Message from the CEO

Continuously bringing innovative drugs to patients suffering from disease is Chugai’s purpose. The Company’s founding spirit of contributing to healthcare with exceptional medicines has been passed down through the years, but to live up to that commitment, Chugai has constantly transformed itself to adapt to the needs of the times and society. I believe this is the reason we have continued to grow.

Chugai’s business model has certainly changed a great deal in response to changes in social and business conditions during its history of more than 90 years. The turning point that laid the foundation for our current business model was the strategic alliance we began with Roche in 2002.

Diseases have no borders. Chugai exists to create innovative drugs that address unmet medical need,1 but unless we deliver value to patients worldwide, we cannot fulfill that role. However, there are limits to how much of the enormous cost associated with creating new drugs can be covered by a single company. The formation of this unique alliance, in which we are a member of Roche Group but still maintain our stock listing and management autonomy in Japan, was a decision we made in order to continue pursuing innovation independently as an R&D driven company.

In 2017, the fifteenth anniversary of the alliance, Chugai’s revenues and operating profit were more than three times higher2 than their levels before the partnership. I see this as proof of the value of the business model we established through the alliance.

These last 15 years can be divided into three periods. In the first phase up to 2008, we were busy bringing the management of “New Chugai” up to a global level. We carried out clinical development, regulatory filings and launches of multiple products sold by Roche worldwide in Japan. At the same time, we made enhancements to various systems to accommodate business scale expansion.

With the establishment of our business foundation during this phase, we were ready to step up our efforts in the second phase from 2009 to 2014 toward becoming a “top pharmaceutical company”.

Yes, that’s right. In 2009 we set our fundamental goal of becoming a top pharmaceutical company, backed by the growth of our employees.

The source of corporate value is people. Our business expanded rapidly after the start of the alliance in 2002, but the awareness of our employees lagged behind in some respects.

Our next challenge was to instill in employees a mindset of setting ambitious goals for themselves rather than following other companies, and working with pride and awareness as an industry leader. That’s why we set the goal of becoming a top pharmaceutical company.

We laid out a clear vision and encouraged the autonomous change of individual employees, which helped to raise the level of our subsequent activities.

That brings us to the third phase from 2015 to the present. The goal of becoming a top pharmaceutical company is now well established among our employees, and we are taking on the challenge of new fields on our own through acquisition and implementation of competitiveness at a top global level under mid-term business plan IBI 18.

When I look back at our growth since the start of the alliance, I think it has been driven by our pursuit of innovation in every aspect of our business and by Chugai’s unique earnings structure, which has two growth engines.

One is the products we in-license from Roche. Exclusively selling the Roche Group’s groundbreaking therapies in Japan provides a stable revenue base. That stability has allowed us to tackle more challenging and innovative projects in our own research activities, our second growth engine. The innovative products resulting from that research are sold in the global market through the Roche Group, and provide the capital for pursuing further innovation.

Chugai’s drug discovery capabilities are also an important growth engine for the Roche Group. Two products discovered by Chugai are now among the Roche Group’s sales drivers, and the fact that five3 of the Roche Group’s 193 breakthrough therapy designations (BTDs)4 were for projects originating from Chugai research indicates the high level of our innovation capabilities.

The second year of IBI 18, 2017, was a pivotal year for us. In terms of financial performance, we achieved record revenues and operating profit, and the quantitative and qualitative objectives we set for becoming a top pharmaceutical company are now within reach.

In terms of strategy, a product from Chugai research that promises to be one of our most important growth drivers, was launched first in the United States for hemophilia A with inhibitors, following simultaneous regulatory filings in Japan, the United States and Europe. This is a very significant achievement for us. This innovative drug was discovered using Chugai’s proprietary bispecific antibody technology, and we were able to carry out rapid global development and a quick market launch through the Roche Group’s network. It is a project that epitomizes the strength of our business model.

In 2018, the final year of IBI 18, the market environment is expected to pose challenges, such as the biannual NHI drug price revisions. However, we are committed to successfully completing our strategies in all functions – discovery, clinical development, manufacturing and solution provision – and adding to our accomplishments to wrap up our efforts during the three years of the plan.

We have continued to grow with our unique business model and technologies, but disruptive technologies such as artificial intelligence, the Internet of Things and nanotechnology are leading to technological innovation with the potential to transform society. In addition, threats to sustainability, including declining birth rates, aging populations, and expanding public debt, are likely to usher in a period of dramatic change unlike any we have ever experienced. In the healthcare industry, this will be accompanied by new demand generated by technological innovation, while competition will intensify with the entry of players from other industries, and further measures worldwide to control healthcare costs are inevitable.

Chugai’s path for continuing to create value in the future lies in the pursuit of innovation. We must make the most of our existing strengths and lay the groundwork for changes in the industry structure. Continued innovation will require unconventional ideas and approaches. While our core focus will remain on “the pill” – in other words, contributing to advanced healthcare through the creation of innovative medicines – we will also look at “around the pill” solutions bordering on medicines, and even “beyond the pill” services that go beyond medicine as opportunities for innovation.

The next mid-term business plan is currently being drawn up. We intend to disclose the specifics of our growth strategy when the plan is announced.

The year 2017 was very significant for Chugai. The initiatives we have taken began to yield results; we marked the fifteenth anniversary of the alliance with Roche; and, for me, it was the twenty-fifth year since I was first appointed President. In 2018, we will prepare the next mid-term business plan as we approach our goal of becoming a top pharmaceutical company. I thought the timing was right to pass the baton to a new CEO, and Mr. Kosaka accepted. I will focus on supervising management as Representative Director & Chairman so that Chugai creates value befitting a top pharmaceutical company, including value from an environmental, social and governance (ESG) perspective.

When I heard that I was going to be named the new CEO, I was very surprised, but I also felt a tremendous sense of responsibility and motivation.

As you said, our people are the key to pursuing innovation for the benefit of patients. We have identified seven global competencies as the parameters for the type of people we seek, and by linking productivity, diversity and work-life synergy, we intend to be a company where talented people have the freedom to reach their full potential. I will place the highest importance on fostering an energetic, enjoyable and positive corporate culture because I believe such a culture is fertile ground for nurturing the seeds of innovation.

With people as its greatest asset, Chugai will further increase its corporate value by continuing to innovate. You can expect great things from Chugai as we move forward.