Independent Outside Directors’ Perspectives

Teramoto　I have been focused primarily on monitoring three key areas, but first and foremost research and development. Over the past two years or so, improvements to meeting materials, such as visualization of key progress milestones and the pipeline’s strategic potential and promise, along with advance briefings on important projects have significantly deepened our discussions. Next comes capital allocation. Since my background is in the financial industry, this has long been an area of keen interest to me. Consequently, I have engaged in extensive discussions with the management team, especially CFO Iwaaki Taniguchi, regarding the utilization of cash reserves, which currently stand at approximately ¥1 trillion, from perspectives such as shareholder returns, growth investments, and the appropriate level of cash to retain on hand. The third point is human resources and organizational culture. While I recognize that positive changes are underway, including the introduction of a new HR management system, I will continue to closely monitor how these moves are rolled out and addressed going forward, taking into account the diverse range of opinions within the Company regarding its systems.

Tateishi　For my part, I am closely watching whether the selection and concentration of management resources are flowing in the direction of maximizing human creativity. To this end, as RED SHIFT gains traction, I have placed particular emphasis on verifying whether the Company’s efforts contribute to researcher-driven innovation and medium- to long-term foundation development. I also closely monitor initiatives aimed at strengthening less visible assets, such as intellectual property, quality, and organizational culture.

Teramoto　Speaking of selection and concentration, I engaged in extensive discussions regarding the decision to simultaneously discontinue in-house development of five early-stage projects, as well as the establishment of Go/No-Go decision criteria, particularly out of concern for the potential impact on researcher morale. Beyond that, as outsiders to the pharmaceutical industry, we must provide precise explanations to the capital markets as to the points that initially raised questions for us. Specifically, examples include the need for the same rigorous evaluation when investing in external technologies and development candidates as applied to Chugai’s own R&D activities, as well as strategic differentiation within the therapeutic area of obesity between orforglipron, out-licensed to Eli Lilly, and emugrobart (GYM329), out-licensed to Roche.

Tateishi　In the operation of the Board of Directors, the level of respect the three non-executive directors from Roche show for Chugai’s autonomous management is truly commendable. Their advice from a global perspective, aimed at fostering growth, leads to constructive discussions within the board. Through the remarks of each of these three directors, I can genuinely feel the deep trust that Roche places in Chugai.

Teramoto　Underpinning the Company’s current growth is a unique business model grounded in the strategic alliance with Roche. While due consideration must be given to protecting minority shareholder interests and similar concerns, I believe a crucial aspect of the relationship with Roche is that the very value Chugai has independently discovered and developed is highly recognized and respected by the Roche Group. I view it as a truly rare business model that Chugai can operate with autonomy in both management and business operations, while leveraging Roche’s exceptional capabilities, networks and intelligence.

Teramoto　The final five-year phase of TOP I 2030 is anchored by five specific “targets.” I recently took part in a discussion with senior leaders during an internal meeting to discuss and deliberate the initiatives to be undertaken for the second half of the plan. This session not only clarified the leaders’ own key areas of focus but also clearly defined specific points for monitoring for us as independent outside directors. Given the smooth progress thus far, agile and flexible management capable of adapting to changes in an increasingly uncertain environment is essential to ensure that this growth momentum does not lose pace.

Tateishi　I could not agree more. I am convinced that the key to future growth is maintaining a corporate culture that believes in human potential, no matter how far AI and technology progress. While the development of AI will undoubtedly transform the approach to drug discovery, it is ultimately human beings who make and bear final responsibility for deciding to change patients’ futures through specific medications. We look to the executive team to lay out bold engagement initiatives and strategies that unlock the full potential of employees, while also fostering an organization characterized by high psychological safety, where individuals feel empowered to take on challenges without fear of failure.

Teramoto　In the short term, risk factors include the next-generation ERP implementation program ASPIRE² and cybersecurity. Given the life-critical nature of the pharmaceutical business, the impact of system malfunctions could be massive. For the executive team, along with ensuring operation of these systems, they are also asked to retain the necessary maintenance resources to address a wide range of contingencies. From a medium- to long-term perspective, meanwhile, I believe it is crucial to attune the antenna, as it were, to the emergence of potential “game changers” and to prepare for a diverse array of scenarios.

Tateishi　For management, it is essential to maintain a perspective that envisions the society that should take shape 10 or 15 years from now, then backcast from that point. In addition to the Company’s long-term vision for 2030, Chugai annually outlines broad performance projections looking ahead to the next 10 years, utilizing these forecasts as materials for future planning. For pharmaceutical companies with long business cycles, regularly reviewing their long-term outlook is extremely important, and I believe doing so enhances both the flexibility and precision of their strategies.

Tateishi　I believe the evolution of governance is not merely a matter of form, but rather the pursuit of quality decision-making. That is why I am committed to driving the further evolution of Chugai’s Board of Directors and other advisory committees, positioning them as forums for dialogue on creating medium- to long-term value. In particular, key agenda items going forward will include succession planning for the next generation of leaders and dialogue with investors, among others.

Teramoto　I completely agree. The true meaning of governance lies in continuous efforts to enhance its effectiveness. As I understand it, the “Comply or Explain” principle of the Corporate Governance Code does not simply mandate formal compliance. That is why I believe it is essential that we continue our efforts to provide clear explanations in response to concerns raised regarding Chugai’s ratio of independent outside directors. Furthermore, stock prices tend to be impacted by events, often influenced by development progress and other factors. From the standpoint of mitigating volatility, we will engage in dialogue to ensure that capital markets appropriately value the Company’s fundamental drug discovery capabilities and business foundations, such as development, production, and Value Delivery—which represent the true capabilities of the pharmaceutical business.

Tateishi　Where the operation of the Board of Directors is concerned, for the past two years, in addition to an annual effectiveness evaluation, we have been holding “after reviews” to exchange views following each Board of Directors meeting, and these reviews are helping to accelerate our PDCA cycle. On top of this, we have increased opportunities for information sharing and dialogue outside of the Board of Directors meetings. With these programs as a base, we hope to further deepen the quality of our discussions.

Teramoto　You are absolutely right. Through various meetings and site visits, we have also gained valuable insight into the perspectives and mindsets of both management and employees on the ground. Going forward, let’s continue to actively visit frontline operations, while comprehending the background of discussions taking place on the executive side, so as to foster a broader understanding and engage in dialogue with greater depth. Dr. Tateishi, thank you very much for your time today.

Tateishi　The pleasure was mine. Thank you.