Action to Implement Management that is Conscious of Cost of Capital and Stock Price

Chugai Group places emphasis on enhancing corporate value by creating innovation, and prioritizes the allocation of management resources to the creation of innovative new drugs. The Group works to conduct flexible and agile business operations to achieve stable profit growth over the short- to medium-term, while focusing on Core ROIC as an indicator of investment efficiency over the long term. In addition, the Group considers ROE, which measures profitability against equity provided by shareholders, to be an important indicator. While using Core ROIC as its foundation, the Group also emphasizes ROE, thereby pursuing the maximization of both business value and shareholder value.

When evaluating business feasibility, such as for individual development projects, the Group carries out an evaluation of investment value based on cost of capital, and makes decisions with emphasis on profitability and efficiency. The Group’s weighted average cost of capital (WACC) is calculated based on the cost of equity capital, as there is no interest-bearing debt. Reflecting a rise in the risk-free rate (long-term government bond rate), the Group’s WACC for 2026 is 7.5% (an increase of 0.5 percentage points from the previous year), and this was discussed and confirmed at the Board of Directors meeting. The ROE for 2024 was 22.0%, significantly exceeding the WACC, and the Core ROIC for 2024 was 42.9%. This indicates that the Group is achieving efficient operations. From the standpoint of enhancing competitive value, the Group has designated social investment as an important theme, in addition to strategic business investments described above. ESG initiatives, for example, may compress profits in the short run, but they contribute to increasing the profitability of capital investments and reducing the cost of capital in the long run. Therefore, the Group believes it is important to manage and promote these social investments in an integrated manner while ascertaining their relative priority.

Regarding the stock price, which represents the Group’s market value, the Group actively engages in dialogue with shareholders and investors, and it also strives to ensure that its growth potential and non-financial value are properly and adequately assessed by the market by communicating its medium- to long-term growth strategy and further enhancing information disclosure. Furthermore, the Group has adopted restricted stock compensation for its executives to share value with shareholders and to link compensation with medium- to long-term business performance. As 50% of this compensation is linked to performance based on Total Shareholder Return (TSR), the management’s awareness of the stock price is appropriately enhanced.