Message to Investors
The imminent healthcare priorities for government and society are arguably to improve healthcare access and fairness, as seen in the healthcare reforms being implemented by the Obama Administration in the U.S. Simultaneously, we are witnessing significant transformations in emerging areas like China and India, with the remarkable expansion of middle-income groups and a shift in disease patterns from infectious to non-communicable diseases such as cancer and diabetes. Developed and developing countries alike are still faced with the risk of a spreading pandemic, such as the H1N1 influenza, and appropriate countermeasures have to be constantly sought after. Eisai's articles of incorporation defines our role in terms of enhancing patient value and we are striving to achieve this mission by satisfying unmet medical needs with new medicines, ensuring a stable supply of high-quality products, and providing useful information of safety and efficacy. We are keenly aware of the importance of this mission in all the countries and regions where we operate.
With this in mind, we have developed an Affordable Pricing Policy to meet the social, economic, and healthcare environment in each country so that as many patients as possible can benefit from drug therapy. Based upon this Policy, since 2005 we have been supplying India with Aricept® for Alzheimer's disease and the proton pump inhibitor Pariet® at affordable prices commensurate with the social, economic, and healthcare environment in India. In February 2010, we launched the new drug Revovir® (generic name: clevudine) for chronic hepatitis B in the Philippines at about half the price of existing branded products by applying this policy. It is our commitment to seek to supply products in a sustainable manner at prices affordable for the patients in need of our drugs.
Obviously it is mandatory to establish a low-cost operational platform in order to continue supplying affordably priced drugs in a sustainable manner. To that end, we have initiated a Low Cost Operations for Affordable Pricing (LCOP-AP) project worldwide and thereby have begun to review all our cost structures. Among all, the Eisai Knowledge Centre, India, built as a manufacturing and process research base in Visakhapatnam (Vizag), acts as our product supply base globally. The facility thereof manufactures active pharmaceutical ingredients (API) and formulations for our existing products and is scheduled to conduct API process research and manufacture API and formulations for next-generation global products. As such, this Knowledge Center plays an important role in our efforts to achieve affordable pricing.
In conjunction with new drug development which is the mission of all pharmaceutical companies, in July 2009, we transitioned to a new drug discovery and development system called Eisai Product Creation Systems (EPCS) in order to improve the timely discovery and development of innovative drugs. It is a proactive reform of our previous large-scale R&D system, reorganizing it into six Product Creation Units responsible for everything from new drug discovery to approval in a particular disease area supported by six Core Function Units mandated for key drug discovery technologies. With this, approximately 2,000 global R&D employees have been redeployed into these Units and the concept itself has been changed from Research and Development to Product Creation.
The objective of the EPCS program is simply to shorten the timeline required for development. We endeavor to improve productivity and efficiency by leveraging our in-house expertise in drug development in both small molecules and biologics and by increasing the ownership and motivation of each Unit in the product creation process under a new autonomous system.
With respect to corporate governance Eisai has adopted the committee system. Seven out of the eleven Board Directors are Outside Independent Directors, including the Chairman of the Board, while the CEO is the only Board Director to also hold a Corporate Officer position. The Board of Directors is completely responsible for shareholder benefits, while the Corporate Officers, including the President, are entrusted by the Board of Directors to manage operations to realize patient value with an eye of continuously enhancing shareholder value.
In this regard, our emphasis on balance sheet management means we are committed to an optimal capital structure for shareholder value creation, thereby securing ROE of 15% that far exceeds the cost of equity. For shareholder returns, our policy is to repatriate cash exceeding the cost of equity, thereby maintaining DOE at 8% or higher and reallocate to the shareholders approximately one third of cash income generated in the middle term range.
On the other hand, the patent protection of Aricept®, which has played a significant role in supporting the growth of Eisai Group, will expire in the U.S. as of November 2010. Notwithstanding the foregoing, corporate acquisitions and other strategic measures designed to bolster our operations in the oncology and critical care fields have led to considerable business growth potential in those fields with new franchises being progressively fortified. Fiscal 2009 was a year that can be called epochal in light of how powerfully the results of Eisai's inhouse research emerged as evidenced by our filing for approval of a 23mg formulation of Aricept® for Alzheimer's disease in the U.S. and simultaneous filings of our first inhouse anti-cancer agent eribulin in Japan, the U.S., and Europe.
Moreover, looking at our operations in geographic regions, our integrated business systems for ethical drugs, OTC products, diagnostics, and generic drugs divisions in our home market Japan have enabled us to grow strongly while rapid growth in China and other emerging markets having materialized. It is our mission to do our utmost to realize the objectives of our medium-term road map, which calls for balancing operations in franchise fields and geographic regions to optimize performance trajectory over the next 2 years and thereafter further leveraging our strong pipeline to realize dynamic growth in 2013 and beyond.
Fiscal 2010 will be an extremely important year for us, as we will be striving to ensure that all necessary preparations are made for the marketing of these new drugs to deliver them to patients as quickly as possible. I sincerely request the continued understanding and support from all our stakeholders in these endeavors.
July 2010
Haruo Naito
President (Representative Executive Officer) and CEO
