Message from the Chairman

Representative Director,
Chairman and Group Chief Executive Officer
Mitsuo Sawai

Further evolving group management to
become a healthcare corporate group
that develops with society


Review of the first year
as a holding company

Clarified roles and responsibilities by promoting group management

It has been about one year since we transitioned to the current holding company structure with the founding of Sawai Group Holdings Co., Ltd. in April 1, 2021. However, the environment that Japanese pharmaceutical companies operate in is growing ever harsher for various reasons including fiercer competition due to drug price revisions and stronger regulation.

It was decided that to maintain sustainable growth in this environment, the Group must not only further reinforce its existing generic drug business but also foster new businesses in line with the demands of the times, such as longer healthy lives. We selected the holding company structure as the most appropriate way to respond to the changes in the environment.

One of the goals for transitioning to a holding company structure was to separate group management and supervision from business execution, and the transition further strengthened Board of Directors’ supervision and clarified the division of duties for operating divisions so that they can quickly and responsibly execute business. The roles of the management team were also clarified with Deputy Chairman of the Company and President of Sawai Pharmaceutical Kenzo Sawai being put in charge of the core domestic generic drug business and President Kazuhiko Sueyoshi taking responsibility for managing the overall Group corporate division and executing overseas and new businesses. I also reinforced the foundation of corporate management by unifying the overall Group and strengthening compliance and governance.

Transitioning to a holding company made it possible for subsidiaries other than Sawai Pharmaceutical to participate in the system of compliance and governance–related meetings and exchange opinions throughout the Group. At a time when trust in our industry has been shaken, the most important action we can take is to move forward with meaningful items in line with the spirit of legal compliance. In the future, we want directors who serve on both the Group Board of Directors and Strategy Council and Sawai Pharmaceutical’s Board of Directors and Management Meeting to switch between an overall group perspective to one of their detailed fields of responsibility depending on the issue and thus further reinforce operations.

On the other hand, looking back at the previous year, we recorded an impairment loss of about ¥69.0 billion for the U.S. business in fiscal 2021. After purchasing Upsher-Smith in 2017, competitors continued to enter the market for the main products, leading to a dramatic change in the business environment. I would like to apologize to all stakeholders, including shareholders, and we will work to rebuild the business by leveraging the strengths of the Company.

Background for establishing
Trust Pharmatech Co., Ltd.

Contributing to a stable supply of drugs based on trust and reliability

The Group founded the new subsidiary Trust Pharmatech Co., Ltd. in December 2021 and took over the production facilities of the Fukui Prefecture-based generic drug manufacturer Kobayashi Kako Co., Ltd. in March, and the employees of related departments in April. One of the benefits of transitioning to a holding company is that it is possible to jointly conduct business as sibling companies within the Group without being incorporated into Sawai Pharmaceutical.

Trust Pharmatech Co., Ltd. was founded against a backdrop of a major crisis related to instability in the supply of generic drugs. Because several companies, including Kobayashi Kako, suspended production due to violations of the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices, the industry as a whole was unable to fulfill its role of providing a stable supply of products. The Company received numerous comments from medical institutions, pharmacies, and customers regarding insufficient drugs and problems, but supply could not keep up with demand.

Factories operated by generic drug manufacturers undertake high-mix, low-volume production, and this makes it difficult to rapidly increase production. Therefore, we focused on Kobayashi Kako’s factory, which boasts a production capacity of 3.0 billion tablets annually but was not operating. The factory had outstanding personnel involved in drug production. Making effective use of both this factory and its workers was considered indispensable to quickly resolve the supply problem. It would take some time for the factory to launch operations, however, if Kobayashi Kako’s products continued to be manufactured there. Therefore, we proposed taking over only the production facilities, not any of Kobayashi Kako’s products.

The transfer of assets related to production activities and employees in related departments was completed at the end of March and beginning of April 2022, respectively, and preparations are moving forward to launch shipments in April 2023. Under current conditions, supply shortages were expected to last for 3–4 years, but it now looks like a stable supply can quickly be achieved. Around 90% of Trust Pharmatech’s employees came from Kobayashi Kako. Considering the problems that have occurred at that company, an important issue is getting the Sawai Pharmaceutical’s corporate philosophy of “always putting patients first” and the corporate culture that stresses quality to take root. Immediately after Trust Pharmatech was founded, the employees studied about the Sawai philosophy, reflected on the work they did in the past, discussed what they want to become in the future, and gave presentations on the topic. The new employees experienced the quality policy firsthand during training at Sawai Pharmaceutical factories, and it is hoped that at some point in time they will become even more serious about quality than Sawai employees.

The name Trust Pharmatech incorporates the word “trust” and thus the idea that building trust and reliability with society is important. The name was selected because when employees hear it, they think of the company as one that nobody has doubts about its quality. In the future, we will carefully move forward with preparations to launch production while strengthening compliance and governance as one member of the Group and thoroughly introducing a quality management system.

Determination to lead
Japan’s generic drug industry

Even under harsh condition, our mission is to meet the expectations of patients

As mentioned at the beginning, Japan’s drug industry is in a difficult situation because of the impact of annual drug price revisions. In particular, for generic drugs, which are based on high-mix, low-volume production, the cost structure is such that cost of sales account for a larger percentage of total costs than for original drug companies. In addition, active pharmaceutical ingredients (APIs) are impacted by increases in the cost of oil and exchange rates because they are chemical substances. However, as long as our social mission is to offer a stable supply of high-quality generic drugs and meet the expectations of patients, we cannot stop manufacturing a particular drug even if it is not very profitable.

For example, for Sawai Pharmaceutical, the unit price for the most inexpensive product is ¥5.10 per tablet. Even these products are manufactured at factories with thorough GMP management using APIs and additives that are managed according to our own standards that are stricter than Japanese government approved standards, and this entails costs. On the other hand, even for low-price drugs, we work to lower costs, which involves increasing productivity and taking other measures, so that we can continue to supply the product. We are focusing on disclosing quality information precisely because we are confident that we manufacture products that we can proudly provide information on.

What is demanded in our industry now is to regain trust by disclosing what quality-related efforts we are undertaking and getting patients to select generic drugs because of not simply the price but also the peace of mind they provide. The Group considers being a leader in the industry in regard to this as its responsibility. It is our stance that this should be linked to sales and profis.

With the founding of Trust Pharmatech and construction of a new building at the Daini Kyushu Factory, we now possess the facilities to increase production to about 6.0 billion tablets a couple of years in the future. With a financial position that permits investments and both technology and brand, the Company still has room to grow. We will expand production in the future and want to switch to a business model that combines high-mix, low-volume production, a distinguishing aspect of generic drugs, with low-mix, high volume production, at some time in the future.

Ideas underlying
the Group corporate philosophy

Desire to become indispensable for the healthier lives of all people

The Group’s corporate philosophy is “always putting healthier lives first.” Touting the corporate philosophy of “always putting patients first,” Sawai Pharmaceutical contributes to the early recovery and healthier lives of patients suffering from diseases, and as a group, we want to contribute to lessening the burden on patients as much as possible and reducing, even if only slightly, the possibility of anyone becoming sick. This is the underlying idea behind our corporate philosophy.

Sawai Pharmaceutical has worked to undertake advertising activities in the fields of pre-symptomatic illness and disease prevention, which includes creating pamphlets for improving eating habits and providing those to medical institutions, etc. In addition to these activities, we are aiming to become indispensable by contributing to the actual prevention of disease through health foods and digital technology. When expanding the business in the future, we may establish a new company and want to become a group for which the name of each Group company matches its goal, just like for the Company’s drug business, health food business, and digital business. While different companies focus on different customers, we will continue to aim to become a healthcare corporate group that contributes to the healthy life of all people and continues to develop with society.

Representative Director,
Chairman and Group Chief Executive Officer
Mitsuo Sawai

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