Daiichi Sankyo : Consolidated Financial Statements and Independent Auditor's Report for FY2025PDF

About this update from Daiichi Sankyo Company, Limited

Consolidated Financial Statements and Independent Auditor's Report For the year ended 31 March, 2026 Daiichi Sankyo Company, Limited Disclaimer: This document is a translation of the original Japanese version and provided for reference purposes only. In the event of any discrepancy between the Japanese original and this English translation, the Japanese original shall prevail. Contents Page Consolidated Statement of Financial Position 1 Consolidated Statement of Profit or Loss 3 Consolidated Statement of Comprehensive Income 4 Consolidated Statement of Changes in Equity 5 Consolidated Statement of Cash Flows 7 Notes to the Consolidated Financial Statements Reporting Entity 8 Basis of Preparation 8 Material Accounting Policies 9 Significant Accounting Judgments, Estimates and Assumptions 18 Standards and Interpretations Issued but Not Yet Adopted 19 Operating Segment Information 20 Business Combination 21 Cash and Cash Equivalents 21 Trade and Other Receivables 22 Other Financial Assets 23 Inventories 25 Assets Held for Sale and Liabilities Directly Associated with Assets Held for Sale 25 Property, Plant and Equipment 26 Goodwill and Intangible Assets 28 Investments Accounted for Using the Equity Method 31 Income Taxes 32 Trade and Other Payables 36 Bonds and Borrowings, and Other Financial Liabilities 36 Provisions 38 Employee Benefits 40 Government Grants 45 Capital and Other Components of Equity 45 Dividend 47 Revenue 48 Major Expenses by Nature 50 Other Income and Other Expenses 51 Financial Income and Financial Expenses 52 Earnings Per Share 54 Share-based Payments 55 Financial Instruments 59 Lease Transactions 69 Other Comprehensive Income 70 Cash Flow Information 71 Related Parties 72 Commitments 72 Major Consolidated Subsidiaries and Associates 73 Joint Development and Joint Sales Promotion 74 Subsequent Events 75 Independent Auditor's Report Consolidated Financial Statements 1) Consolidated Statement of Financial Position ASSETS Current assets (Millions of JPY) Note As of March 31, 2025 As of March 31, 2026 Cash and cash equivalents 8,30 639,838 449,807 Trade and other receivables 9 619,101 741,145 Other financial assets 10 80,890 104,736 Inventories 11 514,910 692,378 Other current assets 47,443 32,279 Subtotal 1,902,183 2,020,346 Assets held for sale 12 7,250 122,162 Total current assets 1,909,433 2,142,509 Non-current assets Property, plant and equipment 6,13 498,517 596,563 Goodwill 6,14 108,429 97,353 Intangible assets 6,14 235,839 241,064 Investments accounted for using the equity method 15 5,600 4,918 Other financial assets 10 139,175 194,435 Long-term advance payments 167,428 192,906 Deferred tax assets 16 305,019 465,299 Other non-current assets 86,675 70,338 Total non-current assets 1,546,685 1,862,880 Total assets 3,456,119 4,005,390 LIABILITIES AND EQUITY Trade and other payables 17,21 579,957 596,856 Bonds and borrowings 18,30 399 404 Other financial liabilities 18 14,720 13,630 Income taxes payable 60,369 88,303 Provisions 19 5,804 49,811 Contract liabilities 24 67,956 74,405 Other current liabilities 24,825 30,060 Subtotal 754,032 853,471 Liabilities directly associated with assets held for sale 12 - 31,552 Current liabilities (Millions of JPY) Note As of March 31, 2025 As of March 31, 2026 Total current liabilities 754,032 885,023 Non-current liabilities Bonds and borrowings 18,30 100,933 300,077 Other financial liabilities 18 43,675 39,219 Post-employment benefit liabilities 20 1,559 1,452 Provisions 19 13,030 164,572 Contract liabilities 24 751,038 806,809 Deferred tax liabilities 16 11,066 3,230 Other non-current liabilities 21 157,365 140,825 Total non-current liabilities 1,078,670 1,456,186 Total liabilities 1,832,703 2,341,210 Equity Equity attributable to owners of the Company Share capital 22 50,000 50,000 Treasury shares 22 (147,321) (247,993) Other components of equity 22 263,693 311,619 Retained earnings 1,457,044 1,550,553 Total equity attributable to owners of the 1,623,416 1,664,179 Company Total equity 1,623,416 1,664,179 Total liabilities and equity 3,456,119 4,005,390 2) Consolidated Statement of Profit or Loss (Millions of JPY) Note Year ended March 31, 2025 Year ended March 31, 2026 Revenue 6,24 1,886,256 2,123,045 Cost of sales 25 415,797 669,045 Gross profit 1,470,458 1,454,000 Selling, general and administrative expenses 25 731,200 780,683 Research and development expenses 25 435,965 466,005 Other income 26 28,739 22,100 Other expenses 26 107 323 Operating profit 331,925 229,089 Financial income 27 34,103 40,815 Financial expenses 27 11,854 7,986 Share of profit (loss) of investments accounted for using the equity method 15 1,457 1,513 Profit before tax 355,631 263,432 Income taxes 16 59,874 3,558 Profit for the year 295,756 259,874 Profit attributable to: Owners of the Company 295,756 259,874 Earnings per share Basic earnings per share (JPY) 28 155.96 140.44 Diluted earnings per share (JPY) 155.87 140.37 Consolidated Statement of Comprehensive Income (Millions of JPY) Note Year ended March 31, 2025 Year ended March 31, 2026 Profit for the year 295,756 259,874 Other comprehensive income Items that will not be reclassified to profit or loss Financial assets measured at fair value through other comprehensive income 16 5,252 4,753 Remeasurements of defined benefit plans 16 3,702 (4,981) Items that may be reclassified subsequently to profit or loss Exchange differences on translation of foreign operations 16,32 (15,790) 50,185 Cash flow hedges 16,30,32 886 77 Other comprehensive income for the year (5,948) 50,034 Total comprehensive income for the year 289,808 309,908 Total comprehensive income attributable to: Owners of the Company 289,808 309,908 Consolidated Statement of Changes in Equity Year ended March 31, 2025 Equity attributable to owners of the Company (Millions of JPY) Note Share capital Capital surplus Treasury shares Other components of equity Exchange differences on Financial assets measured at fair Subscription rights to shares translation of foreign operations Cash flow hedges value through other comprehensive income Balance as of April 1, 2024 50,000 1,962 (36,629) 560 243,928 (232) 39,742 Profit for the year - - - - - - - Other comprehensive - - - - (15,790) 886 5,252 income for the year Total comprehensive - - - - (15,790) 886 5,252 income for the year Purchase of treasury shares - (90) (245,975) - - - -Disposal of treasury shares - - 960 (135) - - - Cancellation of treasury 22 - (7,547) 134,323 - - - - shares Dividend 23 - - - - - - -Share-based compensation - 5,675 - - - - - Change in ownership - - - - - - - interest in subsidiaries Transfer from other components of equity to retained earnings Transfer to non-financial - - - - - - (9,864) assets and similar items - - - - - (654) - Others - - - - - - - Total transactions with - (1,962) (110,691) (135) - (654) (9,864) owners of the Company Balance as of March 31, 2025 50,000 - (147,321) 424 228,137 - 35,130 (Millions of JPY) Equity attributable to owners of the Company Other components of equity Total equity Note Remeasure- ments of defined benefit Total other components of equity Retained earnings attributable to owners of the - 283,998 1,388,842 1,688,173 429 1,688,603 - - 295,756 295,756 - 295,756 3,702 (5,948) - (5,948) - (5,948) 3,702 (5,948) 295,756 289,808 - 289,808 - - - (246,066) - (246,066) - (135) (503) 320 - 320 22 - - (126,775) - - - 23 - - (114,408) (114,408) - (114,408) - - - 5,675 - 5,675 - - - - (429) (429) (3,702) (13,566) 13,566 - - - - (654) - (654) - (654) - - 566 566 - 566 (3,702) (14,356) (227,554) (354,565) (429) (354,995) - 263,693 1,457,044 1,623,416 - 1,623,416 Company Non-controlling interests Total equity Balance as of April 1, 2024 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Purchase of treasury shares Disposal of treasury shares Cancellation of treasury shares Dividend Share-based compensation Change in ownership interest in subsidiaries Transfer from other components of equity to retained earnings Transfer to non-financial assets and similar items Others Total transactions with owners of the Company Balance as of March 31, 2025 plans Year ended March 31, 2026 Note Equity attributable to owners of the Company Other components of equity Exchange (Millions of JPY) Financial assets Share capital Capital surplus Treasury shares Subscription rights to shares differences on translation of foreign operations Cash flow hedges measured at fair value through other comprehensive Balance as of April 1, 2025 Profit for the year Other comprehensive income for the year Total comprehensive income for the year income Purchase of treasury shares Disposal of treasury shares Cancellation of treasury shares Dividend Share-based compensation Transfer from other components of equity to retained earnings Transfer to non-financial assets and similar items Others Total transactions with owners of the Company Balance as of March 31, 2026 50,000 - - - (147,321) - 424 - 228,137 - - - 35,130 - - - - - 50,185 77 4,753 - - - - 50,185 77 4,753 - (115) (150,342) - - - - - - 535 (42) - - - 22 - (8,629) 48,971 - - - - 23 - - - - - - - - 8,745 164 - - - - - - - - - - (7,141) - - - - - (77) - - - - - 171 - - - (100,671) (42) 171 (77) (7,141) 50,000 - (247,993) 381 278,494 - 32,743 (Millions of JPY) Equity attributable to owners of the Company Other components of equity Total equity Note Remeasure- ments of defined benefit Total other - 263,693 1,457,044 1,623,416 1,623,416 - - 259,874 259,874 259,874 (4,981) 50,034 - 50,034 50,034 (4,981) 50,034 259,874 309,908 309,908 - - - (150,458) (150,458) - (42) (221) 271 271 22 - - (40,341) - - 23 - - (128,527) (128,527) (128,527) - - - 8,909 8,909 4,981 (2,159) 2,159 - - - (77) - (77) (77) - 171 566 737 737 4,981 (2,108) (166,365) (269,145) (269,145) - 311,619 1,550,553 1,664,179 1,664,179 components of equity Retained earnings attributable to owners of the Company Total equity Balance as of April 1, 2025 Profit for the year Other comprehensive income for the year Total comprehensive income for the year Purchase of treasury shares Disposal of treasury shares Cancellation of treasury shares Dividend Share-based compensation Transfer from other components of equity to retained earnings Transfer to non-financial assets and similar items Others Total transactions with owners of the Company Balance as of March 31, 2026 plans Consolidated Statement of Cash Flows Note Year ended March 31, 2025 (Millions of JPY) Year ended March 31, 2026 (Consolidated statement of financial position) Cash flows from operating activities Profit before tax 355,631 263,432 Depreciation and amortization 68,649 77,460 Impairment losses (reversal of impairment losses) 3,094 5,967 Financial income (34,103) (40,815) Financial expenses 11,854 7,986 Share of (profit) loss of investments accounted for using the equity method (1,457) (1,513) (Gain) loss on sale and disposal of non-current assets (1,276) 3,927 (Increase) decrease in trade and other receivables (167,750) (104,620) (Increase) decrease in inventories (78,367) (172,748) (Increase) decrease in long-term advance payments (50,488) (25,477) Increase (decrease) in trade and other payables 40,106 (10,501) Increase (decrease) in provisions (11,361) 195,662 Increase (decrease) in contract liabilities 81,420 61,907 Others, net (75,122) (72,628) Subtotal 140,829 188,038 Interest and dividend received 23,226 20,307 Interest paid (1,929) (2,238) Income taxes paid (108,283) (128,451) Net cash flows from (used in) operating activities 53,842 77,655 Cash flows from investing activities Payments into time deposits (15,984) (131,739) Proceeds from maturities of time deposits 356,727 98,121 Acquisition of securities (207,248) (101,896) Proceeds from sale and redemption of securities 382,281 130,219 Acquisition of property, plant and equipment (116,259) (128,365) Proceeds from sale of property, plant and equipment 499 17 Acquisition of intangible assets (71,613) (20,637) Proceeds from sale of subsidiaries and affiliates 33 5,250 8,350 Loan advances - (1) Proceeds from collection of loans receivable 18 17 Others, net 499 (2,328) Net cash flows from (used in) investing activities 334,170 (148,241) Cash flows from financing activities Proceeds from bonds and borrowings 33 - 300,000 Repayments of bonds and borrowings 33 (402) (100,401) Purchase of treasury shares (246,066) (150,458) Proceeds from sale of treasury shares - 0 Dividend paid (114,317) (128,430) Payments of lease liabilities (16,984) (18,068) Others, net 0 (515) Net cash flows from (used in) financing activities (377,769) (97,875) Net increase (decrease) in cash and cash equivalents 10,242 (168,461) Cash and cash equivalents at the beginning of the year 8 647,180 639,838 Effect of exchange rate changes on cash and cash equivalents (17,584) 17,605 Cash and cash equivalents at the end of the year 639,838 488,983 Cash and cash equivalents reclassified to assets held for sale 12 - (39,176) Cash and cash equivalents at the end of the year 8 639,838 449,807 Notes to the Consolidated Financial Statements Reporting Entity Daiichi Sankyo Company, Limited (the "Company") is a public company domiciled in Japan. The addresses of its registered head office and principal business locations are disclosed on the Company's website ( https://www.daiichisankyo.co.jp ). The Company and its subsidiaries (collectively the "Group") are engaged in manufacturing and marketing of pharmaceutical products. The Group's consolidated financial statements for the year ended March 31, 2026 were approved on June 19, 2026 by Hiroyuki Okuzawa, Representative Director, President and CEO. Basis of Preparation Compliance with International Financial Reporting Standards The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards ("IFRS") under Article 312 of the Ordinance on Terminology, Forms, and Preparation Methods of Consolidated Financial Statements, as the Group meets the criteria of a "Specified Entity" defined under Article 1-2 of this ordinance. Basis of Measurement The Group's consolidated financial statements have been prepared on a historical cost basis except for certain financial instruments and other items as described in Note 3 "Material Accounting Policies." Functional Currency and Presentation Currency The Group's consolidated financial statements are presented in Japanese Yen ("JPY"), which is the functional currency of the Company. All financial information presented in JPY has been rounded down to the nearest million JPY. Changes in Accounting Policies The Material Accounting Policies adopted in preparing the consolidated financial statements of the Group have not changed from the prior year. Changes in Presentation (Consolidated Statement of Financial Position) "Long-term advance payments", which was included in "Other non-current assets" under non-current assets in the previous consolidated fiscal year, is disclosed separately for the fiscal year ended March 31, since the monetary significance has increased. To reflect this change in presentation, the Consolidated Statement of Financial Position as of March 31, 2025 has been reclassified on a consistent basis. As a result, the amount of JPY 254,104 million reported in "Other non-current assets" under non-current assets in the Consolidated Statement of Financial Position as of March 31, 2025 has been reclassified as "Long-term advance payments" of JPY 167,428 million and "Other non-current assets" of JPY 86,675 million. (Consolidated Statement of Cash Flows) "(Increase) decrease in long-term advance payments" and "Increase (decrease) in provisions", which were included in "Others, net" under cash flows from operating activities in the previous consolidated fiscal year, are disclosed separately for the fiscal year ended March 31, since the monetary significance has increased. To reflect this change in presentation, the Consolidated Statement of Cash Flows for the fiscal year ended March 31, 2025, has been reclassified on a consistent basis. As a result, the amount of JPY (136,972) million reported in "Others, net" under cash flows from operating activities in the Consolidated Statement of Cash Flows for the fiscal year ended March 31, 2025 has been reclassified as "(Increase) decrease in long-term advance payments" of JPY (50,488) million, "Increase (decrease) in provisions" of JPY (11,361) million and "Others, net" of JPY (75,122) million. Material Accounting Policies Basis of Consolidation Subsidiaries A Subsidiary is an entity that is controlled by the Group. The Group controls an entity if the Group has power over the entity, exposure, or rights, to variable returns from its involvement with the entity and the ability to use its power over the entity to affect the amount of its returns. Consolidation of a subsidiary begins from the date the Group obtains control of the subsidiary and ceases when the Group loses control of the subsidiary. Changes in a parent's ownership interest in a subsidiary that occur after obtaining the control over the subsidiary and that do not result in the parent losing control of the subsidiary are accounted for as equity transactions. All intra-group balances and transactions, and any unrealized gains and losses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Associates An associate is an entity over which the Group has significant influence but is not a subsidiary of the Group. Significant influence is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. An investment is accounted for using the equity method from the date on which the Group has the significant influence until the date on which it ceases to have the significant influence over the investment. When significant influence over an associate is lost, and if there is still remaining ownership interest, the remaining equity interest is measured at fair value. The difference between the fair value and the carrying value at the date on which the equity method is discontinued, is recognized in profit or loss. Investment in associates includes acquired goodwill. Joint arrangements A joint arrangement is a contractual arrangement based on which two or more parties have joint control. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the activities that significantly affect the returns of the arrangement require the unanimous consent of the parties sharing control. The Group classifies its involvement with a joint arrangement as a joint operation when the Group has rights to the assets and obligations for the liabilities relating to the arrangement, and accounts for its share of the assets, liabilities, revenue and expenses in relation to its interest in the joint operation. Business Combinations Business combinations are accounted for using the acquisition method. The acquisition cost is measured as the sum of the consideration transferred, the amount of non-controlling interest in the acquiree, and in the case of an acquisition achieved in stages, the fair value of the previously held equity interest at the date of acquisition. The consideration transferred is measured at fair value at the date of acquisition. Non-controlling interests are measured either at fair value or at the proportionate share of the acquiree's identifiable net assets for each business combination. The excess of the acquisition cost over the Group's share of the acquiree's identifiable assets, liabilities, and contingent liabilities at fair value is recognized as goodwill. When the aggregate amount of the acquiree's identifiable assets, liabilities and contingent liabilities exceeds the acquisition cost, the resulting gain is recognized in profit or loss on the date of acquisition. Acquisition related costs are recognized as expenses in the period they are incurred. Foreign Currency Translation Foreign currency transactions are translated into the functional currency using the exchange rates at the dates of the transactions. Foreign currency monetary assets and liabilities are translated into the functional currency using the exchange rates at the end of the reporting period and the exchange differences arising on the settlement of monetary items or on translating monetary items are generally recognized in profit or loss. However, exchange differences arising from the translation of financial assets measured at fair value through other comprehensive income and cash flow hedges are recognized in other comprehensive income. Assets and liabilities of foreign operations (including goodwill and fair value adjustments arising on the acquisition of foreign operations) are translated into the presentation currency at the exchange rate at the end of the reporting period. Income and expenses of foreign operations are translated into the presentation currency at the average exchange rate for the period, except for the case that the exchange rates fluctuate significantly. When a subsidiary's functional currency is the currency of a hyperinflationary economy, adjustments are made to its separate financial statements to reflect current price levels, and income and expenses of the subsidiary are translated into the presentation currency at the exchange rate at the end of the reporting period. Exchange differences arising from translation of financial statements of foreign operations are recognized in other comprehensive income after the date of transition to IFRS. On the disposal of the entire interest in a foreign operation, or on the partial disposal of the interest in a foreign operation that involves the loss of control of a subsidiary or loss of significant influence over an associate, the cumulative amount of the exchange differences relating to that foreign operation, recognized in other comprehensive income and accumulated as a separate component of equity, is reclassified to profit or loss as a part of gain or loss on disposal. Financial Instruments Non-derivative Financial Assets Initial recognition and measurement Financial assets are recognized on the contract date when the Group becomes a party to the contractual provisions of the instruments. Financial assets, except for financial assets measured at fair value through profit or loss, are measured at fair value plus transaction costs that are attributable to the acquisition of the financial asset. However, trade receivables that do not contain a significant financing component are initially recognized at transaction price. At initial recognition, financial assets are classified as (a) financial assets measured at amortized cost; (b) financial assets measured at fair value through other comprehensive income; or (c) financial assets measured at fair value through profit or loss. Financial assets measured at amortized cost Financial assets are classified as financial assets measured at amortized cost if both of the following conditions are met: the financial asset is held within a business model whose objective is to hold the financial asset in order to collect contractual cash flows: and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. Financial assets measured at fair value through other comprehensive income Debt instruments measured at fair value are classified as financial assets measured at fair value through other comprehensive income if both of the following conditions are met: the financial asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling the financial asset: and the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. For equity instruments measured at fair value, except for equity instruments held for trading which must be measured at fair value through profit or loss, the Group made an irrevocable election to present subsequent changes in fair value of certain equity instruments in other comprehensive income. Financial assets measured at fair value through profit or loss Financial assets, except for financial assets measured at amortized cost and financial assets measured at fair value through other comprehensive income, are classified as financial assets measured at fair value through profit or loss. Subsequent measurement After initial recognition, financial assets are measured based on their classification as follows: Financial assets measured at amortized cost Financial assets measured at amortized cost are measured at amortized cost using the effective interest method. Financial assets measured at fair value through other comprehensive income Changes in the fair value of debt instruments classified as financial assets measured at fair value through other comprehensive income are recognized in other comprehensive income, except for impairment gains or losses and foreign exchange gain and losses, which are recognized in profit or loss, and the cumulative gain or loss previously recognized in other comprehensive income is reclassified from equity to profit or loss as a reclassification adjustment when debt instruments are derecognized. Changes in the fair value of equity instruments designated as financial assets measured at fair value through other comprehensive income are recognized in other comprehensive income, and the accumulated amount of other comprehensive income is transferred to retained earnings when equity instruments are derecognized or the decrease in fair value compared to acquisition cost is significant. Financial assets measured at fair value through profit or loss Financial assets measured at fair value through profit or loss are measured at fair value, and any changes in fair value are recognized in profit or loss. Derecognition Financial assets are derecognized when the contractual rights to the cash flows from the asset expire or are transferred in a transaction in which substantially all the risks and rewards of ownership of the asset are transferred to another entity. Impairment of Financial Assets At the end of each reporting period, the Group evaluates whether the credit risk on financial assets measured at amortized cost has increased significantly since initial recognition, and a loss allowance for expected credit losses on such financial assets is recognized. If the credit risk on financial assets has not increased significantly since initial recognition, a loss allowance is measured at an amount equal to 12-month expected credit losses. If the credit risk on financial assets has increased significantly since initial recognition, a loss allowance is measured at an amount equal to lifetime expected credit losses. However, a loss allowance for trade receivables that do not contain a significant financing component is measured at an amount equal to lifetime expected credit losses. The Group considers, as a general rule, that there has been a significant increase in the credit risk when payments have not been made for more than 30 days passed contractual due date. The Group considers not only the information regarding due date but also other reasonable and supportable information when determining whether credit risk has increased significantly since initial recognition. The Group considers that there has not been a significant increase in the credit risk when the financial assets are determined to have low credit risk at the end of reporting period. Expected credit losses on financial assets are measured in a way that reflects the following factors: an unbiased and probability-weighted amount that is determined by evaluating a range of possible outcomes; the time value of money; and reasonable and supportable information that is available without undue cost or effort at the reporting date about past events, current conditions and forecasts of future economic conditions. Expected credit losses are measured based on the discounted present value of the differences between the contractual cash flows and the cash flows expected to be received. When expected credit losses are recognized, the carrying amount of the financial asset is reduced through use of a loss allowance for expected credit losses and expected credit losses are recognized in profit or loss. If, in a subsequent period, the amount of the expected credit losses decreases, the previously recognized credit losses are reversed by adjusting the loss allowance and the reversal is recognized in profit or loss. The carrying amount of financial assets measured at amortized cost is reduced directly when they are expected to become uncollectible in the future and all collaterals are implemented or transferred to the Group. Non-derivative Financial Liabilities Initial recognition and measurement Financial liabilities are classified as financial liabilities measured at amortized cost or financial liabilities measured at fair value through profit or loss at initial recognition. At initial recognition, financial liabilities are measured at fair value and, in the case of financial liabilities at amortized cost, the transaction costs that are directly attributable to the issue of the financial liabilities are deducted. Subsequent measurement After initial recognition, financial liabilities are measured based on classification as follows: Financial liabilities measured at amortized cost Financial liabilities measured at amortized cost are measured at amortized cost using the effective interest method. Amortization using the effective interest method and gains or losses arising from termination of recognition are recognized in profit or loss. Financial liabilities measured at fair value through profit or loss Financial liabilities measured at fair value through profit or loss are measured at fair value through profit or loss. Derecognition Financial liabilities are derecognized when the obligation is discharged, cancelled or expired. Offsetting Financial Assets and Liabilities Financial assets and financial liabilities are offset only when the Group has a legally enforceable right to offset the recognized amounts and intends to settle on a net basis or to realize the asset and settle the liability simultaneously. Derivatives and Hedge Accounting Derivatives are utilized to hedge foreign currency risk and interest rate risk. The derivatives primarily used by the Group include forward foreign exchange contracts and interest-rate swaps. At the inception of the hedging relationship the Group formally designates and documents the hedging relationship and the entity's risk management objective and strategy for undertaking the hedge. The documentation includes identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity will assess whether the hedging relationship meets the hedge effectiveness requirements. The Group assesses at the inception of the hedging relationship, and on an ongoing basis, whether the hedging relationship meets the hedge effectiveness requirements. At a minimum, the Group performs the ongoing assessment at each reporting date or upon a significant change in the circumstances affecting the hedge effectiveness requirements, whichever comes earlier. Derivatives are initially recognized at fair value with transaction costs recognized in profit or loss when they are incurred. After initial recognition, derivatives are measured at fair value. Hedges that meet the criteria for hedge accounting are accounted for as follows: Fair value hedges Changes in the fair value of the hedging instruments are recognized in profit or loss. Changes in the fair value of hedged items attributable to the hedged risks are recognized in profit or loss, adjusting the carrying amount of the hedged item. Cash flow hedges The effective portion of changes in fair value of hedging instruments is recognized in other comprehensive income, while the ineffective portion is recognized immediately in profit or loss. The cumulative amounts of changes in fair value of hedging instruments recognized in other comprehensive income are reclassified from equity to profit or loss in the same period or periods when the hedged forecast cash flows or hedged items affect profit or loss. If hedged items result in the recognition of non-financial assets or non-financial liabilities, the cumulative amounts recognized in other comprehensive income are accounted for as adjustments in the carrying amount of the non-financial assets or non-financial liabilities. When forecast transactions or firm commitments are no longer expected to occur, any related cumulative gain or loss that has been recognized in other comprehensive income is reclassified from equity to profit or loss. The Group discontinues hedge accounting prospectively only when the hedging relationship ceases to meet the qualifying criteria. This includes instances when the hedging instrument expires or is sold, terminated or exercised. Cash and Cash Equivalents Cash and cash equivalents comprise cash on hand, readily available bank deposits, and short-term, highly liquid investments having maturities of three months or less that are readily convertible to known amounts of cash and subject to an insignificant risk of changes in value. Inventories Inventories are measured at the lower of cost and net realizable value. Costs of inventories comprise cost of raw materials, direct labor and other costs directly attributable to the inventories and cost of related production overheads. The cost of inventories is assigned by using the weighted average cost formula. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the estimated costs necessary to make the sale. Property, Plant and Equipment Property, plant and equipment is carried at cost less any accumulated depreciation and any impairment losses. The cost of an item of property, plant and equipment includes any costs directly attributable to the acquisition of the asset, costs of dismantlement, removal and restoration as well as borrowing costs eligible for capitalization. An item of property, plant and equipment, except for land, is depreciated by the straight-line method based on the estimated useful life of the asset. The estimated useful lives of major items of property, plant and equipment are as follows: Buildings and structures: 15 to 50 years Machinery and vehicles: 4 to 8 years The depreciation method, the residual value and the useful life of an item of property, plant and equipment are reviewed at least annually and adjusted as necessary. Goodwill and Intangible Assets Goodwill Goodwill is measured at cost less accumulated impairment loss and is not amortized. Goodwill arising from a business combination is allocated to cash-generating units or groups of cash-generating units that are expected to benefit from the synergies of the business combination. Intangible Assets Among rights related to products or research and development acquired separately or through business combinations, those that are still in the research and development stage or those for which marketing approval has not yet been obtained from the regulatory authorities are recognized under intangible assets as "IPR&D." The cost of a separately acquired intangible asset is measured at cost and the cost of an intangible asset acquired in a business combination is measured at its fair value at the acquisition date. After initial recognition, the Group applies the cost model and intangible assets are carried at cost less any accumulated amortization and any accumulated impairment loss. Internally generated research expenditure is recognized as an expense when it is incurred. Internally generated development expenditure is recognized as an intangible asset if all the criteria for capitalization can be demonstrated. However, due to the uncertainties relating to the research and development duration and process, it is considered that the criteria for capitalization are not met until marketing approval from a regulatory authority is obtained. Therefore, internally generated development expenditure is recognized as an expense when it is incurred. Subsequent expenditure, including initial upfront and milestone payments to the third parties, on an acquired IPR&D is capitalized if, and only if, it is probable that the expected future economic benefits that are attributable to the asset will flow to the Group and the asset is identifiable. An intangible asset recognized as IPR&D is not amortized because it is not yet available for use, but instead, it is tested for impairment annually at the same time each year or whenever there is an indication of impairment. Once marketing approval from the regulatory authorities is obtained and the asset is available for use, IPR&D is transferred to Commercial rights. Acquisition cost and development expenditure of software for internal use is recognized as an intangible asset if it can be demonstrated that the asset will generate probable future economic benefits. Intangible assets with finite useful lives are amortized by the straight-line method based on the estimated useful life of the asset, beginning from when the assets are available for use. The estimated useful lives of major items of intangible assets are as follows: - Commercial rights: 9 to 18 years The amortization method, the residual value and the useful lives of intangible assets are reviewed at least annually and adjusted as necessary. Leases As a lessee The Group recognizes a right-of-use asset and a lease liability at the lease commencement date. A right-of-use asset is initially measured at cost and is subsequently depreciated using the straight-line method from the commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The estimated useful lives of right-of-use assets are determined on the same basis as those of tangible fixed assets. In addition, a right-of-use asset is reduced by impairment losses, if any, and adjusted for certain remeasurements of the lease liability. A lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted using the interest rate implicit in the lease or, if that rate cannot be readily determined, the Group's incremental borrowing rate. Lease payments are allocated to financial expenses and repayments of lease liabilities so that the interest expenses each period during the lease term will result in a constant interest rate on the outstanding lease liability. A lease liability is remeasured when there is a change in future lease payments arising from a change in an index or rate, or if the Group changes its assessment of whether it will exercise a purchase, extension or termination option. When a lease liability is remeasured in this way, a corresponding adjustment is made to the carrying amount of the right-of-use asset or is recorded in profit or loss if the carrying amount of the right-of-use asset has been reduced to zero. The Group has elected not to recognize right-of-use assets and lease liabilities for short-term leases and leases of low-value assets. The Group recognizes the lease payments associated with these leases as an expense on a straight-line basis over the lease term. As a lessor The Group determines at lease inception whether each lease is a finance lease or an operating lease. To classify each lease, if the lease transfers substantially all of the risks and rewards incidental to ownership of the underlying asset, then it is a finance lease; if not, then it is an operating lease. When the Group is an intermediate lessor, it accounts for its interests in the head lease and the sub-lease separately. It assesses the lease classification of a sub-lease with reference to the right-of-use asset arising from the head lease, not with reference to the underlying asset. If a head lease is a short-term lease to which the Group applies the exemption described above, then it classifies the sub-lease as an operating lease. Impairment of Non-financial Assets The Group assesses annually whether there is any indication that a non-financial asset or cash-generating unit that generates cash inflows may be impaired. If there is any indication that an asset or cash-generating unit may be impaired, the recoverable amount of the asset is estimated. Goodwill, intangible assets with indefinite lives, and intangible assets not yet available for use are not amortized but are tested for impairment annually or at any time there is an indication that an asset may be impaired. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less costs of disposal and its value in use, which is calculated based on the risk-adjusted future cash flows discounted by an appropriate discount rate. If the carrying amount of an asset or a cash-generating unit exceeds the recoverable amount, an impairment loss is recognized in profit or loss and the carrying amount is reduced to the recoverable amount. An impairment loss recognized for goodwill is not reversed in a subsequent period. It is assessed whether there is any indication that an impairment loss recognized in prior periods for an asset other than goodwill may no longer exist or may have decreased. If any such indication exists, the recoverable amount of the asset or cash-generating unit is estimated. If the recoverable amount exceeds the carrying amount of the asset or cash-generating unit, an impairment loss recognized in prior periods is reversed and the carrying amount of the asset is increased to the recoverable amount. The reversal of the impairment loss is recognized in profit or loss. The increased carrying amount of an asset other than goodwill attributable to a reversal of an impairment loss does not exceed the carrying amount that would have been determined (net of amortization or depreciation) if no impairment loss had been recognized for the asset in prior years. Non-current Assets Held for Sale and Discontinued Operations A non-current asset, or disposal group comprising assets and liabilities, is classified as asset held for sale if its carrying amount will be recovered primarily through sale rather than continuing use. The asset or disposal group is classified as held for sale only if it is available for immediate sale in its present condition, and the sale is highly probable meaning that the appropriate level of management of the Group is committed to the sale and principally that the sale is expected to be completed within one year. After the asset or disposal group is classified as held for sale, it is measured at the lower of its carrying amount and fair value less costs to sell and is not depreciated or amortized. Discontinued operations include a component of an entity that either has been disposed of or is classified as held-for-sale, and represents a separate major line of business or geographic area of operations. Employee Benefits Post-employment Benefits Defined benefit plans The present value of defined benefit obligations and related current service cost and, where applicable, past service cost are determined using the projected unit credit method for each plan separately. The discount rate is determined by reference to market yields at the end of the reporting period on high-rated corporate bonds, reflecting the estimated timing of benefit payments. Net defined benefit liabilities or assets are calculated by deducting the fair value of the plan assets from the present value of the defined benefit obligations. If the defined benefit plan has surplus, the defined benefit asset is limited to the asset ceiling that is the present value of any future economic benefits available in the form of reductions in the future contributions to the plan or cash refunds. Past service costs are recognized in profit or loss as incurred. Remeasurements of defined benefit plans are recognized in other comprehensive income in the period when they are incurred and transferred to retained earnings immediately. Service costs and net interest on the net defined benefit liabilities (assets) are recognized in profit or loss. Defined contribution plans The contributions to defined contribution plans are recognized as expenses when the related service is rendered by the employees. Others Short-term employee benefits are not discounted and are recognized as expenses when the related service is rendered by the employees. The expected costs of accumulating short-term compensated absences are recognized as liabilities when the Group has present legal or constructive obligations to pay as a result of past employee service and when reliable estimates of the obligation can be made. Provisions A provision is recognized when there is a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. An onerous contract is a contract in which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received under the contract. When the Group has an executory contract that includes an onerous contract, the present obligation under the contract is recognized as a provision. When the effect of the time value of money is material, the amount of a provision is measured at the present value of the expenditures expected to be required to settle the obligation. The present value is determined by using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks inherent in the liabilities. The increase in the carrying amount of a provision reflecting the passage of time is recognized as a financial expense. Treasury Shares Treasury shares are recognized as a deduction from equity. No gain or loss is recognized on the purchase, sale or cancellation of the treasury shares. Any difference between the carrying amount and the consideration paid is recognized in capital surplus. Share-based Payments The Company and certain of its subsidiaries operate an equity-settled share-based payment plan and a cash-settled share-based payment plan as share-based payment plans. Equity-settled share-based payment plan The shares are measured at the fair value at the date of grant based on the fair value of the equity instrument granted, and recognized as expenses over the vesting period, with a corresponding increase in equity. Cash-settled share-based payment plan The fair value of the amount of payments is recognized as an expense with a corresponding liability. The change in the fair value of the liability at each reporting date is recognized in profit or loss until the liability is settled. Revenue Revenue from contracts with customers is recognized by applying the following five steps: Step 1: Identify the contract with a customer Step 2: Identify the performance obligations in the contract Step 3: Determine the transaction price Step 4: Allocate the transaction price to the performance obligations in the contract Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation Sales of finished goods and merchandise Revenue from sale of finished goods and merchandise is recognized when the performance obligation is satisfied, considering the following indicators: the Group has a present right to payment for the asset; the customer has legal title to the asset; the Group has transferred physical possession of the asset; and the customer has accepted the asset. Revenue is measured at the amount after deducting the impact of trade discounts, cash discounts, rebates and returns from the consideration promised in the contract. License fee revenue Revenue arising from license agreements is recognized at a point in time or over time depending on the content of performance obligation(s). Variable consideration from contracts with customers are included in the transaction price only to the extent that is highly probable that a significant reversal in the amount of cumulative revenue recognized will not occur when the uncertainty associated with the variable consideration is subsequently resolved. Government Grants Government grants are recognized at fair value when there is reasonable assurance that the Group complies with the conditions attached to them and that the grants will be received. Government grants which are intended to compensate specific costs are recognized in profit or loss on a systematic basis over the period in which the Group recognizes the corresponding expenses. Government grants related to assets are recognized as deferred revenue and recognized in profit or loss on a systematic basis over the estimated useful lives of the relevant assets. Income Taxes Income taxes comprise current and deferred income taxes. Current income taxes are measured at the amount expected to be paid to or recovered from the taxation authorities, using the tax rates that have been enacted or substantively enacted by the end of the reporting period. They are recognized in profit or loss, except to the extent that the taxes arise from transactions or events which are recognized either in other comprehensive income or directly in equity, or the taxes arise from business combinations. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply to the period when the asset is realized or the liability is settled, based on tax rates that have been enacted or substantively enacted by the end of the reporting period. Deferred tax assets and liabilities are recognized for temporary differences between the carrying amount of assets or liabilities for accounting purpose and the tax basis, and unused tax losses and tax credits. Deferred tax assets are recognized to the extent that it is probable that future taxable profit will be available against which they can be utilized. When uncertainties exist if the taxing authorities will accept a particular tax treatment, the said uncertainties are reflected when determining the taxable profit, the carrying amount for the tax basis, unused tax losses and tax credits, and the tax rate. Deferred tax assets and liabilities are not recognized for temporary differences that arise from the initial recognition of goodwill or that arise from the initial recognition of assets or liabilities in transactions which are not business combinations and which do not give rise to equal taxable and deductible temporary differences at the time of the transaction and affect neither accounting profit nor taxable profit or tax loss. Deferred tax liabilities for taxable temporary differences associated with investments in subsidiaries and associates are recognized, except to the extent that the Group is able to control the timing of the reversal of the temporary differences and that it is probable that the temporary differences will not reverse in the foreseeable future. Deferred tax assets for deductible temporary differences arising from investments in subsidiaries and associates are recognized only to the extent that it is probable that the temporary differences will reverse in the foreseeable future and taxable profit will be available against which the temporary differences can be utilized. Deferred tax assets and deferred tax liabilities are offset if there is a legally enforceable right to offset current tax assets against current tax liabilities and the deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority on the same taxable entity. Significant Accounting Judgments, Estimates and Assumptions The preparation of these consolidated financial statements requires management of the Group to make judgments, estimates and assumptions that affect the amount of reported income, expenses, assets and liabilities as well as disclosure of contingent liabilities. However, due to uncertainty in the estimates and assumptions, it is possible that significant adjustments to carrying amounts of assets and liabilities may be required in future periods. Significant items that required management to make estimates and judgments are as follows: Impairment of non-financial assets (Note 13. Property, Plant and Equipment, Note 14. Goodwill and Intangible Assets) Provisions (Note 19. Provisions) Measurement of defined benefit obligations (Note 20. Employee Benefits) Revenue recognition (Note 24. Revenue) Standards and Interpretations Issued but Not Yet Adopted The new and revised accounting standards and interpretations that have not been early adopted by the group are mainly as follows. The Group is still in the progress of assessing the impact of adopting IFRS 18 on its consolidated financial statements. IFRS Date of Mandatory Application Adoption by the Group Overview IFRS Presentation and Annual reporting Year ending Replacement of IAS 1 18 Disclosure periods beginning March 31, 2028 Presentation of in Financial on or after January Financial Statements Statements 1, 2027 Operating Segment Information Reportable Segments Disclosure is omitted as the Group has a single segment, "Pharmaceutical Operation". Information about products and services Sales by products and services are as follows: (Millions of JPY) Year ended March 31, 2025 Year ended March 31, 2026 Increase / (decrease) Amount Ratio (%) Amount Ratio (%) Amount Ratio (%) Prescription drugs 1,796,974 95.3 2,029,538 95.6 232,564 12.9 Healthcare (OTC) products 86,587 4.6 90,784 4.3 4,196 4.8 Others 2,693 0.1 2,722 0.1 28 1.0 Total 1,886,256 100.0 2,123,045 100.0 236,789 12.6 Information by geographical area Revenue and non-current assets by geographical area are as follows: Revenue (Millions of JPY) Japan United States Europe Other regions Consolidated Year ended March 31, 2025 583,802 642,215 418,211 242,026 1,886,256 Year ended March 31, 2026 580,112 749,401 497,375 296,155 2,123,045 Notes: Revenue is classified according to the geographical location of customers. Non-current assets (Millions of JPY) Japan United States Europe Other regions Consolidated As of March 31, 2025 385,120 291,395 152,481 13,787 842,785 As of March 31, 2026 389,929 330,282 194,563 20,206 934,982 Note: Non-current assets are primarily presented based on the geographical location of assets, and are comprised of property, plant and equipment, goodwill and intangible assets. Information on major customers Customers for which sales were over 10% of total revenue in the Consolidated Statement of Profit or Loss are as follows: (Millions of JPY) Name of customer Year ended March 31, 2025 Year ended March 31, 2026 McKesson Corp. 203,461 269,418 Cencora Inc. 207,389 251,034 Alfresa Holdings Corporation and its group companies 221,814 232,433 Business Combination Significant business combination Year ended March 31, 2025 There were no significant business combinations for the fiscal year ended March 31, 2025. Year ended March 31, 2026 There were no significant business combinations for the fiscal year ended March 31, 2026. Contingent consideration The "contingent consideration" arises from the business combinations of HBT Labs, Inc. The contingent consideration for the business combination with HBT Labs, Inc. is the estimated amount of future milestone payments and royalty payments over a certain period based on sales of the development pipeline, taking into account the time value of money. The total amount of future payments that the Company may be required to make for all future milestones under the contingent consideration agreement is JPY3,198 million (before discount). There is no upper limit on the royalty payments to be made based on future sales of the development pipeline, and the estimated payment amounts are calculated based on future forecast sales. The exposure to foreign currency exchange risks at the reporting date is 9,667 thousand U.S. dollars. The impact of a 1% appreciation in the Yen against the U.S. dollar on profit before tax is JPY15 million at the reporting date. The fair value hierarchy level for this contingent consideration is Level 3. The fair value change of contingent consideration is recognized in "Financial income" or "Financial expenses." The fair value hierarchy is summarized in Note 30 "Financial Instruments." Reconciliation of the movement in the contingent consideration which is classified as Level 3 from the opening balances to the ending balances is as follows: (Millions of JPY) Year ended March 31, 2025 Year ended March 31, 2026 Balance at the beginning of the year 2,402 1,445 Increase arising from business combination - - Changes in fair value during the period (927) - Settlement during the period - - Exchange differences (29) 100 Balance at the end of the year 1,445 1,546 Cash and Cash Equivalents Details of "Cash and cash equivalents" are as follows: (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Cash and bank deposits 367,456 265,703 Short-term investments 272,382 184,103 Total 639,838 449,807 Note: "Cash and cash equivalents" are classified as financial assets measured at amortized cost. Trade and Other Receivables Details of "Trade and other receivables" in the consolidated statement of financial position are as follows: (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Notes and accounts receivable - trade 436,177 522,678 Accounts receivable - other 37,116 85,600 Advance payments 129,022 109,683 Other receivables 17,452 24,884 Allowance for doubtful accounts (666) (1,700) Total 619,101 741,145 Note: "Notes and accounts receivable - trade" and "Accounts receivable - other" are classified as financial assets measured at amortized cost. Other Financial Assets Breakdown of Other Financial Assets Breakdown of "Other financial assets" in the consolidated statement of financial position is as follows: Current Assets (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Financial assets measured at amortized cost: Bank deposits 6,472 41,010 Loans receivable 0 1 Bonds 74,127 61,654 Others 290 2,069 Total 80,890 104,736 Non-current Assets (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Financial assets measured at amortized cost: Others 33,166 99,867 Financial assets measured at fair value through profit or loss: Derivative assets 8 1 Bonds 751 804 Others 32,816 41,465 Financial assets measured at fair value through other comprehensive income: Equity securities 70,655 50,291 Others 1,775 2,005 Total 139,175 194,435 Financial assets measured at fair value through other comprehensive income Details of financial assets measured at fair value through other comprehensive income are as follows: (Millions of JPY) Equity Securities Fair Value As of March 31, 2025 As of March 31, 2026 Listed Shizuoka Financial Group, Inc. 9,947 13,963 Cuorips Inc. 8,310 7,010 Ultragenyx Pharmaceutical Inc. 6,735 4,167 MS&AD Insurance Group Holdings, Inc. 4,175 2,657 Qol Holdings Co., Ltd. 2,358 2,430 Tokio Marine Holdings, Inc. 1,977 1,679 Kissei Pharmaceutical Co., Ltd. 2,356 1,455 Iyogin Holdings, Inc. 826 1,330 AIN HOLDINGS INC. 574 641 HOKUYAKU TAKEYAMA Holdings, Inc. 388 403 Others 18,773 232 Unlisted 16,007 16,324 Note: Equity securities are held to reinforce transactions and business relationships. These securities are designated as financial assets measured at fair value through other comprehensive income. Derecognition of Financial Assets Measured at Fair value through Other Comprehensive Income In the fiscal years ended March 31, 2025 and 2026, the Group disposed and derecognized some financial assets measured at fair value through other comprehensive income to improve the efficiency of assets by reassessing the business relationships. Their fair value and accumulated gains and losses at the time of disposal are as follows: (Millions of JPY) Year ended March 31, 2025 Year ended March 31, 2026 Fair value Accumulated gains (losses) Fair value Accumulated gains (losses) Equity securities 19,241 14,848 16,402 13,648 Others 3 (8) - - Note: When financial assets measured at fair value through other comprehensive income are derecognized, gains and losses accumulated in other comprehensive income are reclassified to retained earnings. Inventories Details of "Inventories" in the consolidated statement of financial position are as follows: (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Merchandise and finished goods 229,010 207,482 Work in process 32,951 36,693 Raw materials 252,947 448,202 Total 514,910 692,378 Notes: Inventories recognized as expenses and included in "Cost of sales" in the consolidated statement of profit or loss for the fiscal years ended March 31, 2025 and 2026 were JPY360,150 million and JPY403,472 million, respectively. Write-down of inventories recognized during the period and included in "Cost of sales" in the consolidated statement of profit or loss for the fiscal years ended March 31, 2025 and 2026 were JPY17,253 million and JPY37,735 million, respectively. Assets Held for Sale and Liabilities Directly Associated with Assets Held for Sale Details of "Assets held for sale" and "Liabilities directly associated with assets held for sale" in the consolidated statement of financial position are as follows: (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Assets held for sale Cash and cash equivalents - 39,176 Trade and other receivables - 25,779 Inventories - 19,563 Goodwill - 16,996 Investment in an associate 7,250 - Others - 20,647 Total 7,250 122,162 Liabilities directly associated with assets held for sale Trade and other payables - 25,171 Others - 6,380 Total - 31,552 Notes: In the consolidated statement of financial position as of March 31, 2025, "Assets held for sale" included the remaining interest in Daiichi Sankyo Espha Co., Ltd. (29% of the total issued shares), and the transfer of the remaining interest was completed on April 1, 2025. At the Board of Directors held on March 31, 2026, the Company resolved to transfer all of its shares in Daiichi Sankyo Healthcare Co., Ltd., a subsidiary of the Company, to Suntory Holdings Limited and entered into a stock transfer agreement with Suntory Holdings Limited on April 15, 2026. As a result, as it became certain that the Company would lose control over Daiichi Sankyo Healthcare Co., Ltd., the assets and liabilities of Daiichi Sankyo Healthcare Co., Ltd. and its subsidiaries have been classified as "Assets held for sale" and "Liabilities directly associated with assets held for sale," respectively, as of March 31, 2026. The cumulative amount of other comprehensive income related to "Assets held for sale" is JPY5,853 million (credit), which is included in "Other components of equity" in the consolidated statement of financial position as of March 31, 2026. Property, Plant and Equipment Reconciliation of carrying amount Reconciliation of the carrying amount and details of acquisition cost, accumulated depreciation and accumulated impairment loss of "Property, plant and equipment" in the consolidated statement of financial position are as follows: Acquisition cost (Millions of JPY) Land, buildings and structures Machinery and vehicles Tools, furniture and fixtures Construction in progress Total Balance as of April 1, 2024 488,246 219,328 122,734 112,563 942,872 Individual acquisitions 48,376 37,976 14,907 107,297 208,557 Sales or disposals (3,341) (6,230) (15,568) (0) (25,140) Exchange differences (2,147) (1,212) (405) (1,117) (4,882) Other increases and decreases (Note) 673 (31) (540) (81,738) (81,636) Balance as of March 31, 2025 531,808 249,830 121,127 137,004 1,039,770 Individual acquisitions 30,738 38,232 18,410 128,242 215,623 Sales or disposals (3,306) (14,091) (4,473) (4,840) (26,712) Reclassification to assets held for sale (8,228) (303) (1,134) - (9,667) Exchange differences 15,223 8,482 3,525 10,301 37,532 Other increases and decreases (Note) (97) 18,111 (18,623) (81,857) (82,467) Balance as of March 31, 2026 566,136 300,260 118,832 188,850 1,174,080 Note: This was mainly due to the reclassification of accounts. Accumulated depreciation and accumulated impairment loss (Millions of JPY) Land, buildings and structures Machinery and vehicles Tools, furniture and fixtures Construction in progress Total Balance as of April 1, 2024 262,680 163,255 95,244 - 521,180 Depreciation 22,031 14,230 10,252 - 46,513 Impairment loss 16 97 10 - 124 Sales or disposals (3,169) (5,779) (15,478) - (24,427) Exchange differences (700) (722) (270) - (1,693) Other increases and decreases (14) (20) (409) - (444) Balance as of March 31, 2025 280,843 171,060 89,349 - 541,253 Depreciation 24,767 17,970 11,278 - 54,016 Impairment loss - - - 4,840 4,840 Sales or disposals (3,069) (12,489) (4,449) (4,840) (24,848) Reclassification to assets held for sale (6,999) (270) (896) - (8,166) Exchange differences 4,694 4,732 2,296 - 11,723 Other increases and decreases (127) 5,229 (6,404) - (1,302) Balance as of March 31, 2026 300,109 186,232 91,174 - 577,516 Carrying amounts (Millions of JPY) Land, buildings and structures Machinery and vehicles Tools, furniture and fixtures Construction in progress Total Balance as of April 1, 2024 225,566 56,072 27,489 112,563 421,692 Balance as of March 31, 2025 250,964 78,769 31,778 137,004 498,517 Balance as of March 31, 2026 266,027 114,028 27,658 188,850 596,563 Note: Depreciation of property, plant and equipment is included in "Cost of sales," "Selling, general and administrative expenses," and "Research and development expenses" in the consolidated statement of profit or loss. Impairment of Property, Plant and Equipment The Group performed impairment testing for certain property, plant and equipment for which indicators of impairment were identified. As a result of the impairment testing, impairment loss of JPY124 million and JPY4,840 million were recognized for the fiscal year ended March 31, 2025 and 2026, respectively, and recorded in "Cost of sales," "Selling, general and administrative expenses" in the consolidated statement of profit or loss. Goodwill and Intangible Assets Reconciliation of Carrying Amount Reconciliation of the carrying amount and details of acquisition cost, accumulated amortization and accumulated impairment loss of "Goodwill" and "Intangible assets" in the consolidated statement of financial position are as follows: Acquisition cost (Millions of JPY) Goodwill Intangible Assets In-process research and development Commercial rights and trademarks Software Total Balance as of April 1, 2024 108,498 14,041 372,430 25,231 411,702 Individual acquisitions - 74,297 5,293 18,241 97,832 Sales or disposals - (2,970) (7,774) (2,929) (13,673) Exchange differences (1,064) (978) (3,278) (306) (4,562) Other increases and decreases 995 (1,912) 1,772 (3,150) (3,291) Balance as of March 31, 2025 108,429 82,477 368,442 37,087 488,006 Individual acquisitions - 5 553 22,757 23,315 Sales or disposals - (851) (1,599) (1,561) (4,012) Reclassification to assets held for sale (16,996) - (2,561) (1,673) (4,235) Exchange differences 5,920 3,533 24,582 1,608 29,724 Other increases and decreases - - (51) (1,550) (1,601) Balance as of March 31, 2026 97,353 85,163 389,366 56,668 531,197 Accumulated amortization and accumulated impairment loss (Millions of JPY) Goodwill Intangible Assets In-process research and development Commercial rights and trademarks Software Total Balance as of April 1, 2024 - 307 225,959 17,134 243,401 Amortization - - 20,411 1,517 21,928 Impairment loss - 2,970 - - 2,970 Sales or disposals - (2,970) (7,682) (2,927) (13,580) Exchange differences - - (2,325) (225) (2,551) Other increases and decreases - - (3) 2 (0) Balance as of March 31, 2025 - 307 236,358 15,501 252,167 Amortization - - 20,364 3,032 23,397 Impairment loss - 851 275 - 1,127 Sales or disposals - (851) (1,241) (907) (3,000) Reclassification to assets held for sale - - (80) (531) (611) Exchange differences - - 15,819 1,238 17,057 Other increases and decreases - - (3) (1) (5) Balance as of March 31, 2026 - 307 271,493 18,332 290,133 Carrying amounts (Millions of JPY) Goodwill Intangible Assets In-process research and development Commercial rights and trademarks Software Total Balance as of April 1, 2024 108,498 13,733 146,471 8,096 168,300 Balance as of March 31, 2025 108,429 82,169 132,083 21,585 235,839 Balance as of March 31, 2026 97,353 84,855 117,872 38,335 241,064 Note: Amortization of intangible assets is included in "Cost of sales," "Selling, general and administrative expenses" and "Research and development expenses" in the consolidated statement of profit or loss. Significant Goodwill and Intangible Assets The Group allocated major goodwill to the cash-generating unit of the prescription drug business, and the carrying amount of goodwill allocated as of March 31, 2025 and 2026 was JPY75,828 million and JPY80,663 million, respectively. The carrying amount of intangible assets mainly consists of: Commercial rights of Bempedoic Acid owned by Daiichi Sankyo Europe GmbH of JPY42,662 million and JPY41,787 million as of March 31, 2025 and 2026, respectively, which are amortized based on the straight-line method and the remaining amortization period as of March 31, 2026 was 6 years. Commercial rights related to Quizartinib owned by Ambit Biosciences Corporation of JPY27,625 million and JPY25,905 million as of March 31, 2025 and 2026, respectively, which are amortized based on the straight-line method and the remaining amortization period as of March 31, 2026 was 7 years. Commercial rights related to Paclitaxel owned by American Regent, Inc. of JPY18,257 million and JPY17,949 million as of March 31, 2025 and 2026, respectively, which are amortized based on the straight-line method and the remaining amortization period as of March 31, 2026 was 11 years. In-process research and development for MK-6070 of JPY47,754 million and JPY50,842 million as of March 31, 2025 and 2026 , respectively, in connection with the expansion of the joint development and commercialization agreement with Merck & Co., Inc., Rahway, N.J., USA. In-process research and development for DS-3939 of JPY22,691 million and JPY22,691 million as of March 31, 2025 and 2026, respectively. Research and Development Expenditure Research expenditure and development expenditure which do not meet the criteria for capitalization are expensed when incurred. The amount of expensed research and development expenditure were JPY435,965 million and JPY466,005 million for the fiscal years ended March 31, 2025 and 2026, respectively. Impairment of Goodwill The Group performs impairment testing for goodwill annually and at any time there is an indication that goodwill may be impaired. Impairment tests for goodwill for the cash-generating unit of the prescription drug business were performed as follows: The recoverable amount was estimated based on value in use using the mid-term plan through fiscal 2030, which was approved by management, and the valuation included a terminal value assuming a growth rate of 0% after fiscal 2031. The value in use was calculated using a pre-tax discount rate and exceeded the carrying amount, therefore no impairment loss was recognized for the fiscal year ended March 31, 2026. The pre-tax discount rates for the fiscal year ended March 31, 2025 and 2026 were 8.2% and 7.7%, respectively. The value in use exceeded the carrying amount, and the Group determined that the possibility of the value in use becoming lower than the carrying amount was remote, even if the discount rate were to increase within a reasonable range. Impairment of Intangible Assets The Group performs impairment testing for intangible assets which indicate impairment at all such times and for intangible assets not yet available for use annually and at any time there is an indication that an asset may be impaired. The recoverable amount of an intangible asset is the higher of its fair value less costs of disposal and its value in use, which is calculated based on risk-adjusted future cash flows discounted by an appropriate discount rate. If the carrying amount of an intangible asset exceeds the recoverable amount, an impairment loss is recognized in profit or loss and the carrying amount is reduced to the recoverable amount. For measurement of the value in use, the Group considers the possibility that the manufacturing and marketing of new products are approved, sales forecasts of products and other factors. Due to uncertainty in the underlying assumptions, it is possible that actual results may differ and, as a result, significant adjustments in the amount of intangible assets may be required in the consolidated financial statements for the year ending March 31, 2027. As a result of the impairment testing, impairment losses of JPY2,970 million and JPY1,127 million were recognized for the fiscal years ended March 31, 2025 and 2026, respectively, and recorded in "Selling, general and administrative expenses" and "Research and development expenses" in the consolidated statement of profit or loss. Investments Accounted for Using the Equity Method Carrying amounts of investments in associates accounted for using the equity method are as follows: (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Carrying amounts of investments in associates 5,600 4,918 Financial information of associates accounted for using the equity method is as follows. These amounts are after adjustment for the Group's ownership ratio. (Millions of JPY) Year ended March 31, 2025 Year ended March 31, 2026 Profit for the year 1,457 1,325 Other comprehensive income - - Total comprehensive income for the year 1,457 1,325 Income Taxes Deferred Tax Assets and Liabilities Sources of "Deferred tax assets" and "Deferred tax liabilities" are as follows: Year ended March 31, 2025 (Millions of JPY) Balance as of April 1, 2024 Recognized in profit or loss Recognized in other comprehensive income Others Balance as of March 31, 2025 Deferred tax assets Prepaid outsourced research expenses and co-development expenses 20,743 (1,309) - - 19,434 Depreciation and amortization 35,403 (2,727) - - 32,675 Unrealized gain and valuation loss of inventories 77,275 8,252 - - 85,528 Unused tax losses 4,105 (1,530) - - 2,574 Accrued expenses 44,220 7,987 - - 52,207 Valuation loss of securities 1,300 160 - - 1,460 Impairment loss 4,180 (506) - - 3,673 Lease liabilities 13,639 347 - - 13,987 Capitalized research expenses 72,247 30,255 - - 102,502 Provisions 6,915 (2,424) - - 4,491 Others 50,327 7,446 (101) - 57,671 Total 330,359 45,951 (101) - 376,209 Deferred tax liabilities Intangible assets 12,457 3,568 - - 16,025 Financial assets measured at fair value through other comprehensive income 18,088 - 2,793 (4,334) 16,547 Post-employment benefit assets 11,854 (2,375) 2,023 - 11,502 Reserve for advanced depreciation of property, plant and equipment 4,235 (81) - - 4,153 Right-of-use assets 11,757 440 - - 12,197 Others 35,471 (13,640) 287 (287) 21,830 Total 93,863 (12,088) 5,104 (4,622) 82,256 Net balance 236,496 58,040 (5,206) 4,622 293,952 Notes: The difference between the total amounts recognized in profit or loss and other comprehensive income in the table above and the total deferred income taxes in profit or loss and total income taxes recognized through other comprehensive income, respectively, relates to income tax expenses associated with foreign currency translation differences. Capitalized research expenses are the research expenses that have been made eligible for capitalization and amortization for tax purposes in the United States. In the year ended March 31, 2025, "Provisions" that were included in "Others" under deferred tax assets have been separately presented starting from the year ended March 31, 2026, as their monetary materiality has increased. Accordingly, the comparative information has been reclassified. Year ended March 31, 2026 (Millions of JPY) Balance as of April 1, 2025 Recognized in profit or loss Recognized in other comprehensive income Others Balance as of March 31, 2026 Deferred tax assets Prepaid outsourced research expenses and co-development expenses 19,434 (4,239) - - 15,194 Depreciation and amortization 32,675 (9,388) - - 23,287 Unrealized gain and valuation loss of inventories 85,528 67,931 - - 153,459 Unused tax losses 2,574 434 - - 3,009 Accrued expenses 52,207 17,018 - - 69,225 Valuation loss of securities 1,460 (93) - - 1,367 Impairment loss 3,673 273 - - 3,947 Lease liabilities 13,987 (1,347) - - 12,639 Capitalized research expenses 102,502 40,567 - - 143,070 Provisions 4,491 61,768 - - 66,259 Others 57,671 12,133 - - 69,805 Total 376,209 185,058 - - 561,268 Deferred tax liabilities Intangible assets 16,025 (5,097) - - 10,927 Financial assets measured at fair value through other comprehensive income 16,547 - 2,339 (4,414) 14,472 Post-employment benefit assets 11,502 (2,230) (1,969) - 7,302 Reserve for advanced depreciation of property, plant and equipment 4,153 (154) - - 3,999 Right-of-use assets 12,197 (1,100) - - 11,097 Long-term accounts receivable - 23,197 - - 23,197 Others 21,830 6,371 34 (34) 28,202 Total 82,256 20,986 403 (4,448) 99,198 Net balance 293,952 164,072 (403) 4,448 462,069 Notes: The difference between the total amounts recognized in profit or loss and other comprehensive income in the table above and the total deferred income taxes in profit or loss and total income taxes recognized through other comprehensive income, respectively, relates to income tax expenses associated with foreign currency translation differences. Capitalized research expenses are the research expenses that have been made eligible for capitalization and amortization for tax purposes in the United States. In the year ended March 31, 2025, "Provisions" that were included in "Others" under deferred tax assets have been separately presented starting from the year ended March 31, 2026, as their monetary materiality has increased. Accordingly, the comparative information has been reclassified. Unrecognized Deferred Tax Assets Deductible temporary differences, unused tax losses (detail by expiry) and unused tax credits (detail by expiry) for which deferred tax assets are not recognized in the consolidated statement of financial position are as follows: (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Deductible temporary differences 57,166 52,861 Unused tax losses Within 1 year 1,488 - Over 1 year within 5 years 7,166 2,071 Over 5 years 31,027 32,357 Total 39,681 34,428 Unused tax credits Within 1 year 98 - Over 1 year within 5 years 287 - Over 5 years 1,802 - Total 2,188 - Unrecognized Deferred Tax Liabilities The total temporary differences associated with equity investments in subsidiaries and associates for which deferred tax liabilities were not recognized were JPY181,544 million and JPY316,923 million as of March 31, 2025 and 2026, respectively. When the Group can control the timing of the reversal of the temporary differences and it is not probable that the temporary differences will be reversed in the foreseeable future, deferred tax liabilities are not recognized. Income Taxes Recognized through Profit or Loss Details of income taxes recognized through profit or loss are as follows: (Millions of JPY) Year ended March 31, 2025 Year ended March 31, 2026 Current period income taxes 119,848 158,498 Deferred income taxes Origination and reversal of temporary differences Change in income tax rate or imposition of new taxation Adjustments and reversals of deferred tax assets (57,810) (3,143) 980 (149,496) (382) (5,060) Total (59,973) (154,939) Total income tax expenses 59,874 3,558 Income Taxes Related to Items in Other Comprehensive Income Details of income taxes recognized through other comprehensive income are as follows: (Millions of JPY) Year ended March 31, 2025 Year ended March 31, 2026 Before tax effect Tax effect After tax effect Before tax effect Tax effect After tax effect Financial assets measured at fair value through other comprehensive income 8,276 (3,023) 5,252 6,868 (2,114) 4,753 Remeasurements of defined benefit plans 5,744 (2,041) 3,702 (6,938) 1,956 (4,981) Exchange differences on translation of foreign operations (15,790) - (15,790) 50,185 - 50,185 Cash flow hedges 1,275 (389) 886 111 (34) 77 Total (494) (5,454) (5,948) 50,226 (192) 50,034 Reconciliation of Effective Tax Rate Major sources of differences between the statutory tax rate and effective tax rate are as follows: Year ended March 31, 2025 Year ended March 31, 2026 Statutory tax rate 30.5% 30.5% Permanent non-deductible expenses such as entertainment expenses 2.7% 1.9% Permanent non-taxable income such as dividends received (0.2%) (0.5%) Changes in unrecognized deferred tax assets 0.0% 0.0% Effect of different tax rates in foreign jurisdictions (2.0%) 1.6% Tax credit for research and development expenses (11.6%) (23.8%) Other tax credits (3.4%) (6.5%) Adjustment to period-end deferred tax assets due to change in tax rate 0.0% (0.1%) Foreign withholding tax on dividends from foreign subsidiaries 0.3% 0.5% Impact of liquidation of consolidated subsidiaries 0.0% (5.7%) Others 0.5% 3.5% Effective tax rate 16.8% 1.4% Notes: The Company is subject to corporate tax, inhabitant tax, and enterprise tax, which is tax deductible against taxable income for corporate tax purposes when paid. The applicable tax rate based on these taxes was 30.5% for the fiscal years ended March 31, 2025 and 2026. The statutory tax rate applied in the calculation of deferred tax assets and liabilities was 30.5% for amounts expected to be recovered or settled during the period from April 1, 2025 to March 31, 2026 in the year ended March 31, 2025, and 31.4% for those expected to be recovered or settled on or after April 1, 2026, in the year ended March 31, 2025, and 31.4% in the year ended March 31, 2026. Overseas operations are subject to income taxes of the jurisdictions in which they are located. Tax credit for research and development expenses mainly arises in Japan and the United States. In the year ended March 31, 2025, "Impact of liquidation of consolidated subsidiaries" that were included in "Others" have been separately presented starting from the year ended March 31, 2026, as their monetary materiality has increased. Accordingly, the comparative information has been reclassified. Global Minimum Tax In Japan, a corporate tax corresponding to the global minimum tax was established in the 2023 tax reform (hereinafter referred to as "Japan's Global Minimum Tax"), and the Tax Reform Act ("Act for Partial Revision of the Income Tax Act, etc." (Act No. 3 of 2023)) (hereinafter referred to as the "Revised Corporation Tax Act"), together with provisions related to it, was enacted on March 28, 2023. The Revised Corporation Tax Act introduced the Income Inclusion Rule (IIR), which is one of the BEPS Global Minimum Tax rules (hereinafter referred to as "Pillar Two model rules"). Effective from the fiscal year ended March 31, 2025, an additional tax has been imposed on parent companies located in Japan until the tax burden of their subsidiaries and other affiliated entities reaches the minimum tax rate (15%). The Group has applied the temporary exemption set forth in IAS 12 "Income Taxes" and has not recognized deferred tax assets and liabilities related to income taxes arising from tax law enacted or substantively enacted to implement the Pillar Two model rules (hereinafter referred to as "Pillar Two income taxes"), also has not included such amounts in the financial statement disclosures. The impact of Pillar Two income taxes related to Japan's Global Minimum Tax on the Group's consolidated financial statements is not material. Trade and Other Payables Details of "Trade and other payables" in the consolidated statement of financial position are as follows: (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Notes and accounts payable - trade 92,757 84,882 Accounts payable - other 221,100 252,537 Others 266,099 259,436 Total 579,957 596,856 Note: "Notes and accounts payable - trade" and "Accounts payable - other" are classified as financial liabilities measured at amortized cost. Bonds and Borrowings, and Other Financial Liabilities Breakdown of Bonds and Borrowings Breakdown of "Bonds and borrowings" in the consolidated statement of financial position is as follows: Current Liabilities (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Financial liabilities measured at amortized cost: Other borrowings 399 404 Total 399 404 Non-current Liabilities (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Financial liabilities measured at amortized cost: Unsecured corporate bonds Other borrowings 99,712 1,220 299,261 816 Total 100,933 300,077 Breakdown of Other Financial Liabilities Breakdown of "Other financial liabilities" in the consolidated statement of financial position is as follows: Current Liabilities (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Financial liabilities measured at fair value through profit or loss: Derivative liabilities Lease liabilities 5 14,714 4 13,625 Total 14,720 13,630 Non-current Liabilities (Millions of JPY) As of March 31, 2025 As of March 31, 2026 Financial liabilities measured at amortized cost: Lease liabilities 3,830 39,845 3,273 35,945 Total 43,675 39,219 Terms of Bonds Terms of bonds are as follows: (Millions of JPY) Company name Name of bond Date of issuance As of March 31, 2025 As of March 31, 2026 Interest rate Maturity date Daiichi Sankyo Company, Limited 5 th Unsecured corporate bonds July 25, 2016 75,000 75,000 0.81% July 25, 2036 Daiichi Sankyo Company, Limited 6 th Unsecured corporate bonds July 25, 2016 25,000 25,000 1.20% July 25, 2046 Daiichi Sankyo Company, Limited 7 th Unsecured corporate bonds Oct 10, 2025 - 20,000 1.26% Oct 10, 2028 Daiichi Sankyo Company, Limited 8 th Unsecured corporate bonds Oct 10, 2025 - 70,000 1.60% Oct 10, 2030 Daiichi Sankyo Company, Limited 9 th Unsecured corporate bonds Oct 10, 2025 - 70,000 1.88% Oct 8, 2032 Daiichi Sankyo Company, Limited 10 th Unsecured corporate bonds Oct 10, 2025 - 40,000 2.15% Oct 10, 2035 Total - - 100,000 300,000 - - Terms of Borrowings Terms of borrowings are as follows: (Millions of JPY) Category As of March 31, 2025 As of March 31, 2026 Average interest rate Repayment period Other borrowings 1,619 1,220 - - Total 1,619 1,220 - - Provisions Movement in provisions Details of the movement in "Provisions" in the consolidated statement of financial position by class of provision are as follows: Year ended March 31, 2025 (Millions of JPY) Provision for loss compensation Environmental measures Others Total Balance as of April 1, 2024 - 19,639 9,774 29,414 Increase during the period - - 4,232 4,232 Utilized - (6,510) (7,669) (14,179) Reversed unused - (160) (428) (588) Interest cost due to unwinding of discount - - 11 11 Exchange differences - - (56) (56) Other increases and decreases - - 0 0 Balance as of March 31, 2025 - 12,969 5,865 18,835 Current liabilities - 1,385 4,419 5,804 Non-current liabilities - 11,583 1,446 13,030 Total - 12,969 5,865 18,835 Year ended March 31, 2026 (Millions of JPY) Provision for loss compensation Environmental measures Others Total Balance as of April 1, 2025 - 12,969 5,865 18,835 Increase during the period 182,183 16,153 2,974 201,311 Utilized - (1,930) (2,652) (4,582) Reversed unused - - (207) (207) Interest cost due to unwinding of discount - - 12 12 Exchange differences - - 462 462 Other increases and decreases - - (1,449) (1,449) Balance as of March 31, 2026 182,183 27,192 5,007 214,383 Current liabilities 36,075 10,460 3,274 49,811 Non-current liabilities 146,108 16,731 1,732 164,572 Total 182,183 27,192 5,007 214,383 Note: "Provision for business restructuring losses," which was presented separately as of March 31, 2025, has been included in "Other provisions" as of March 31, 2026 due to its decreased materiality. Comparative information has been reclassified accordingly.

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