Message from the Chair of the Special Committee

As a leading Japanese pharmaceutical company, Chugai attracts high expectations from the capital market. It has a controlling shareholder named Roche, and its Board of Directors is composed one-third each of members from within the Company, from Roche, and from outside the Company. When I was asked to join the board as an outside director, I understood I was expected above all else to represent minority shareholders. My responsibility on the board is to make the most of the experience and knowledge I’ve built in the fields of finance, corporate management, and capital policy, to cultivate Chugai’s corporate value while helping protect the interests of minority shareholders.

Over my first year as an outside director, I have maintained two primary points of focus. The first is capital policy. From the standpoint of sustainably growing corporate value, I’ve been asking frequently about the Company’s sources for future growth and have continuously questioned and discussed the usage of its large cash fund of roughly ¥700 billion. I understand that the strategy of investing cash in future research and development, as well as mergers and acquisitions, is essential to supporting continuing discoveries of new drugs. Given the positive business trend and the projected further increase in cash, Chugai’s capital policy is a point of focus for investors. I think it’s important to continue giving them full and convincing explanations.

My second focus is governance. As chair of the Special Committee, I put my priority on my supervisory role to appropriately manage the risk of conflict of interest.

I don’t see a need to change the current composition of the Board of Directors; I believe it is functioning effectively in terms of both objectivity and decision-making speed. I understand that it is generally desired for a corporate board of directors to have over half of its members composed of independent outsiders. To maximize the value of the Chugai-Roche strategic alliance, however, a certain percentage of the Chugai board is appointed from among Roche executives, including former executives. They provide the board with opinions and advice, respect the Chugai executive officers, and express their ideas from a certain distance. In discussions of ESG, they sometimes speak quite frankly, reflecting European regulations that are more advanced than Japan’s, but they always value constructive talks. For us outside directors, I think this exchange with executives from Chugai’s controlling shareholder is a very important and valuable opportunity.

For minority shareholders, however, this management structure necessarily poses the risk of conflict of interest. So our role on the Special Committee, to guard the interests of minority shareholders in our discussions about Chugai business with Roche, is extremely important. On the other hand, if we succeed in eliminating any risk of conflict of interest for minority shareholders, they will enjoy maximum value from the strategic alliance between Chugai and Roche. This idea follows the policy of the Tokyo Stock Exchange as announced in December 2023.

The Special Committee specifically discusses Chugai’s collaboration with Roche, not just in- and out-licensing of drugs, but building IT infrastructure and the like as well, to see that a given project is fair and equal to similar Chugai business with third parties in terms of price and quality. Depending on the importance of collaborative projects, matters to be placed on the board agenda are discussed before resolution, and those to be resolved by executive officers are discussed in meetings after resolution. In 2023, no collaborative project was considered as needing reconsideration by the committee, but we pointed out one that needed cautious treatment. We received a report from the management side on the measures taken in response to this point and their future plans.

The three members of the Special Committee have different skill sets and conduct open, objective discussions, working to their individual strengths. Dr. Fumio Tateishi makes appropriate judgments from a manufacturing standpoint, making the most of his experience in global management. Outside Audit & Supervisory Board Member Kenichi Masuda, a seasoned attorney, carefully examines each transaction and contract from a range of standpoints. I have strong confidence in these committee members.

Examinations and discussions of this sort are not easy. Because the transactions related to in- and out-licensing contracts are highly specialized and there are few cases that can serve as external benchmarks, we have to examine the structure and processes of each in comparison with similar transactions. Following more study and trial and error in the examination process, we hope to raise the effectiveness and quality of the committee’s work. This work is often time-consuming, so I’d like to discuss the best frequency for our meetings. It’s also important to actively communicate what the committee is doing, and direct talks with investors will be needed going forward.

May 2024