Kyowa Hakko Fiscal 2007 Operating Income up 28.3%: Sales and Operating Income Exceed Plan Targets

TOKYO--(BUSINESS WIRE)--Apr 28, 2008 - Kyowa Hakko Kogyo Co. Ltd. (Kyowa Hakko)(TOKYO:4151) today announced its consolidated financial results for the year ended March 31, 2008 (Fiscal 2007). Consolidated net sales were JPY 392.1 billion, up 10.7% and consolidated operating income was JPY 39.3 billion, an increase of 28.3% compared to fiscal 2006. Recurring income increased 23.0% to JPY 37.9 billion and net income increased 84.9% to JPY 23.4 billion.

Operating income in the Pharmaceuticals segment grew by 26.8%, supported by higher sales of anti-allergic and other products, while in the Bio-Chemicals segment strong demand for amino acids overseas and the consolidation of Daiichi Fine Chemical resulted in a large increase in operating income of 135.6%. In the Chemicals and Food segments operating income decreased by 10.6% and 13.9% respectively as they were each affected by the sustained high prices of raw materials and other factors.

R&D spending in fiscal 2007 was up 2.3% on fiscal 2006 to JPY 34.1 billion, which represented 8.7% of net sales, 0.7 percentage points lower than in the previous fiscal year.

For the fiscal year ending March 31, 2009 (fiscal 2008) Kyowa Hakko forecasts a 25.0% increase in net sales, and a 44.7% increase in operating income, while recurring income and net income are forecast to grow by 47.4% and 19.3% respectively.

Commenting on the results, Yuzuru Matsuda, President and CEO of Kyowa Hakko said, 'Fiscal 2007 was the final year of our three-year, medium-term business plan during which we sought to strengthen competitiveness through strategic initiatives to invest aggressively for future growth and to expand sales of our existing businesses and implemented broad-ranging cost reductions. We have significantly exceeded our plan targets for sales and operating income driven by strong performances in Pharmaceuticals and Bio-Chemicals and Chemicals.

Today we have also announced details of our new three-year business plan that details the strategic initiatives that we will pursue and our new targets for growth in sales and profits following integration with Kirin Pharma to form Kyowa Hakko Kirin.' -0-

I. Fiscal 2007 Results

Results for the fiscal year ended March 31, 2008

                                         (Billions of Yen)

                            ------------------------------------------

                               FY ended        FY ended        YOY

                            March 31, 2008  March 31, 2007  Change (%)

----------------------------------------------------------------------

Net sales                             392.1           354.2     +10.7%

Operating income                       39.3            30.6     +28.3%

Recurring income                       37.9            30.9     +23.0%

Net income                             23.4            12.6     +84.9%

Net income per share (JPY )           59.03           31.32     +88.5%

----------------------------------------------------------------------

-0-
Segmental results for the fiscal year ended March 31, 2008

Sales                              (Billions of Yen)

                 -----------------------------------------------------

                     FY ended             FY ended            YOY

                  March 31, 2008       March 31, 2007      Change (%)

----------------------------------------------------------------------

Pharmaceuticals              138.3                  131.5        +5.2%

Bio-Chemicals                 86.8                   67.1       +29.3%

Chemicals                    108.0                   98.6        +9.5%

Food                          43.3                   42.5        +1.7%

Other                         48.9                   48.4        +1.1%

----------------------------------------------------------------------

-0-
Operating Income                   (Billions of Yen)

                 -----------------------------------------------------

                      FY ended            FY ended            YOY

                   March 31, 2008      March 31, 2007     Change (%)

----------------------------------------------------------------------

Pharmaceuticals                 19.9                15.7        +26.8%

Bio-Chemicals                    9.6                 4.1       +135.6%

Chemicals                        7.1                 7.9        -10.1%

Food                             1.5                 1.8        -13.9%

Other                            0.8                 0.9        -13.4%

----------------------------------------------------------------------

Segmental Performance

In the Pharmaceuticals business net sales increased 5.2% to JPY 138.3 billion, while operating income increased 26.8% to JPY 19.9 billion.

Results benefited from higher sales of products such as Allelock, an antiallergic agent, Patanol, an antiallergic ophthalmic solution, and Depakene, an anti-epileptic agent, despite a decline in sales of products such as Coniel, a treatment for hypertension and angina pectoris. The antiepileptic Topina, which was launched in September 2007, also contributed to the growth in sales. In the licensing-out of technologies and export of pharmaceutical products, sales of antiallergic agent Olopatadine hydrochloride that are outlicensed to Alcon, Laboratories, Inc. continued to perform very well.

In new drug development in Japan, KW-2246, an analgesic for cancer pain, completed Phase II clinical trials. Kyowa Hakko is also carrying out Phase II clinical trials on KW-6002, an anti-Parkinson's disease treatment, KW-6500, also an anti-Parkinson's disease treatment, and KW-7158, a candidate treatment for irritable bowel syndrome. KW-0761, a therapeutic antibody that utilizes our Potelligent(R) technology, is in Phase I clinical trials as a blood cancer treatment, and KW-3357, an agent for inhibiting blood coagulation, and ARQ 197, an anticancer agent for the treatment of malignant tumors that was inlicensed from U.S. drug development company ArQule in April 2007, are also in Phase I clinical trials. In addition, inflammatory bowel disease agent Asacol, which Kyowa Hakko is jointly developing with Zeria Pharmaceutical Co., Ltd., has completed Phase II clinical trials and preparations have been made for application for its approval as a new drug.

Overseas, the U.S. Food and Drug Administration (FDA) informed Kyowa Hakko in February 2008 that it could not grant approval as of that time for anti-Parkinson's disease treatment KW-6002, for which Kyowa Hakko has applied for approval as a new drug in the United States. Kyowa Hakko has decided to consider its development policy for this treatment while proceeding with discussions with the FDA. In addition, Kyowa Hakko decided in March 2008 to outlicense KW-0761, which is in Phase I trials as a therapeutic antibody in Europe, to major U.S. biotechnology company Amgen. Furthermore, Phase I clinical trials are underway in the United States for anti-cancer treatment KW-2449 and in Europe for anti-cancer treatment for malignant tumors KW-2478. Meanwhile, in China, application was made in July 2007 for approval for additional indications for Coniel as a treatment for angina pectoris, and Phase III clinical trials are underway for Allelock, an antiallergic agent.

In the Bio-Chemicals business, net sales increased 29.3% to JPY 86.8 billion, while operating income increased 135.6% to JPY 9.6 billion. The major increase in sales was attributable to stronger overseas demand for raw materials for pharmaceuticals and industrial use, particularly amino acids, nucleic acids and related compounds, as well as increased sales in Japan of raw materials for generic pharmaceuticals. The inclusion of Daiichi Fine Chemical as a consolidated subsidiary also contributed. In healthcare products, sales increased from the previous fiscal year, due to steady growth in sales in overseas markets of amino acids used as dietary supplements and in mail-order sales in Japan of the Remake series, although Kyowa Hakko did not escape the impact of sluggish growth in the Japanese health food industry.

In the Chemicals business, net sales increased 9.5% to JPY 108.0 billion, while operating income decreased 10.1% to JPY 7.1 billion. In Japan, firm demand from the car industry and others underpinned a slight increase in shipment volumes, while core product prices were revised against a background of higher raw materials and fuel prices accompanying continued high crude oil and naphtha prices, leading to a large increase in sales compared to last fiscal year. Export shipment volumes were lower, despite prices trending higher in overseas markets, as production of certain products declined due to difficulties at production facilities, and export sales also declined slightly. By product category, sales volumes of high-purity solvents increased, driven by sales to the electronics materials industry. Sales in Japan and overseas of specialty chemicals products were slightly higher than in the previous fiscal year, supported by steady growth in core refrigerant oil raw materials.

In the Food business, sales increased 1.7% to JPY 43.3 billion, while operating income decreased 13.9% to JPY 1.5 billion. In seasonings, sales of natural seasonings were broadly in line with the previous fiscal year, supported by expanding sales of fermented seasonings and despite sluggish sales of extract seasonings amidst a difficult environment of sharply rising prices of raw materials and other factors. Increased demand for Umami seasonings also contributed to higher sales.

In bakery products and ingredients, sales were higher than in the previous year supported by sales of products such as core yeasts and flavor enhancers and despite the suspension of sales of certain products due to factors such as the rapidly increasing prices of raw materials. Processed foods also contributed to growth in sales, partly due to an increase in sales of OEM products.

In the Other business segment, sales increased 1.1% to JPY 48.9 billion, while operating income decreased 13.4% to JPY 0.8 billion. -0-

  II. Forecasts for the fiscal year ending March 31, 2009(a)

                              Billions of Yen              %

                           -------------------------------------------

                                 FORECAST         Change compared to

                            Fiscal year ending    the previous fiscal

                               March 31, 2009             year

----------------------------------------------------------------------

Net sales                          490.0                +25.0%

Operating income                   57.0                 +44.7%

Recurring income                   56.0                 +47.4%

Net income                         28.0                 +19.3%

Net income per share (JPY

 )                                 48.72                -17.5%

----------------------------------------------------------------------

These forecasts assume average exchange rates for fiscal 2008 of JPY

 110/US$ and JPY 160/euro.

In fiscal 2008, we expect large increases in sales and profits, mainly due to integration with Kirin Pharma. Our forecasts for operating income, recurring income and net income reflect a JPY 9.5 billion expense for the amortization of goodwill. The forecast dividend for fiscal 2008 is JPY 20 per share (JPY 10 interim dividend, JPY 10 final dividend).

In the Pharmaceuticals business, despite the challenging environment resulting from reductions in prescription pharmaceuticals prices that were implemented in April we are forecasting that fiscal 2008 net sales and operating income will each increase significantly, as a result of factors such as Kyowa Hakko's integration with Kirin Pharma. Furthermore, we expect revenues due to benefit from growth in sales of core products Allelock and Patanol, the commencement of sales of Coversyl, an ACE inhibitor for treatment of hypertension in-licensed from Daiichi Sankyo, and a one-off contract payment for the outlicensing of KW-0761 to Amgen, although we expect sales of Durotep, an analgesic for persistent cancer pain, to decline due to the completion of the term of a joint sales contract.

In the Bio-Chemicals business, we are forecasting an increase in sales due to expected growth in the health care domain, particularly in amino acids, for which we are pursuing an active sales expansion strategy, and in mail-order sales of the Remake Series. However, we are forecasting a slight decrease in operating income, as we expect an increase in SG&A expenses such as R&D expenses and amortization of goodwill. In the Chemicals business, we are forecasting an increase in sales, as we expect product prices to remain high against the backdrop of high prices for raw materials and fuel. However, we are forecasting a decrease in operating income, due partly to an expected increase in depreciation expenses. In the Food business, we are forecasting an increase in sales volumes of natural seasonings for the prepared food and restaurant markets, but we expect sales to be almost the same level as last fiscal year, partly as a result of a revision in the items we sell, and we expect operating income to decrease, partly due to amortization of goodwill.

(a) The above forecasts are based on information available and assumptions made at the time of release of this document about a number of uncertain factors that can affect results in the future. It is possible that actual results are materially different for a wide variety of reasons.

For further information please access: http://ir.kyowa.co.jp/english/index.cfm

This document is an English translation of parts of the Japanese-language original. All financial information has been prepared in accordance with generally accepted accounting principles in Japan. It contains forward-looking statements based on a number of assumptions and beliefs made by management in light of information currently available. Actual financial results may differ materially depending on a number of factors, including fluctuations in exchange rates, changing economic conditions, legislative and regulatory developments, delays in new product launches, and pricing and product initiatives of competitors.

Contact

Kyowa Hakko Kogyo Co. Ltd.
Kenshiro Honda, +81-3-3282-0969
Corporate Communications Dept.
kenshiro.honda@kyowa.co.jp
www.kyowa.co.jp

Posted: April 2008


View comments

Hide
(web5)