year R&D expenditures amounted to ¥38,987million (US$389,870 thousand).


Consolidated Cash FlowIn the consolidated financial year ended March 31,2008, the balance of cash and cash equivalentsincreased to a total of ¥47,433 million (US$474,330thousand) despite outgoings such as dividendpayments and acquisition of the company’s ownshares, thanks to the positive balance of cash flowfrom operating activities of ¥36,522 million(US$365,220 thousand), which resulted in a year-on-year increase of ¥14,764 million (US$147,640thousand) or 45.2% up from ¥32,669 million(US$326,690 thousand) of the previous fiscal year.

•Cash Flow from Operating ActivitiesCash flow from operating activities for this fiscal yearshowed a decrease of ¥2,157 million (US$21,570thousand) from the previous fiscal year, resulting in apositive cash flow balance of ¥36,522 million(US$365,220 thousand). This is due to our corporatetax obligations being ¥22,989 million (US$229,890thousand) for this fiscal year while being ¥18,661million (US$186,610 thousand) for the previous fiscalyear but pre-tax net profits being ¥59,513 million(US$595,130 thousand) in this year while being ¥61,596million (US$615,960 thousand) in the previous year.

•Cash Flow from Investing ActivitiesCash flow from investing activities for this fiscal yearended in an increase over the previous year of ¥13,960million (US$139,600 thousand), leaving a positivebalance of ¥7,434 million (US$74,340 thousand). Thereasons for this are that although there wasexpenditure on the purchase of marketable andinvestment securities, there was also income fromtheir disposal and redemption, creating an income of¥9,576 million (US$95,760 thousand), compared to theloss of ¥5,319 million (US$53,190 thousand) in theprevious year and that spending for the acquisition oftangible fixed assets amounted to ¥1,592 million(US$15,920 thousand), compared to ¥1,131 million(US$11,310 thousand) of the previous year.

•Cash Flow from Financing ActivitiesThe cash flow from financing activities for this fiscalyear showed a decrease of ¥3,332 million (US$33,320thousand) over the previous year, leaving a negativebalance of ¥29,171 million (US$291,710 thousand).Dividend payments accounted for ¥17,119 million(US$171,190 thousand), compared to the previousyear’s ¥14,062 million (US$140,620 thousand), and thecost of acquisition of the company’s own shares was¥12,165 million (US$121,650 thousand) compared tothe previous year’s ¥11,771 million (US$117,710thousand).

Investment in Plant and EquipmentPlant and equipment investment during this fiscal yeartotaled ¥1,445 million (US$14,450 thousand), includinginvestment into the maintenance of manufacturingfacilities, which stood at ¥614 million (US$6,140thousand).

Outlook for the Coming YearIt is expected that Japanese government policies forcontaining healthcare costs, which have risen steadilyover the years, will affect our operations morestrongly during the coming year. At the same time,competition in the increasingly globalizedpharmaceutical market continues to intensify, with theresult that our business environment is likely tobecome even more challenging.The Ono Pharmaceutical Group is facing thischallenge with real commitment to the research anddevelopment of world-class and innovative newpharmaceutical products, building an even strongerand more profitable business base by actively forgingalliances with research institutions and by enhancingthe speed and efficiency of marketing and businessperformance throughout the company to reap therewards of improved sales.

Financial Section


Consolidated Balance SheetsOno Pharmaceutical Co., Ltd. and Subsidiaries

Years ended March 31, 2008 and 2007

Millions of yen Thousands of U.S. dollars (Note 1)

ASSETS 2008 2007 2008

Current assets:

Cash and cash equivalents (Note 2.b) ········································· ¥ 47,433 ¥ 32,669 $ 474,330

Time deposits ············································································· 820 426 8,200

Marketable securities (Note 3) ···················································· 96,602 101,467 966,020

Trade notes and accounts receivable ······································· 41,107 42,073 411,070

Allowance for doubtful receivables ········································· (10) (15) (100)

Inventories (Note 4) ······································································ 9,972 9,300 99,720

Deferred tax assets (Note 9) ························································ 14,775 12,928 147,750

Prepaid expenses and other current assets ··························· 1,358 1,583 13,580

Total current assets ···························································· 212,057 200,431 2,120,570

Property, plant and equipment:

Land ····························································································· 22,546 22,546 225,460

Buildings and structures (Note 5) ··············································· 63,005 62,460 630,050

Machinery, equipment and others (Note 5) ······························ 24,844 25,511 248,440

Construction in progress ·························································· 296 38 2,960

Total ······················································································ 110,691 110,555 1,106,910

Accumulated depreciation ························································ (59,429) (57,339) (594,290)

Net property, plant and equipment ·································· 51,262 53,216 512,620

Investments and other assets:

Investment securities (Note 3) ···················································· 206,810 243,186 2,068,100

Investments in affiliated companies ········································ 706 1,586 7,060

Long-term loans to employees ················································· 20 22 200

Intangible assets ········································································· 1,042 1,092 10,420

Deferred tax assets (Note 9) ························································ 48 42 480

Other assets ················································································ 5,396 5,240 53,960

Total investments and other assets ································· 214,022 251,168 2,140,220

Total ·························································································· ¥ 477,341 ¥ 504,815 $ 4,773,410

See accompanying notes to consolidated financial statements.



LIABILITIES AND EQUITY 2008 2007 2008

Current liabilities:Current portion of long-term debt (Note 6)································ ¥ 1 ¥ 1 $ 10Notes and accounts payable:

Trade notes and accounts payable········································ 2,857 2,910 28,570Construction ············································································· 152 51 1,520Affiliated companies ································································ 36 9 360

Income taxes payable (Note 9)····················································· 13,837 12,019 138,370Accrued expenses ······································································· 10,676 11,129 106,760Other current liabilities ······························································ 1,851 1,740 18,510

Total current liabilities ······················································· 29,410 27,859 294,100

Long-term liabilities:Long-term debt, less current portion (Note 6)··························· 18 19 180Long-term accounts payable (Note 2.g)······································· 713 – 7,130Liability for retirement benefits (Note 7)···································· 8,668 9,148 86,680Deferred tax liabilities (Note 9) ···················································· 8,269 20,984 82,690

Total long-term liabilities ··················································· 17,668 30,151 176,680

Contingent liabilities and commitments (Notes 11 & 15)

Equity (Notes 8 & 17)

Common stock,authorized, 300,000,000 shares; issued, 120,847,500 shares in 2008 and 2007 ·························································· 17,358 17,358 173,580

Capital surplus············································································· 17,080 17,002 170,800Retained earnings········································································ 421,279 404,062 4,212,790Unrealized gain on available-for-sale securities ······················ 17,112 39,161 171,120Land revaluation difference (Note 14) ········································· (8,919) (8,919) (89,190)Foreign currency translation adjustments······························· (21) 50 (210)Treasury stock-at cost

7,474,235 shares in 2008 and 5,492,140 shares in 2007 ············ (36,861) (24,709) (368,610)Total ······················································································· 427,028 444,005 4,270,280

Minority interests········································································ 3,235 2,800 32,350Total equity ··········································································· 430,263 446,805 4,302,630

Total··························································································· ¥ 477,341 ¥ 504,815 $ 4,773,410

Financial Section


Consolidated Statements of IncomeOno Pharmaceutical Co., Ltd. and Subsidiaries



2008 2007 2008

Net sales ·························································································· ¥ 145,898 ¥ 141,712 $ 1,458,980

Cost of sales (Note 10) ······································································ 20,861 21,085 208,610

Gross profit ··············································································· 125,037 120,627 1,250,370

Selling, general

and administrative expenses (Note 10) ····································· 72,750 67,785 727,500

Operating income····································································· 52,287 52,842 522,870

Other income (expenses)

Interest and dividend income ···················································· 3,060 2,582 30,600

Interest expense ·········································································· (1) (1) (10)

Other–net (Note 13) ······································································· 4,167 6,173 41,670

Other income–net ···································································· 7,226 8,754 72,260

Income before income taxes

and minority interests ······························································· 59,513 61,596 595,130

Income taxes (Note 9):

Current·························································································· 24,738 21,825 247,380

Deferred ························································································ (697) 4,187 (6,970)

Total income taxes··································································· 24,041 26,012 240,410

Income before minority interests ·········································· 35,472 35,584 354,720

Minority interests ·········································································· (425) (312) (4,250)

Net income ······················································································ ¥ 35,047 ¥ 35,272 $ 350,470

Per share of common stock (Notes 2.p & 16): Yen U.S. dollars (Note 1)

Basic net income ········································································· ¥ 306.80 ¥ 302.73 $ 3.07

Cash dividends applicable to the year ····································· 202.00 100.00 2.02



Consolidated Statements of Changes in EquityOno Pharmaceutical Co., Ltd. and Subsidiaries


BALANCE, APRIL 1, 2006

Reclassified balance as of March 31, 2006 (Note 2.h) Net incomeCash dividends, ¥120 per shareBonuses to directors and corporate auditorsPurchase of treasury stockDisposal of treasury stockRetirement of treasury stockNet change in the year

................................................

......

.................................................

.............................

Thousands Millions of yen

OutstandingNumber of Shares ofCommon

StockCommon

StockCapitalSurplus

RetainedEarnings

UnrealizedGain on

Available-for-sale

Securities

LandRevaluationDifference

ForeignCurrency

TranslationAdjustments

TreasuryStock Total

MinorityInterests

TotalEquity

117,431 ¥ 17,358 ¥ 17,002 ¥ 392,291 ¥ 42,825 ¥ (3,549) ¥ 17 ¥ (22,312) ¥ 443,632 ¥ 443,632

113,373 ¥ 17,358 ¥ 17,080 ¥ 421,279 ¥ 17,112 ¥ (8,919) ¥ (21) ¥ (36,861) ¥ 427,028 ¥ 430,263¥ 3,235

(2,080)4

10(10)

35,272(14,084)

(56)

(9,361)(3,664) (5,370) 33

(11,773)5

9,371

35,272(14,084)

(56)(11,773)

15–

(9,001)

2,47335,272

(14,084)

(56)(11,733)

15–

(8,674)

¥ 2,473

327

BALANCE, MARCH 31, 2007

Net incomeCash dividends, ¥150 per shareChanges in the scope of equity methodPurchase of treasury stockDisposal of treasury stockRetirement of treasury stockNet change in the year

........................................

............................

............................

115,355 17,358 17,002 404,062 39,161 (8,919) 50 (24,709) 444,005 2,800 446,805

BALANCE, APRIL 1, 2007

Net incomeCash dividends, $1.50 per shareChanges in the scope of equity methodPurchase of treasury stockDisposal of treasury stockRetirement of treasury stockNet change in the year

........................................

............................

............................

Thousands of U.S. dollars (Note.1)

CommonStock

CapitalSurplus

RetainedEarnings

UnrealizedGain on

Available-for-sale

Securities

LandRevaluationDifference

ForeignCurrency

TranslationAdjustments

TreasuryStock Total

MinorityInterests

TotalEquity

$173,580 $170,020 $4,040,620 $391,610 $(89,190) $500 $(247,090) $4,440,050 $28,000 $4,468,050

350,470(171,570)

(6,730)

780

(220,490) (710)

(121,670)150

350,470(171,570)

(6,730)(121,670)

930

(221,200)

350,470(171,570)

(6,730)(121,670)

930

(216,850)4,350


...................

................


$173,580 $170,800 $4,212,790 $171,120 $(89,190) $(210) $(368,610) $4,270,280 $32,350 $4,302,630


...................

...............

................

(2,008)26

35,047(17,157)

(673)

78

(22,049) (71)

(12,167)15

35,047(17,157)

(673)(12,167)

93

(22,120)

35,047(17,157)

(673)(12,167)

93

(21,685)435


Consolidated Statements of Cash FlowsOno Pharmaceutical Co., Ltd. and Subsidiaries



2008 2007 2008

Operating activities:

Income before income taxes and minority interests ························· ¥ 59,513 ¥ 61,596 $ 595,130

Adjustments for:

Income taxes–paid ·············································································· (22,989) (18,661) (229,890)

Depreciation and amortization·························································· 3,384 3,521 33,840

Allowance for doubtful receivables ·················································· (12) (1,252) (120)

Decrease in liability for retirement benefits ···································· (480) (4,265) (4,800)

Gain on sales of investment securities ············································· (5,393) (2,794) (53,930)

Changes in assets and liabilities, net of effects

Increase in interest and dividend receivable······························· 242 571 2,420

Decrease in trade notes and accounts receivable ······················ 925 1,323 9,250

(Increase) Decrease in inventories ··············································· (595) 99 (5,950)

Decrease in trade notes and accounts payable··························· (26) (147) (260)

Others–net ··························································································· 1,953 (1,312) 19,530

Net cash provided by operating activities ································· 36,522 38,679 365,220

Investing activities:

Payments for purchases of marketable securities ····························· (109,282) (109,843) (1,092,820)

Proceeds from sales of marketable securities······································ 147,991 127,480 1,479,910

Payments for purchases of property, plant and equipment ············· (1,592) (1,131) (15,920)

Payments for purchases of investment securities ····························· (42,441) (28,035) (424,410)

Proceeds from sales of investment securities ···································· 13,308 5,079 133,080

Others–net ······························································································· (550) (76) (5,500)

Net cash provided by (used in) investment activities ················· 7,434 (6,526) 74,340

Financing activities:

Repayment of current portion of long-term debt ······························· (2) (2) (20)

Payments for purchases of treasury stock·········································· (12,165) (11,771) (121,650)

Proceeds from sales of treasury stock ················································· 120 – 1,200

Cash dividends ························································································ (17,119) (14,062) (171,190)

Cash dividends to minority shareholders ··········································· (5) (4) (50)

Net cash used in financing activities ·············································· (29,171) (25,839) (291,710)

Foreign currency translation adjustments

on cash and cash equivalents ·························································· (21) 34 (210)

Net increase in cash and cash equivalents ··········································· 14,764 6,348 147,640

Cash and cash equivalents, beginning of year ········································ 32,669 26,321 326,690

Cash and cash equivalents, end of year ··················································· ¥ 47,433 ¥ 32,669 $ 474,330



Notes to Consolidated Financial StatementsOno Pharmaceutical Co., Ltd. and Subsidiaries


Note 1Basis of Presenting Consolidated FinancialStatementsThe accompanying consolidated financial statements of Ono

Pharmaceutical Co., Ltd. (the “Company”) and its

subsidiaries have been prepared in accordance with the

provisions set forth in the Japanese Financial Instruments

and Exchange Law 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 2007 financial statements to conform

to the classifications used in 2008.

The consolidated financial statements are stated in Japanese

yen, the currency of the country in which the Company is

incorporated and principally operates. The translations of

Japanese yen amounts into U.S. dollar amounts are included

solely for the convenience of readers outside Japan and

have been made at the rate of ¥100 to $1, the approximate

rate of exchange at March 31, 2008. 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.

Note 2Summary of Significant Accounting Policies

a. Consolidation and investments in affiliates

The consolidated financial statements include the accounts

of the Company and its four subsidiaries, consisting of two

companies in Japan and two foreign subsidiaries at March

31, 2008 (together, 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 Company has the ability to exercise significant

influence are accounted for by the equity method.

Investments in two affiliated companies (three in 2007) are

accounted by the equity method.

All significant intercompany transactions and accounts and

unrealized intercompany profits are eliminated in

consolidation.

The difference between the cost and underlying net assets

of investments in subsidiaries at the time of acquisition is

charged to income because it is immaterial.

The Company’s two foreign subsidiaries are consolidated

using a fiscal year ending December 31. Any material effects

occurring during January 1 to March 31 periods are adjusted

in the consolidated financial statements.

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, certificates of

deposit, commercial paper and bond funds, all of which

mature or become due within three months of the date of

acquisition.

c. Marketable and investment securities

Marketable and investment securities are classified and

accounted for, depending on management’s intent, as

follows:

i) 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 and ii) available-


for-sale securities, which are not classified as the

aforementioned securities, are reported at fair value, with

unrealized gains and losses, net of applicable taxes,

reported in a separate component of shareholders’ 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 net realizable value by a charge to income.

d. Inventories

Inventories are stated principally at cost determined by the

first-in, first-out method.

e. Property, Plant and Equipment and Intangible assets

Property, plant and equipment are stated at cost.

Depreciation of property, plant and equipment is principally

computed using the declining balance method at rates

based on the estimated useful lives of the assets, which are

principally as stated below.

Buildings and structures: 15 - 50 years

Machinery and equipment: 4 - 7 years

Those buildings, excluding structures, which were acquired

on or after April 1, 1998, are depreciated using the straight-

line method.

Maintenance and repairs including minor renewals and

improvements are charged to income as incurred.

Intangible assets are amortized using the straight-line

method.

f. Long-lived assets

The Group reviews its 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. An impairment loss 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 impairment loss 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.

g. Retirement benefits and pension plans

The employees whose service with the Company and its

domestic subsidiaries is terminated are, under most

circumstances, entitled to a combination of lump-sum

severance indemnities and pension payments, determined

by reference to current basic rate of pay, length of service

and conditions under which the termination occurs.

Certain subsidiaries provide a reserve for retirement

allowances for directors, executive officers and corporate

auditors in required amounts calculated based on the bylaw.

Effective June 28, 2007, the Company terminated its

unfunded retirement an allowance plan for all directors and

corporate auditors.

The outstanding balance of retirement allowances for

directors and corporate auditors as of March 31, 2007 was

reclassified to “Long-term accounts payable” in the year

ended March 31, 2008.

h. Presentation of Equity

On December 9, 2005, the Accounting Standards Board of

Japan (the “ASBJ”) published a new accounting standard for

presentation of equity. Under this accounting standard,

certain items which were previously presented as liabilities

are now presented as components of equity. Such items

include stock acquisition rights, minority interests, and any

deferred gain or loss on derivatives accounted for under

hedge accounting. This standard is effective for fiscal years

ending on or after May 1, 2006. The balances of such items

as of March 31, 2006 were reclassified as separate

components of equity as of April 1, 2006 in the consolidated

statement of changes in equity.

i. Research and development costs

Expenses and costs relating to research and development

activities are charged to income as incurred.

j. Leases

All leases are accounted for as operating leases. Under

Japanese accounting standards for leases, finance leases

that deem to transfer ownership of the leased property to

the lessee are to be capitalized, while other finance leases

are permitted to be accounted for as operating lease

transactions if certain “as if capitalized” information is

disclosed in the notes to the lessee’s financial statements.


Financial Section

k. Bonuses to directors and corporate auditors

Bonuses to directors and corporate auditors are accrued at

the year end to which such bonuses are attributable.

l. Income taxes

The provision for income taxes is computed based on the

pretax income included in the consolidated statements of

income.

The asset and liability approach is used to recognize

deferred tax assets and liabilities for the expected future tax

consequences of temporary differences between the

financial statement basis and the tax basis of assets and

liabilities. Deferred taxes are measured by applying

currently enacted tax laws to the temporary differences.

m. 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 gains and losses from translation

are recognized in the income statement to the extent that

they are not hedged by forward exchange contracts.

n. Foreign Currency Financial Statements

The balance sheet accounts of the foreign subsidiaries are

translated into Japanese yen at the current exchange rate as

of the balance sheet date except for equity, which is

translated at the historical rate.

Differences arising from such translation are shown as

“Foreign currency translation adjustments” in a separate

component of equity.

Revenue and expense accounts of foreign subsidiaries are

translated into yen at the average exchange rate.

o. Derivatives and Hedging Activities

The Company uses derivative financial instruments to

manage its exposures to fluctuations in foreign exchange.

Foreign exchange forward contracts are utilized by the

Company to reduce foreign currency exchange risks. The

Company does not enter into derivatives for trading or

speculative purposes.

If the derivatives qualify for hedge accounting because of

high correlation and effectiveness between the hedging

instruments and the hedged items, gains or losses on

derivatives are deferred until maturity of the hedged

transactions.

p. Per share information

Basic net income per share is computed by dividing net

income available to common shareholders by the weighted-

average number of common shares outstanding for the

period, retroactively adjusted for stock splits.

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.

q. New Accounting Pronouncements

Measurement of Inventories

Under Japanese GAAP, inventories are currently measured

either by the cost method, or at the lower of cost or market.

On July 5, 2006, the ASBJ issued ASBJ Statement No.9,

“Accounting Standard for Measurement of Inventories”,

which is effective for fiscal years beginning on or after April

1, 2008 with early adoption permitted. This standard

requires that inventories held for sale in the ordinary course

of business be measured at the lower of cost or net selling

value, which is defined as the selling price less additional

estimated manufacturing costs and estimated direct selling

expenses. The replacement cost may be used in place of the

net selling value, if appropriate. The standard also requires

that inventories held for trading purposes be measured at

the market price.

Lease Accounting

On March 30, 2007, the ASBJ issued ASBJ Statement No.13,

“Accounting Standard for Lease Transactions”, which

revised the existing accounting standard for lease

transactions issued on June 17, 1993.

Under the existing accounting standard, finance leases that

deem to transfer ownership of the leased property to the

lessee are to be capitalized, however, other finance leases

are permitted to be accounted for as operating lease

transactions if certain “as if capitalized” information is

disclosed in the note to the lessee’s financial statements.


The revised accounting standard requires that all finance

lease transactions shall be capitalized recognizing lease

assets and lease obligations in the balance sheets. The

revised accounting standard for lease transactions is

effective for fiscal years beginning on or after April 1, 2008

with early adoption permitted for fiscal years beginning on

or after April 1, 2007.

Unification of Accounting Policies Applied to Foreign

Subsidiaries for the Consolidated Financial Statements

Under Japanese GAAP, a company currently can use the

financial statements of its foreign subsidiaries which have

been prepared in accordance with generally accepted

accounting principles in their respective jurisdictions for its

consolidation process unless they are clearly unreasonable.

On May 17, 2006, the ASBJ issued ASBJ Practical Issues Task

Force (PITF) No.18, “Practical Solution on Unification of

Accounting Policies Applied to Foreign Subsidiaries for the

Consolidated Financial Statements”. The new standard

prescribes: 1) the accounting policies and procedures

applied to a parent company and its subsidiaries for similar

transactions and events under similar circumstances should

in principle be unified for the preparation of the

consolidated financial statements, 2) financial statements

prepared by foreign subsidiaries in accordance with either

International Financial Reporting Standards or the generally

accepted accounting principles in the United States

tentatively may be used for the consolidation process,

3) however, the following items should be adjusted in the

consolidation process so that net income is accounted for in

accordance with Japanese GAAP unless they are not

material;

(1) Amortization of goodwill

(2) Actuarial gains and losses of defined benefit plans

recognized outside profit or loss

(3) Capitalization of intangible assets arising from

development phases

(4) Fair value measurement of investment properties,

and the revaluation model for property, plant and

equipment, and intangible assets

(5) Retrospective application when accounting policies

are changed

(6) Accounting for net income attributable to a minority

interest

The new task force is effective for fiscal years beginning on

or after April 1, 2008 with early adoption permitted.

Asset Retirement Obligations

On March 31, 2008, the ASBJ published a new accounting

standard for asset retirement obligations. Under this

accounting standard, an asset retirement obligation is

defined as a legal obligation imposed either by law or

contract that results from the acquisition, construction,

development and the normal operation of a tangible fixed

asset and is associated with the retirement of such tangible

fixed asset. The asset retirement obligation is recognized as

the sum of the discounted cash flows required for the future

asset retirement and is recorded in the period in which the

obligation is incurred if a reasonable estimate can be made.

If a reasonable estimate of the asset retirement obligation

cannot be made in the period the asset retirement obligation

is incurred, the liability should be recognized when a

reasonable estimate of asset retirement obligation can be

made. Upon initial recognition of a liability for an asset

retirement obligation, an asset retirement cost is capitalized

by increasing the carrying amount of the related fixed asset

by the amount of the liability. The asset retirement cost is

subsequently allocated to expense through depreciation

over the remaining useful life of the asset. Over time, the

liability is accreted to its present value each period. Any

subsequent revisions to the timing or the amount of the

original estimate of undiscounted cash flows are reflected as

an increase or a decrease in the carrying amount of the

liability and the capitalized amount of the related asset

retirement cost. This standard is effective for fiscal years

beginning on or after April 1, 2010 with early adoption

permitted for fiscal years beginning on or before March 31,

2010.


Financial Section

Note 3Marketable securities, Investment securitiesMarketable and investment securities as of March 31, 2008 and 2007 consisted of the following:


2008 2007 2008

Current:

Government and corporate bonds ··················································· ¥ 96,602 ¥ 101,467 $ 966,020

Non-current:

Marketable and other equity securities ············································ 93,706 112,915 937,060

Government and corporate bonds ···················································· 110,049 114,798 1,100,490

Trust fund investments and other····················································· 3,055 15,473 30,550

Total·································································································· ¥ 206,810 ¥ 243,186 $ 2,068,100

The costs and aggregate fair values of marketable and investment securities at March 31, 2008 and 2007 were as follows:

Millions of yen

March 31, 2008 Cost Unrealized Gains Unrealized Losses Fair Value

Securities classified as:

Available-for-sale:

Equity securities ························································ ¥ 64,895 ¥ 29,220 ¥ (1,233) ¥ 92,882

Debt securities ··························································· 66,426 11 (238) 66,199

Trust fund investments and other··························· 2,281 576 (63) 2,794

Held-to-maturity ···························································· 140,452 957 (52) 141,357

March 31, 2007


Available-for-sale:

Equity securities ························································ ¥ 55,992 ¥ 56,915 ¥ (95) ¥ 112,812

Debt securities ··························································· 73,369 1 (137) 73,233

Trust fund investments and other··························· 8,000 7,473 – 15,473

Held-to-maturity ···························································· 143,032 212 (586) 142,658

Thousands of U.S. dollars

March 31, 2008 Cost Unrealized Gains Unrealized Losses Fair Value


Available-for-sale:

Equity securities ························································ $ 648,950 $ 292,200 $ (12,330) $ 928,820

Debt securities ··························································· 664,260 110 (2,380) 661,990

Trust fund investments and other··························· 22,810 5,760 (630) 27,940

Held-to-maturity ···························································· 1,404,520 9,570 (520) 1,413,570


Available-for-sale securities and held-to-maturity securities whose fair value is not readily determinable as of March 31, 2008 and

2007 were as follows:

Carrying amount


2008 2007 2008

Available-for-sale:

Equity securities ················································································· ¥ 824 ¥ 103 $ 8,240

Debt securities····················································································· – 0 –

Trust fund investments and other····················································· 261 – 2,610

Total·································································································· ¥ 1,085 ¥ 103 $ 10,850

Proceeds from sales of available-for-sale securities and gross realized gains and losses on these sales, computed on the moving

average cost basis for the years ended March 31, 2008 and 2007 were as follows:


2008 2007 2008

Proceeds from sales··············································································· ¥ 29,891 ¥ 5,073 $ 298,910

Gross realized gains················································································ 5,397 2,794 53,970

Gross realized losses ·············································································· 0 – 0

The carrying values of debt securities by contractual maturities for securities classified as available-for-sale and held-to-maturity

at March 31, 2008 were as follows:


Available- Held-to- Available- Held-to-for-Sale Maturity for-Sale Maturity

Due in one year or less ····················································· ¥ 62,700 ¥ 33,905 $ 627,000 $ 339,050

Due after one year through five years···························· 701 105,700 7,010 1,057,000

Due after five years through ten years··························· 3,000 – 30,000 –

Total ················································································ ¥ 66,401 ¥ 139,605 $ 664,010 $ 1,396,050


Financial Section

Note 4InventoriesInventories at March 31, 2008 and 2007 consisted of the following.


2008 2007 2008

Merchandise ··························································································· ¥ 286 ¥ 338 $ 2,860

Finished goods ························································································ 4,489 3,995 44,890

Work in process ······················································································ 2,117 2,498 21,170

Raw materials and supplies ··································································· 3,080 2,469 30,800

Total ····································································································· ¥ 9,972 ¥ 9,300 $ 99,720

Note 5Long-lived assetsThe Companies recorded an impairment loss in the year ended March 31, 2007.

The total loss on impairment of long-lived assets for the period amounted to ¥60 million. The contents of the impairment loss

were buildings and structures of ¥37 million, and machinery, equipment and others of ¥23 million.

The Companies classify assets into the asset groups of business properties, leased assets and idle assets. For assets classified as

business properties, the smallest asset unit is the asset group, while the corresponding unit for leased assets and idle assets is

the individual asset.

For idle assets without schedules use, a loss on impairment has been recognized by write-down of the book value to a

recoverable amount.

Note 6Long-term debtLong-term debt at March 31, 2008 and 2007 consisted of the following.


2008 2007 2008

Unsecured loans for employees(*) ······················································· ¥ 19 ¥ 20 $ 190

Less, current portion ·············································································· (1) (1) (10)

Long-term debt, less current portion ·················································· ¥ 18 ¥ 19 $ 180

(*)At March 31, 2008 and 2007: Interest rate ranging from 3.25% to 6.0% maturing serially to March, 2032

At March 31, 2008, the annual maturities of long-term debt were as follows.

Years ending March 31 Millions of yen Thousands of U.S. dollars

2009 ·········································································································································· ¥ 1 $ 10

2010 ·········································································································································· 2 20

2011 ·········································································································································· 2 20

2012 ·········································································································································· 2 20

2013 ·········································································································································· 2 20

2014 and thereafter ················································································································ 10 100

Total ····································································································································· ¥ 19 $ 190


Note 7Retirement benefits and pensionThe liability for retirement benefits at March 31, 2008 and 2007 consisted of the followings:


2008 2007 2008

Projected benefit obligation ································································· ¥ 36,718 ¥ 35,505 $ 367,180

Fair value of plan assets ········································································· (25,296) (27,549) (252,960)

Unrecognized actuarial gain ·································································· (2,828) 452 (28,280)

Net liability for retirement benefits, employees ·································· 8,594 8,408 85,940

Liability for retirement benefits, officers·············································· 74 740 740

Liability for retirement benefits, total ················································· ¥ 8,668 ¥ 9,148 $ 86,680

Net periodic benefit cost for the years ended March 31, 2008 and 2007 consisted of the following.


2008 2007 2008

Service cost ····························································································· ¥ 1,518 ¥ 1,442 $ 15,180

Interest cost····························································································· 502 486 5,020

Expected return on plan assets ····························································· (552) (491) (5,520)

Recognized actuarial gain or loss·························································· (9) (2,274) (90)

Net periodic benefit cost········································································ 1,459 (837) 14,590

Others ······································································································ 204 198 2,040

Total ····································································································· ¥ 1,663 ¥ (639) $ 16,630

Actuarial assumptions used for the years ended March 31, 2008 and 2007 are set forth as follows:

1) Method of attribution of retirement benefits to the period: Straight-line method for the years of service

2) Discount rate: 1.4%

3) Expected rate of return on plan assets: 2.0%

4) Prior service cost is expensed in the year in which the cost is recognized.

5) Actuarial gain or loss is expensed in the year following the year in which the gain or loss is recognized.


Financial Section

Note 8EquityOn and after May 1, 2006, Japanese companies are subject to a new corporate law of Japan (the “Corporate Law”), which

reformed and replaced the Commercial Code of Japan with various revisions that are, for the most part, applicable to events or

transactions which occur on or after May 1, 2006 and for the fiscal years ended on or after May 1, 2006. The significant changes

in the Corporate Law that affect financial and accounting matters are summarized below:

(a) Dividends

Under the Corporate Law, companies can pay semiannual interim dividends once a year in addition to the year-end dividend

upon resolution by the Board of Directors if the articles of incorporation of the company so stipulate.

The Corporate Law provides certain limitations on the amounts available for dividends or the purchase of treasury stock. The

limitation is defined as the amount available for distribution to the shareholders, but the amount of net assets after dividends

must be maintained at no less than ¥3 million.

(b) Increases / decreases and transfer of common stock, reserve and surplus

The Corporate Law requires that an amount equal to 10% of dividends must be appropriated as a legal reserve (a component of

retained earnings) or as additional paid-in capital (a component of capital surplus) depending on the equity account charged

upon the payment of such dividends until the total of aggregate amount of legal reserve and additional paid-in capital equals

25% of the common stock. Under the Corporate Law, the total amount of additional paid-in capital and legal reserve may be

reversed without limitation. The Corporate Law also provides that common stock, legal reserve, additional paid-in capital, other

capital surplus and retained earnings can be transferred among the accounts under certain conditions upon resolution of the

shareholders.

(c) Treasury stock and treasury stock acquisition rights

The Corporate Law also provides for companies to purchase treasury stock and dispose of such treasury stock by resolution of

the Board of Directors. The amount of treasury stock purchased cannot exceed the amount available for distribution to the

shareholders which is determined by specific formula.


Note 9Income taxesThe Company and its domestic subsidiaries are subject to Japanese national and local income taxes which, in the aggregate,

resulted in a normal effective statutory tax rate of approximately 40.6% for the years ended March 31, 2008 and 2007.

The tax effects of significant temporary differences, which resulted in deferred tax assets and liabilities at March 31, 2008 and 2007,

were as follows:


2008 2007 2008

Deferred tax assets:

Current assets:

Prepaid R&D expenditures ···························································· ¥ 10,303 ¥ 8,616 $ 103,030

Accrued for bonuses ······································································· 1,598 1,646 15,980

Accrued enterprise tax···································································· 1,142 1,031 11,420

Depreciation and amortization ······················································ 744 633 7,440

Others ······························································································· 989 1,002 9,890

Non-current assets:

Provision for retirement benefits··················································· 3,481 3,404 34,810

Revaluation on investment securities ··········································· 2,422 2,959 24,220

Depreciation and amortization ······················································ 1,016 1,233 10,160

Others ······························································································· 1,975 1,489 19,750

Less valuation allowance ································································ (2,844) (2,144) (28,440)

Total ······························································································ 20,826 19,869 208,260

Deferred tax liabilities:

Long-term liabilities

Unrealized gain on available-for-sale securities···························· (11,047) (24,918) (110,470)

Revaluation on land········································································· (2,944) (2,944) (29,440)

Others ······························································································· (281) (21) (2,810)

Total ······························································································ (14,272) (27,883) (142,720)

Net deferred tax assets·········································································· ¥ 6,554 ¥ (8,014) $ 65,540

For the years ended March 31, 2008 and 2007, because the differences between the normal effective statutory tax rates and the

actual effective tax rates were not material, the tax reconciliations are not disclosed.


Financial Section

Note 10R&D expendituresResearch and development expenditures for the years ended March 31, 2008 and 2007 consisted of the following.


2008 2007 2008

Selling, general and administrative expenses····································· ¥ 38,974 ¥ 35,350 $ 389,740

Cost of sales····························································································· 13 34 130

Total ····································································································· ¥ 38,987 ¥ 35,384 $ 389,870

Note 11LeasesThe Group leases certain equipment, computers, office space and other assets.

Pro forma information concerning leased property of finance leases that do not transfer ownership of the leased property to the

lessee on an “as if capitalized” basis for the years ended March 31, 2008 and 2007 was as follows:

1. Acquisition cost, accumulated depreciation and net leased property


2008 2007 2008

Machinery, Machinery, Machinery,equipment equipment equipmentand others and others and others

Acquisition cost······················································································ ¥ 18 ¥ 29 $ 180

Accumulated depreciation····································································· 11 17 110

Net leased property············································································ ¥ 7 ¥ 12 $ 70

2. Obligations under finance leases:


2008 2007 2008

Due within one year ··············································································· ¥ 4 ¥ 5 $ 40

Due after one year··················································································· 3 7 30

Total ····································································································· ¥ 7 ¥ 12 $ 70

Actual lease payments, depreciation expense of leased property:


2008 2007 2008

Depreciation expense ············································································ ¥ 4 ¥ 7 $ 40

Actual lease payments············································································ 4 7 40

Depreciation expense for leased properties, which is not reflected in the accompanying statements of income, is computed

using the straight-line method over the estimated useful lives of the leased properties.


The minimum rental payments under noncancelable operating leases at March 31, 2008 were as follows:


2008 2008

Due within one year ··························································································· ¥ 4 $ 40

Due after one year······························································································· 1 10

Total ················································································································· ¥ 5 $ 50

Note 12DerivativesThe Company enters into forward foreign exchange contracts to hedge against the risk of foreign exchange rate fluctuation for

payables denominated in foreign currencies, but does not use derivative transactions for speculative purposes or for gaining

quick profits from sales of financial instruments.

Because the counterparties to these derivatives are limited to major international financial institutions, the Company believes

there is little credit risk in dealing with them.

The Company utilizes forward foreign exchange contracts within the normal transaction range established for these banks.

These forward foreign exchange contracts are entered into by the Accounting Department and the results of settlement of the

contracts are regularly monitored by the Board of Directors.

The Company did not have any open derivatives positions as of March 31, 2008 and 2007.

Note 13Other income and expenses‘Other, net’ of other income (expenses) for the years ended March 31, 2008 and 2007 in the consolidated statements of income

consisted of the following.


2008 2007 2008

Gain on sales of investment securities ················································ ¥ 5,393 ¥ 2,794 $ 53,930

Loss on devaluation of investment securities····································· (1,625) – (16,250)

Gain on exchange of shares ··································································· 642 – 6,420

Loss on impairment of fixed assets······················································· – (60) –

Actuarial gain or loss for retirement benefits ······································ – 2,274 –

Reversal of allowance for doubful receivables ···································· 3 1,252 30

Others, net ······························································································· (246) (87) (2,460)

Total ····································································································· ¥ 4,167 ¥ 6,173 $ 41,670


Financial Section

Note 14Land revaluation differenceIn accordance with the Law concerning Revaluation of Land, land used for businesses owned by the Company and certain

subsidiaries were revalued. The unrealized loss, net of deferred tax, was excluded from earnings and reported as “Land

revaluation difference” in changes in equity, and the relevant deferred tax was included as “Deferred tax liabilities” in liabilities.

Related information is shown as follows:

Date of revaluation: March 31, 2002


Difference between book value of land after revaluation

and fair value at March 31, 2008 ·························································································· ¥ (1,613) $ (16,130)

Note 15Contingent liabilities and commitmentsThere were no material contingent liabilities and commitments at March 31, 2008 and 2007.

Note 16Net income per shareNet income after giving effect to the diluted potential of common stock has not been presented since there are no such potential

shares to be issued.

Information for the computation of net income per share (“EPS”) is as follows.

Millions of yen Thousands of shares Yen Dollars

Net Weightedincome average shares EPS

For the year ended March 31, 2008:

Basic EPS

Net income available to common shareholders ···· ¥ 35,047 114,235 ¥ 306.80 $ 3.07

For the year ended March 31, 2007:

Basic EPS

Net income available to common shareholders ···· ¥ 35,272 116,512 ¥ 302.73


Note 17Subsequent events1. Purchase of treasury stock

The Company’s Board of Directors resolved to purchase treasury stock at the Board of Director’s meeting on April 14, 2008

(1) Resolution of the Board of Directors on April 14, 2008

(a) Reasons for acquisition

The shares will be acquired for the purpose of improving capital efficiency and as a part of measures to improve

returns to shareholders.

(b) Class of shares to be acquired

Common stock of the company

(c) Total number of shares to be acquired

Up to 5.5 million shares (equivalent to 4.55% of the total number of the company’s shares issued)

(d) Aggregate acquisition cost

Up to ¥30 billion ($300 million)

(e) Period of acquisition

From April 15, 2008 to September 30, 2008

(2) Status of the acquisition on May 31, 2008

(a) Total number of shares acquired

996,200 shares

(b) Aggregate acquisition cost

¥5,545 million ($55,450 thousand)

2. Appropriations of Retained Earnings

The following appropriation of retained earnings at March 31, 2008 was approved at the Company’s shareholders meeting held

on June 27, 2008:


Year-end cash dividends, ¥112 ($1.12) per share ·········································· ¥ 12,698 $ 126,980


Financial Section

Note 18Segment information(1) Business segment information

Information relating to business segments is omitted, as the ‘pharmaceutical related business’ accounted for more than 90% of

net sales, operating income and assets of the Group for the years ended March 31, 2008 and 2007.

(2) Geographic area information

Information relating to geographic area is omitted, as ‘Japan’ accounted for more than 90% of net sales and assets of the Group

for the years ended March 31, 2008 and 2007.

(3) Overseas sales information

Overseas sales of the Group to unrelated entities, which consisted of export sales from Japan including license royalty revenue,

classified by geographic area for the years ended March 31, 2008 and 2007 were as follows.

Millions of yen Percentage in total net sales Thousands of U.S. dollars

2008 2007 2008 2007 2008

Europe ··········································································· ¥ 450 ¥ 510 0.3% 0.4% $ 4,500

Asia················································································· 1,988 1,727 1.4 1.2 19,880

Other ·············································································· 1,838 209 1.2 0.1 18,380

Total ··········································································· ¥ 4,276 ¥ 2,446 2.9% 1.7% $ 42,760


INDEPENDENT AUDITORS’ REPORT

To the Board of Directors of Ono Pharmaceutical Co., Ltd.:

We have audited the accompanying consolidated balance sheets of Ono Pharmaceutical Co., Ltd.and subsidiaries as of March 31, 2008 and 2007, and the related consolidated statements ofincome, changes in equity, and cash flows for the years then ended, all expressed in Japanese yen.These consolidated financial statements are the responsibility of the Company’s management.Our responsibility is to express an opinion on these consolidated financial statements based onour audits.

We conducted our audits in accordance with auditing standards generally accepted in Japan. Thosestandards require that we plan and perform the audit to obtain reasonable assurance aboutwhether the financial statements are free of material misstatement. An audit includes examining, ona test basis, evidence supporting the amounts and disclosures in the financial statements. An auditalso includes assessing the accounting principles used and significant estimates made bymanagement, as well as evaluating the overall financial statement presentation. We believe that ouraudits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all materialrespects, the consolidated financial position of Ono Pharmaceutical Co., Ltd. and subsidiaries as ofMarch 31, 2008 and 2007, and the consolidated results of their operations and their cash flows forthe years then ended in conformity with accounting principles generally accepted in Japan.

Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amountsand, in our opinion, such translation has been made in conformity with the basis stated in Note 1.Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.

June 27, 2008

Deloitte Touche TohmatsuYodoyabashi Mitsui Building4-1-1, Imabashi, Chuo-kuOsaka-shi, Osaka 541-0042Japan

Tel: +81 6 4560 6000Fax: +81 6 4560 6001www.deloitte.com/jp


BOARD OF DIRECTORS ANDSTATUTORY AUDITORS (as of September 1, 2008)

Chairman and RepresentativeDirectorDaikichi Fukushima

President, Representative Directorand CEOGyo Sagara

DirectorsKinya MorimotoKazuhito KawabataFumio TakahashiIsao OnoHiroshi AwataHiroshi IchikawaShinji FujiyoshiToshio UenoShozo Matsuoka

Statutory AuditorsShigeo ShimadaKei SanoNarihito MaishiYasuo Araki

ONO PHARMACEUTICAL CO., LTD.

Founded 1717Date of Incorporation July 4, 1947Paid-in Capital ¥17,358 million (March 31, 2008)Number of Shareholders 11,025 (March 31, 2008)Number of Employees 2,415 (March 31, 2008)

Head Office :8-2, Kyutaromachi 1-chome, Chuo-ku, Osaka 541-8564, JapanTel : +81-6-6263-5670 Fax : +81-6-6263-2950

Registered Office :1-5, Doshomachi 2-chome, Chuo-ku, Osaka, Japan

Branches in Japan :Sapporo, Sendai, Tokyo I, Tokyo II, Kitakanto, Koshinetsu, Yokohama, Nagoya,Kyoto, Osaka, Kobe, Takamatsu, Hiroshima, Fukuoka

Seoul Branch :#1205, Sankoo Building, 70 Sogong-Dong, Chung-Ku, Seoul, 100-070, KoreaTel : +82-2-928-8423 Fax : +82-2-925-2151

Research Institutes :Minase Research Institute, Osaka, JapanFukui Research Institute, Fukui, JapanTsukuba Research Institute, Ibaraki, Japan

Manufacturing Plants :Fujiyama Plant, Shizuoka, JapanJoto Plant, Osaka, Japan

Subsidiaries & Affiliates

[Domestic]

Oriental Pharmaceutical & Synthetic Chemical Co., Ltd.

Bee Brand Medico Dental Co., Ltd.

Namicos Corporation

Tokai Capsule Co., Ltd.

[Overseas]

Ono Pharma UK Ltd11th Floor, Marble Arch Tower 55 Bryanston Street, London W1H 7AA, EnglandTel : +44-20-7258-5300 Fax : +44-20-7723-5812

Ono Pharma USA, Inc.2000 Lenox Drive, Lawrenceville, NJ 08648, USATel : +1-609-219-1010 Fax : +1-609-219-9229

http://www.ono.co.jp

Corporate Information

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