(Securities code 4582) - SymBio Pharma · If you are unable to attend the meeting, please kindly review the reference documents for General Shareholders’ Meeting accompanying this

(Securities code 4582) March 9, 2012

To: Shareholders

23-7 Shimbashi 5-chome, Minato-ku, Tokyo

SymBio Pharmaceuticals Limited

Representative Director and President

Fuminori Yoshida

Convocation of 7th Term General Shareholders’ Meeting

We would like to ask you for your attendance at General Shareholders’ Meeting for the 7th term to be convened, as follows. If you are unable to attend the meeting, please kindly review the reference documents for General Shareholders’ Meeting accompanying this letter and exercise your voting rights by 5:30 p.m. on Wednesday, March 28, 2012 by either of the following manners: [Exercise of voting rights by postal mail] Please indicate your votes for and against respective agendas on the enclosed form to exercise voting rights and return it to us so that it arrives before the deadline designated above. [Exercise of voting rights on the Internet] Please review the pages following of body of “the proceedings for the exercise of voting rights on the Internet” that accompanies this letter and exercise your voting rights by the deadline designated above. In case your votes are duplicated on the form to exercise voting rights and on the Internet, the votes on the Internet supersede those on the form.

English translation

1.. Date/Time: 10:00 a.m. on Thursday, March 29, 2012 (Doors open at 9:30 a.m.) 2.. Place: Sapia Tower 6th Floor, 7-12 Marunouchi 1-chome, Chiyoda-ku, Tokyo

Tokyo Station Conference, Room 605, (Please see the attached guide map)

3.. Objectives Reports 1.. Business report for the 7th Term (January 1, 2011 to December 31, 2011)

2.. Financial report for the 7th Term (January 1, 2011 to December 31, 2011)

Agendas Agenda 1: Election of a director Agenda 2 Issuance of stock acquisition rights as stock options to directors

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1. When you attend the meeting, please kindly submit the enclosed form to exercise voting rights at the reception desk.

2. Please also bring this letter of convocation to the meeting with you for resource saving. 3. If you intend to vote by proxy, you may appoint another shareholder who owns his/her

voting rights as proxy to vote on your behalf. In such a case, a document needs to be submitted to prove such appointment of proxy.

4. Please be advised that necessary corrections of matters to be stated in the attachment to the letter of convocation or the reference documents for General Shareholders’ Meeting, if any, will be posted on the web site on the Internet (http://www.symbiopharma.com/).

Business Report

( From January 1, 2011 To December 31, 2011 )

1. Present situation of the Company (1) Progress and achievement of business

An uncertain outlook for the state of the Japanese economy continued in Fiscal 2011 due to the prolonged yen strengthening, economic worries in Europe, and concerns over the Japanese politics, while there were improvements in corporate earnings along with the growth of emerging countries and a sign of recovery in business conditions was seen. In Japan’s pharmaceutical industry, the Japanese government has been implementing policies to promote the use of generic drugs to reduce the overall medical costs. While the growth in the domestic market slows down, it becomes an important challenge to develop new drugs that sell throughout the world. In response to this situation, corporate alliances and mergers & acquisitions are in a rising trend globally as well as domestically. In these circumstances, the progress of our business during Fiscal 2011 was as follows.

(i) Domestic In Japan, the Company sells an anticancer drug SyB L-0501 (the generic name:

bendamustine hydrochloride, the trade name: TREAKISYM®) through the business partner Eisai Co., Ltd. (Eisai) for the indications of refractory/relapsed indolent non-Hodgkin’s lymphoma (NHL) and mantle cell lymphoma (MCL).The sales of TREAKISYM® had been steady after the launch in December 2010 and the Company’s sales of the product to Eisai were mostly in line with the plan. With regard to the development of TREAKISYM®, patient enrollment was completed

for Phase II clinical trials (collaborative trial in Japan and South Korea) for the extended indication of refractory/relapsed aggressive non-Hodgkin’s lymphoma in June 2011 and continued the administration to enrolled patients. We started Phase II clinical trials for the indications of indolent non-Hodgkin’s lymphoma and mantle cell lymphoma in November 2011. We also started Phase II clinical trials for the indication of refractory/relapsed multiple myeloma in December 2011. We continued the patient enrollment and administration for Phase II clinical trial of SyB

D-0701 (a transdermal antiemetic patch) for the indication of radiotherapy-induced nausea and vomiting. The pre-clinical trials continued to support the initiation of Phase I clinical trials for the

anticancer drug SyB 0702.

Meanwhile, the Company signed the licensing agreement with Onconova Therapeutics, Inc. (United States) on July 7, 2011, which allows us to exclusively develop and commercialize anticancer drugs SyB L-1101 (the intravenous form)/C-1101 (the oral form) (the generic name: rigosertib) for Japan and South Korea. With regard to these products, we continued preparations for domestic Phase I clinical trials (for SyB L-1101, the intravenous form) for the indication of refractory/relapsed myelodysplastic syndrome (MDS).

(ii) Overseas

The sales of SyB L-0501 were steady in Singapore. SyB L-0501 was approved for the indications of chronic lymphocytic leukemia and multiple myeloma in South Korea on May 31, 2011 and the sales started in October 2011. We sell the product through Eisai in Singapore and South Korea as in Japan. Furthermore, SyB L-0501 received the approval to manufacture and commercialize from the Taiwanese authority on October 18, 2011 in consequence of the continued negotiations with the authority by the business partner InnoPharmax Inc. (Taiwan).

(iii) Business Result Summary As a result of the aforementioned developments, net sales totaled 1,882,521 thousand yen for the fiscal year reported reflecting the sales of SyB L-0501 in Japan and Asian countries, the start of development for the therapy for untreated indolent non-Hodgkin’s lymphoma in Japan, and the milestone revenue booked for the sales approval for SyB L-0501 in South Korea and Taiwan. Selling, general and administrative expenses totaled 2,725,182 thousand yen, comprising research and development cost of 1,945,029 thousand yen for the accrual of lump-sum contract payment associated with the in-licensing of product candidates (SyB L-1101/C-1101) in addition to clinical trials and their preparations for multiple indications for SyB L-0501, clinical trials for SyB D-0701, and pre-clinical trials for SyB 0702 as well as other selling, general and administrative expenses of 780,153 thousand yen. As a result, we posted operating loss of 2,066,846 thousand yen for the fiscal year reported. Non-operating income was 56,382 thousand yen mainly because of subvention from NEDO and non-operating expense was 84,919 thousand yen mainly due to IPO preparation costs. As a result, we posted ordinary loss of 2,095,382 thousand yen and net loss of 2,104,513 thousand yen for the fiscal year reported.

(2) Situation of fund raising (i) Fund raising

Fund raising activities implemented during the fiscal year reported are as follows.

Payment date Classification Number of issued shares

Issue price per share total issue price

February 17, 2011 Third-party allotment 11,032 shares 70,000 yen 772,240

thousand yen

February 25, 2011 Third-party allotment 17,368 shares 70,000 yen 1,215,760

thousand yen

April 21, 2011 Third-party allotment 22 shares 70,000 yen 1,540 thousand

yen

April 26, 2011 Third-party allotment 150 shares 70,000 yen 10,500

thousand yen

October19, 2011 Public offering

5,100,000 shares 515.20 yen 2,627,520

thousand yen

(ii) Capital investment Capital investment totaled 15,605 thousand yen in the fiscal year reported, mainly for the introduction of sales management software. The funds for capital investment were

procured from owned cash. (3) Situation of assets and profit and loss in the fiscal year reported and the three preceding fiscal years (units: thousand yen, except for per-share figures)

Fiscal year

Classification

Fiscal 2008 4th Term



Fiscal 2011 7th Term (reported)

Net sales 1,630,029 1,191,127 1,449,972 1,882,521

Operating profit (loss) 132,859 (208,027) (612,793) (2,066,846)

Ordinary profit (loss) 24,169 (214,072) (638,375) (2,095,382)

Net profit (loss) 20,987 (217,872) (642,307) (2,104,513)

Net profit (loss) per share 364.58 yen (3,252.84) yen (5,933.47) yen (143.60) yen

Total assets 1,501,212 4,260,689 4,262,783 7,256,094

Net assets 1,306,602 4,053,758 4,083,064 6,605,564

Net assets per share 22,292.02 yen 40,275.39 yen 36,541.74 yen 345.28 yen

(4) Issues to be solved by the Company

The Company will solve the following important issues: (i) Further expansion of pipeline

In order to enhance the enterprise value as specialty pharmaceutical company, we need to expand the pipeline through continually in-licensing of new candidate drugs for development. We have four products in the pipeline and clinical trials are underway for an anticancer drug SyB L-0501 and a transdermal antiemetic patch SyB D-0701. An anticancer drug SyB L-1101 (the intravenous form), which we in-licensed in July 2011, is being prepared for the initiation of clinical trials. We continue with ongoing efforts to in-license an additional pipeline.

(ii) Pursuit of life cycle management of TREAKISYM® (SyB L-0501)

In order to enhance the enterprise value, it is critical to maximize returns from each drug candidate under development by adding new indications for developed candidate drugs after their initial introduction in pursuit of life cycle management in addition to in-licensing new candidate drugs. TREAKISYM® has received the approval for manufacture and marketing with the

approved indications of refractory/relapsed indolent non-Hodgkin’s lymphoma and refractory/relapsed mantle cell lymphoma. Phase II clinical trials are underway for refractory/relapsed aggressive non-Hodgkin’s lymphoma, untreated indolent non-Hodgkin’s lymphoma, untreated mantle cell lymphoma, and refractory/relapsed multiple myeloma as additional indications. We will add new indications in pursuit of life cycle management to maximize the value of TREAKISYM®.

(iii) Expansion to other Asian regions

The Company positions China (including Hong Kong), South Korea, Taiwan, and Singapore as our important strategic geographic domains in addition to Japan. In these areas, high growth in economy and medical needs is expected and we consider that these areas will assume increasing importance in our corporate strategy. Among our pipelines, we plan to develop and market SyB L-0501 and SyB D-0701 in China (including Hong Kong), South Korea, Taiwan, and Singapore as well as Japan. It is established by the result of market research that significant medical needs exist for SyB L-0501 and SyB D-0701 in these countries. We also plan to develop and market SyB L-1101/C-1101 in South Korea other than Japan. We will aggressively launch clinical trials and apply for marketing approvals in these Asian countries.

(iv) Securing people

The Company places the highest priority on people as the company management resource. We cannot make superior achievements in exploring and developing new drugs without talent. Also, a company that considers out-licensing drug candidates to us critically evaluates the quality of our people in due-diligence. Hence, we plan to further strengthen our human resources by continually recruiting talent and providing development programs such as OJT and other trainings.

(v) Financial issue

There is a possibility that the Company raises funds necessary for business activities such as R&D expenditures externally as the pipeline development progresses and the number of drug candidates increases. Therefore, we make every effort to strengthen the financial base by continually diversifying the method for fund procurement and reducing costs through a thorough budget control.

(5) Main contents of business (as of December 31, 2011)

The Company regards underserved therapeutic areas that lack the development of new drugs despite extremely significant medical needs as business opportunities. We engage in

the development of new drugs focusing on the areas of oncology, hematology, and autoimmune diseases, from search, development and manufacture to sales as the main contents of our business.

(6) Main offices and employees (i) Main offices (as of December 31, 2011)

Name Location

Main office Minato-ku, Tokyo

(ii) Employees (as of December 31, 2011)

Classification Number of employees

Increase or decrease from previous fiscal

year end

Average age (years)

Average years of service

Male 46 4 48.0 3.1

Female 25 11 41.4 2.2

Total or average 71 15 45.7 2.8

(Note) 1. Number of employees represents number of individuals in work. 2. Fifteen temporary employees are not included in the above number of employees. 3. Number of employees increased by 15 in the last one year primarily in order to strengthen the development division.

(7) Situation of parent company and significant subsidiaries

None to be reported. (8) Situation of main lenders (as of December 31, 2011)

None to be reported.

(9) Other important matters concerning the Company’s present situation The Company’s stocks were listed on Osaka Securities Exchange JASDAQ Growth on October 20, 2011.

2. Matters related to stocks (as of December 31, 2011)

(1) Total number of issuable shares Common stock

56,000,000 shares

(2) Total number of issued shares Common stock

19,130,825 shares (excluding 75 treasury shares)

(3) Number of shareholders 4,840 (4) Major shareholders (10 largest ones)

Name of shareholders Number of shares held Percent of issued shares

Fuminori Yoshida 3,030,000 15.8 %

Cephalon, Inc. 2,589,000 13.5 %

JAFCO V2 Investment LP 2,308,800 12.1 %

Eisai Co., Ltd. 833,400 4.4 %

Waseda No.1 Investment LP 684,000 3.6 %

Waseda Global No.1 Investment LP 500,000 2.6 %

Osaka Securities Finance Company, Ltd. 313,400 1.6 %

TNP On the road No1. Investment LP 254,000 1.3 %

JAFCO V2-W Investment Enterprise Partnership 230,500 1.2 %

DAIICHI SANKYO Co., Ltd. 200,000 1.0 %

(Note) The calculation of percent of issued shares excludes treasury shares.

(5) Other important matters related to stocks (i) Due to the new stock issuance through public offering with the payment date of October 20, 2011, the total number of issued shares increased by 5,100,000 shares, and capital stock and capital reserve increased by 1,313,760,000 yen, respectively.

(ii) Due to the stock split (at the ratio of 100 shares to each outstanding share), the total number of issued shares increased by 13,890,591 shares.

(iii) The total number of authorized shares The Articles of Incorporation were revised by the provision of the Companies’ Act Article 184 (2) in conjunction with the stock split (at the ratio of 100 shares to each outstanding share) effective June 2, 2011, and by the resolution at the Extraordinary General Shareholders’ Meeting held on June 30, 2011, so that the total number of authorized shares has increased from 200,000 shares to 56,000,000 shares.

3. Matters related to stock acquisition rights (1) Stock acquisition rights possessed by the Company’s directors that were distributed as

compensation for services (i) Stock acquisition rights granted by the resolution by Extraordinary Shareholders’ Meeting

held on June 20, 2005 (1st series of stock acquisition rights) (as of December 31, 2011)

-Number of stock acquisition rights 3,610 -Number of shares subject to stock acquisition

rights 361,000

-Amount paid for stock acquisition rights Free of charge -Price of assets invested in the exercise of

stock acquisition rights 500 yen

-Period during which stock acquisition rights may be exercised

From June 21, 2007 To June 20, 2015

-Situation of possession by the Company’s directors and auditors

Number of stock acquisition rights

Number of subject shares Number of holders

Directors (not including outside directors)

900 90,000 1

Outside directors 600 60,000 3

Auditors - - -

(ii) Stock acquisition rights granted by the resolution by Extraordinary Shareholders’

Meeting held on September 1, 2005 (5th series of stock acquisition rights) (as of December 31, 2011)

-Number of stock acquisition rights 845 -Number of shares subject to stock acquisition

rights 84,500


stock acquisition rights 1,000 yen


From February 1, 2008 To September 1, 2015





600 60,000 1

Outside directors - - -

Auditors - - -

(iii) Stock acquisition rights granted by the resolution by General Shareholders’ Meeting

held on March 31, 2006 (6th series of stock acquisition rights) (as of December 31, 2011)


rights 13,000




From April 19, 2008 To March 30, 2016





- - -


Auditors 20 2,000 1

(iv) Stock acquisition rights granted by the resolution by General Shareholders’ Meeting held on March 31, 2006 (7th series of stock acquisition rights)

(as of December 31, 2011) -Number of stock acquisition rights 1,560 -Number of shares subject to stock acquisition

rights 156,000




From July 2, 2008 To March 30, 2016





500 50,000 1


Auditors 10 1,000 1

(v) Stock acquisition rights granted by the resolution by General Shareholders’ Meeting held

on March 31, 2006 (8th series of stock acquisition rights) (as of December 31, 2011)


rights 19,000




From December 2, 2008 To March 30, 2016





- - -


Auditors - - -

(vi) Stock acquisition rights granted by the resolution by Extraordinary Shareholders’

Meeting held on December 1, 2006 (9th series of stock acquisition rights) (as of December 31, 2011)


rights 54,000




From January 24, 2009 To January 23, 2017





500 50,000 1


Auditors 30 3,000 1

(vii) Stock acquisition rights granted by the resolution by Extraordinary Shareholders’ Meeting held on December 1, 2006 (11th series of stock acquisition rights)

(as of December 31, 2011) -Number of stock acquisition rights 250 -Number of shares subject to stock acquisition

rights 25,000




From March 3, 2009 To March 2, 2017





100 10,000 1


Auditors - - -

(viii) Stock acquisition rights granted by the resolution by Extraordinary Shareholders’ Meeting held on December 1, 2006 (12th series of stock acquisition rights)


rights 73,000




From August 29, 2009 To August 28, 2017





410 41,000 1


Auditors 50 5,000 1

(ix) Stock acquisition rights granted by the resolution by Extraordinary Shareholders’ Meeting held on December 1, 2006 (13th series of stock acquisition rights)


rights 121,000




From August 29, 2009 To August 28, 2017





50 5,000 1


Auditors - - -

(x) Stock acquisition rights granted by the resolution by Extraordinary Shareholders’ Meeting held on September 30, 2008 (14th series of stock acquisition rights)


rights 187,000




From October 1, 2010 To September 30, 2018





1,410 141,000 2


Auditors 100 10,000 1

(xi) Stock acquisition rights granted by the resolution by Extraordinary Shareholders’ Meeting held on September 30, 2008 (16th series of stock acquisition rights)


rights 85,000




From October 1, 2010 To September 30, 2018





- - -


Auditors - - -

(xii) Stock acquisition rights granted by the resolution by Extraordinary Shareholders’ Meeting held on September 30, 2008 (17th series of stock acquisition rights)


rights 71,000









670 67,000 2


Auditor 40 4,000 1

(xiii) Stock acquisition rights granted by the resolution by Extraordinary Shareholders’ Meeting held on September 30, 2008 (19th series of stock acquisition rights)


rights 12,500









- - -


Auditor - - -

(xiv) Stock acquisition rights granted by the resolution by General Shareholders’ Meeting held on March 30, 2010 (20th series of stock acquisition rights)


rights 361,000









2,510 251,000 3

Outside directors 1,000 100,000 3

Auditors 100 10,000 1

(xv) Stock acquisition rights granted by the resolution by General Shareholders’ Meeting held on March 30, 2010 (22nd series of stock acquisition rights)


rights 153,000









- - -


Auditors - - -

(xvi) Stock acquisition rights granted by the resolution by General Shareholders’ Meeting held on March 30, 2011 (24th series of stock acquisition rights)

(as of December 31, 2011)


rights 192,000









1,620 162,000 3


Auditors - - -

(Note) With regard to the items from (i) to (xvi), “Number of shares subject to stock acquisition rights” and “Price of assets invested in the exercise of stock acquisition rights” were reflected by the changes in the numbers due to the stock split as effective from June 2, 2011.

(2) Stock acquisition rights distributed to the Company’s employees as compensation for

services during the fiscal year reported

Stock acquisition rights granted by the resolution by Board of Directors meeting held on March 30, 2011


rights 195,000





-Conditions for the exercise of stock acquisition rights

(i) The holder of stock acquisition rights must be in a status of director, auditor, advisor, or employee of the Company or any of its affiliates at the time of exercise. (ii) Other conditions shall be pursuant to the Stock Acquisition Rights Allotment Agreement executed between the Company and the holder of stock acquisition rights, based on resolutions by General Shareholders Meetings and Board of Directors meetings.

-Situation of allotment to the Company’s

employees


Number of subject shares

number of employees allotted

Employees of the company 1,950 (note) 195,000 (note) 59

(Notes) 1. Of the stock acquisition rights mentioned above, 30 units (3,000 shares) had been forfeited due to the retirement of employees. 2. With regard to the items from (i) to (xvi), “Number of shares subject to stock acquisition rights” and “Price of assets invested in the exercise of stock acquisition rights” were reflected by the changes in the numbers due to the stock split as effective from June 2, 2011.

(3) Other important matters concerning stock acquisition rights

No stock acquisition rights were allotted to collaborators during the fiscal year reported.

4. The Company’s executives (as of December 31, 2011) (1) Name and primary matters of directors and corporate auditors

Status in the Company Name Responsibility and additional important posts

in other companies Representative director and president Fuminori Yoshida Chief executive officer

Director Osamu Ogawa Senior corporate officer, Head of research & development division

Director Hiroki Maekawa Senior corporate officer, Chief financial officer, Head of corporate division

Director Lowell Sears Sears Capital Management Inc. Chief executive officer

Director George Morstyn G & R Morstyn Pty Ltd. Chief executive officer

Executive Auditor Masahiko Goto

Executive Auditor Koshi Ohizumi

Auditor Saneaki Ichijyo Attorney (Partner, Anderson, Mori & Tomotsune)

Auditor Chikara Shimazaki Certified public accountant (Representative, Shimazaki accounting office)

(Note) 1. Of the directors, Lowell Sears and George Morstyn are outside directors. 2. The auditors Masahiko Goto, Koshi Ohizumi, Saneaki Ichijyo and Chikara Shimazaki are outside

auditors. 3. The outside auditor Chikara Shimzaki is the independent officer who does not have the potential to

cause conflict of interests against general shareholders, the position that Osaka Securities Exchange requires us to appoint.

4. The executive auditor Masahiko Goto experienced accounting work for years and has high insight on finance and accounting.

5. The executive auditor Koshi Ohizumi experienced accounting work for years and has high insight on finance and accounting.

6. The auditor Saneaki Ichijyo is an attorney and has high insight on corporate legal affairs. 7. The auditor Chikara Shimazaki is a Certified Public Accountant and has high insight on finance and

accounting. 8. Changes in directors and auditors during the fiscal year reported are as follows: - The director Shuichi Matsuda resigned at the closure of General Shareholders’ Meeting for the 6th

Term held on March 30, 2011. - The auditor Koshi Ohizumi was elected and assumed the position at Extraordinary Shareholders’

Meeting held on June 30, 2011. 9. The Company has adopted the corporate officer system. The corporate officers as of December 31,

2011 are as follows:

Status in the

Company Name Responsibility

Chief executive officer Fuminori Yoshida -

Senior corporate officer Osamu Ogawa Head of research & development division

Senior corporate officer Hiroki Maekawa Chief financial officer, Head of corporate

division

Corporate officer Albert Qin Chief scientific officer

(2) Total amount of compensation to directors and auditors

Classification Number of persons paid Amount paid (thousand yen) Directors 6

(Outside) 3 76,449 (outside) 9,751

Directors 4 (Outside) 4

21,822 (outside) 21,822

Total 10 (Outside) 7

98,271 (outside) 31,573

(Note) 1. Salary for employee in the event of a director doubling as employee is not included in the above amount paid to directors.

2. The maximum amount of directors’ compensation has been resolved as the annual amount of 130,000,000 yen at Extraordinary Shareholders’ Meeting held on August 3, 2005.

3. The maximum amount of auditors’ compensation has been resolved as the annual amount of 30,000,000 yen at Extraordinary Shareholders’ Meeting held on June 30, 2011.

(3) Matters concerning outside directors (i) Director: Lowell Sears

a. Situation of additional posts of executives at other companies and relationship between such companies and the Company He holds an additional post of chief executive officer at Sears Capital Management Inc. There is no business transaction between the above company and the Company.

b. Situation of additional posts of outside director at other companies None to be reported.

c. Relationship with particular related companies, such as main customers None to be reported.

d. Situation of main activities during the fiscal year reported The rate of attendance at Board of Directors meetings was 100.0%

e. Summary of contents of liability limitation agreement An agreement has been executed setting forth with respect to the responsibility in Companies Act Article 423 (1) that in the event that it is with good intentions and there is no gross negligence in such outside director's performance of his duties, higher of the amount of 1,000,000 yen or above legally set forth in advance or the amount set forth in laws and ordinances at the maximum shall be borne.

f. Amount of compensation received from the parent of the Company or its subsidiaries None to be reported.

(ii) Director: George Morstyn

a. Situation of additional posts of executives at other companies and relationship between such companies and the Company He holds an additional post of chief executive officer at G & R Morstyn Pty Ltd. There is no business transaction between the above company and the Company.

b. Situation of additional posts of outside director at other companies He holds additional posts of outside director at GBS Ventures and Proacta. He also holds additional posts at The Victorian Comprehensive Cancer Centre (Deputy Chairman), The Cooperative Centre for Cancer therapeutics (Director), Translational Innovation Australia (Director), Bio21 (Director), Ciradian Technology (Member of SAB), and Victorian Cancer Agency (Director). There is no business transaction between the above companies and the Company.


d. Situation of main activities during the fiscal year reported Situation of attendance at Board of Directors meetings

The rate of attendance at Board of Directors meetings was 100.0% e. Summary of contents of liability limitation agreement

An agreement has been executed setting forth with respect to the responsibility in Companies Act Article 423 (1) that in the event that it is with good intentions and there is no gross negligence in such outside director's performance of his duties, higher of the amount of 1,000,000 yen or above legally set forth in advance or the amount set forth in laws and ordinances at the maximum shall be borne.


(iii) Executive Auditor: Masahiko Goto

a. Situation of additional posts of executives at other companies and relationship

between such companies and the Company None to be reported.



d. Situation of main activities during the fiscal year reported (1) Situation of attendance at Board of Directors meetings

The rate of attendance at Board of Directors meetings was 100.0% (2) Situation of attendance at Board of Statutory Auditors meetings

The rate of attendance at Board of Statutory Auditors meetings was 100.0%. e. Summary of contents of liability limitation agreement

An agreement has been executed setting forth with respect to the responsibility in Companies Act Article 423 (1) that in the event that it is with good intentions and there is no gross negligence in such outside auditor’s performance of his duties, higher of the amount of 1,000,000 yen or above legally set forth in advance or the amount set forth in laws and ordinances at the maximum shall be borne.


(iv) Executive Auditor: Koshi Ohizumi

a. Situation of additional posts of executives at other companies and relationship between such companies and the Company






An agreement has been executed setting forth with respect to the responsibility in Companies Act Article 423 (1) that in the event that it is with good intentions and there is no gross negligence in such outside auditor’s performance of his duties, higher of the amount of 1,000,000 yen or above legally set forth in advance or the

amount set forth in laws and ordinances at the maximum shall be borne. f. Amount of compensation received from the parent of the Company or its subsidiaries


(v) Auditor: Saneaki Ichijyo a. Situation of additional posts of executives at other companies and relationship

between such companies and the Company None to be reported.

b. Situation of additional posts of outside director at other companies He holds additional posts of Supervisory Director at Nomura Real Estate Office Fund, Inc. There is no business transaction between the party and the Company.





An agreement has been executed setting forth with respect to the responsibility in Companies Act Article 423 (1) that in the event that it is with good intentions and there is no gross negligence in such outside auditor’s performance of his duties, higher of the amount of 1,000,000 yen or above legally set forth in advance or the amount set forth in laws and ordinances at the maximum shall be borne.


(vi) Auditor: Chikara Shimazaki

a. Situation of additional posts of executives at other companies and relationship between such companies and the Company None to be reported.



d. Situation of main activities during the fiscal year reported

(1) Situation of attendance at Board of Directors meetings The rate of attendance at Board of Directors meetings was 100.0%

(2) Situation of attendance at Board of Statutory Auditors meetings The rate of attendance at Board of Statutory Auditors meetings was 100.0%.

e. Summary of contents of liability limitation agreement An agreement has been executed setting forth with respect to the responsibility in Companies Act Article 423 (1) that in the event that it is with good intentions and there is no gross negligence in such outside auditor’s performance of his duties, higher of the amount of 1,000,000 yen or above legally set forth in advance or the amount set forth in laws and ordinances at the maximum shall be borne.


Each outside director appropriately advised and raised questions regarding resolutions and reports by Board of Directors based on high personal insight of business administration, and from a standpoint that was independent from business operations.

Each outside auditor appropriately raised questions to fulfill the function of management monitor for resolutions and reports by Board of Directors based on high personal insight of business administration from an independent and neutral standpoint, and aggressively raised questions and expressed opinions regarding resolutions and reports by Board of Statutory Auditors in order to execute highly effective audits.

5. Situation of accounting auditor (1) Name of accounting auditor Ernst & Young ShinNihon LLC (2) Summary of contents of liability limitation agreement

None to be reported. (3) Amount of compensation

Amount paid Amount of compensation to accounting auditor concerning the fiscal year reported Amount of compensation pertaining to services set forth in Certified Public Accountants Act Article 2 (1)

15,500,000 yen

The total amount of money and property benefit to be paid by the Company to the accounting auditor 15,500,000 yen

(Note) 1. The amounts of compensations for the audits conducted in accordance with Companies Act and the audits conducted in accordance with Financial Instruments and Exchange Act are not distinguished in the contract agreement between the Company and the accounting auditor. Practically speaking, it is impossible to distinguish the compensations for these two types of audits; therefore the total amount thereof is stated.

2. The Company does not engage the accounting auditor to perform duties other than auditing stipulated by Certified Public Accountants Act Article 2 (1).

(4) Policies for dismissal or non-reappointment of accounting auditor The Company shall propose an agenda regarding the dismissal or the non-reappointment of the accounting auditor to Shareholders’ Meeting, by an agreement of or a request by Board of Statutory Auditors, in general, if it is deemed to be difficult for the accounting auditor to execute its duties adequately as well as the dismissal of the accounting auditor by Board of Statutory Auditors in accordance with Companies Act Article 340.

6. Summary of contents of resolutions concerning the establishment of system to ensure appropriate operations

(1) Corporate system to ensure that directors, other officers and employees comply with laws and ordinances as well as the Articles of Incorporation in the process of performing their duties

(i) The Company has its Representative Director and President to make thoroughly known to all of its directors, auditors, and employees (including contract employees, temporary employees and subcontract employees) its policy that any and all corporate activities should be based on the spirit of compliance with laws and maintenance of ethics (hereinafter "compliance") by repeatedly urging them to abide by the spirit of the Corporate Action Charter.

(ii) The Company promotes the activities for compliance with a compliance committee composed of the director in charge of corporate division as the chairman thereof and the senior directors and directors of relevant departments as members thereof to act as the center of such activities.

(iii) The Company makes efforts to find and cure any and all unfair acts and practices as early as possible through a compliance hot-line permanently installed outside the Company. The Company also receives consultation from its employees with regard to compliance-related problems through its liaison window permanently installed within the Company for the purpose of receiving such consultation.

(iv) The Company has its own internal audit office to act under the direct control of President, which not only verifies the condition of maintenance and operation of

internal control from the viewpoint of effectiveness and efficiency of business, reliability of various financial reports and compliance for the purpose of guaranteeing the quality of corporate management, but also makes evaluation and gives necessary advice and suggestion for improvement with regard to the appropriateness and effectiveness of corporate risk management.

(v) The Company actively engages in community service activities and any other activities deemed to be beneficial to society as a good corporate citizen. The Company also resolutely opposes antisocial forces and organizations that threaten the order or safety of society as a whole.

(2) Corporate system for maintenance and control of information as to the performance by directors of their duties

The Company has the head of general affairs as the person responsible for general management of corporate documents to appropriately maintain and otherwise control all important documents containing information as to the performance by directors of their duties in addition to legally required records of proceedings of Shareholders' Meetings and Board of Directors’ meetings, as provided in laws and ordinances, as well as in its own " Rules for the Management of Documents".

(3) Corporate system for control of risk of loss, including in-house rules for such control

The Company performs the business of risk control under its basic policy and related rules for such risk control. Usually the Company's permanent risk-management committee, which is chaired by the director in charge of corporate division, keeps an organizationally traversing watch on the condition of risk control, and takes appropriate measures on a whole-company basis, if necessary. In case of emergency, the Company will temporarily set up its headquarters for such case with its Representative Director and President to act as the chairman thereof, and take necessary measures in accordance with decisions made by such headquarters.

(4) Corporate system to ensure the efficient performance by directors of their duties

(i) Directors, other officers and employees perform their duties as provided in the procedural rules for appropriate decision-making under the "Rules for the Board of Directors" and "Rules for the Internal Approvals" and other similar regulations.

(ii) The Company regularly holds the executive management committee as provided in the “Rules for the Executive Management Committee” for the purpose to assist the sound and appropriate decision by the Representative Director and President.

(iii) The Company develops its long-term business plan, and operates and expands its

business in accordance with such long-term plan. The Company also predetermines numerical targets for each business year for inclusion in such long-term plan, and conducts the evaluation of business results and the control of budgets in comparison with such numerical targets. The Company reports to Board of Directors every month on the state of achievement of such numerical targets.

(5) Corporate system for the control of the statutory auditor's assistant appointed at the

request of such auditor (i) The Company at present has no employee to act as an assistant of the statutory auditor.

The statutory auditor, however, may require the Representative Director and President to appoint such assistant, and if and when so required, the Representative Director and President shall appoint such assistant as far as deemed necessary.

(ii) Any employee shall, if and when he/she is ordered by the statutory auditor to perform audit-related tasks, not receive any instruction or direction from the director in charge, the internal audit section or any other similar section with regard to such order as is received from the statutory auditor.

(iii)-1 Board of Statutory Auditors gives any and all job-executing directors and important employees an opportunity of hearing individually from such directors and employees with regard to jobs in their charge respectively.

(iii)-2 Any director or other executive officer shall, if and when he/she finds any fact which threatens to cause any remarkable damage or adverse influence to the Company, promptly inform the statutory auditor thereof.

(iii)-3 Statutory auditors may attend Board of Directors’ meetings, the executive management committee and other important meetings for the purpose of grasping the process of important decision-making and the condition of business execution.

(iv)Board of Statutory Auditors holds meetings for mutual exchange of views and opinions with the Representative Director and President and independent auditors respectively.

<Reference>

Stock acquisition right the Company had granted in the past, of which total 8,785 granted to the directors/employees currently in-service as listed below, had been waived by the holders and cesser thereafter until the end of February 2012.

Series No. of Ex-holder No. of stock waived

4th stock acquisition right Employee, 1 50

5th stock acquisition right Director (no including outside directors), 1 600

Employees, 5 225

6th stock acquisition right Employees, 4 110

7th stock acquisition right

Director (not including outside directors), 1 500

Outside directors, 2 200

Employees, 7 200

8th stock acquisition right Outside director, 1 100

Employees, 3 80

9th stock acquisition right Director (not including outside directors), 1 500



Employees, 3 80


Outside director, 1 90

13th stock acquisition right

Director (not including outside directors), 1 50


Employees, 15 430

14th stock acquisition right Directors (not including outside directors), 2 1,410


15th stock acquisition right Employees, 27 1,390

16h stock acquisition right Outside director, 1 150

17th stock acquisition right Directors (not including outside directors), 2 670


19th stock acquisition right Outside director, 1 100

Total 8,785

Balance sheet

(as of December 31, 2011)

(Unit: Thousand yen)

Item Amount Item Amount (Assets) (Liabilities)

Current assets 7,178,392 Current liabilities 645,746 Cash and deposits 4,558,714 Accounts payable 308,953 Accounts receivable 162,409 Lease obligations 719

Security 1,952,533 Other accounts Payable 277,898

Merchandise and finished goods 207,467 Income taxes Payable 19,073

Prepaid expenses 79,038 advance received 1,382 Advance 124,589 Other 37,719 Uncollected consumption tax 69,571

Other 24,067 Long-term liabilities 4,783 Lease obligations 2,691

Fixed assets 77,702 Allowance for retirement benefits 2,092

Tangible fixed assets 17,407 Total liabilities 650,529 Building 7,358 (Net assets) Fixtures and equipment 32,410 Shareholders' equity 6,606,110

(Accumulated depreciation) (22,360) Capital stock 6,024,610

Intangible fixed assets 12,730 Capital surplus 5,994,610 Software 9,541 Capital reserve 5,994,610 Lease assets 3,189 Earned surplus (5,413,091)

Investments and Other assets 47,564 Other earned surplus (5,413,091)

Fixed leasehold deposit and security deposit

23,264 Earned surplus carried forward (5,413,091)

Long-term prepaid expenses 24,300 Treasury shares (17)

Appraisal and conversion variance (546)

Other marketable securities appraisal variance

(546)

Total net assets 6,605,564

Total assets 7,256,094 Total liabilities and net assets 7,256,094

(Note) Amounts are rounded down to thousands.

Income statement

( From January 1, 2011 to December31, 2011 )


Item Amount I. Net sales 1,882,521 II. Cost of sales 1,224,185

Gross Profit 658,336 III. Selling, General and Administrative expenses

2,725,182

Operating (loss) (2,066,846) IV. Non-operating income

Interest income 863 interest on securities 2,559 Income from subvention 51,891 Other 1,068 56,382

V. Non-operating expense Interest expenses 668 Commission paid 21,967 Net share issuing expense 16,721 Foreign exchange losses 9,895 IPO preparation costs 35,665 84,919

Ordinary (loss) (2,095,382) VI. Extraordinary loss

Impact of application of Accounting standard for asset retirement obligations

5,331 5,331

(Loss) before tax (2,100,713) Corporate tax, local inhabitant tax, and local enterprise tax

3,800 3,800

Net (loss) (2,104,513)


Statement of changes in shareholders' equity

( From January 1, 2011 To December 31, 2011 )


Shareholders’ equity

Capital stock

Capital surplus Earned surplus Total

Shareholders’ equity Capital reserve

Other earned surplus Treasury shares

Earned surplus carried forward

Balance as of December 31, 2010 3,710,830 3,680,830 (3,308,577) - 4,083,082 Amount of change during the fiscal year

Issuance of new shares 2,313,780 2,313,780 4,627,560

Net (loss) (2,104,513) (2,104,513)

Purchase of treasury shares (17) (17) Changes in items other than shareholders’ equity during the fiscal year reported (net amount)

-

Net change in other items than shareholders’ equity during the fiscal year

2,313,780 2,313,780 (2,104,513) (17) 2,523,028

Balance as of December 31, 2011 6,024,610 5,994,610 (5,413,091) (17) 6,606,110

Appraisal and conversion variance

Total Net assets Other marketable securities appraisal variance

Total Appraisal and conversion variance

Balance as of December 31, 2010 (18) (18) 4,083,064 Amount of change during the fiscal year

Issuance of new shares 4,627,560

Net (loss) (2,104,513)

Purchase of treasury shares (17) Changes in items other than shareholders’ equity during the fiscal year reported (net amount)

(527) (527) (527)

Net change in other items than shareholders’ equity during the

fiscal year (527) (527) 2,522,500

Balance as of December 31, 2011 (546) (546) 6,605,564


Notes on non-consolidated financial statements

(Important accounting policies) (1) Standard and method for appraisal of assets Marketable securities Other marketable securities Those with market price By market value method based on the market price on the

accounting date (appraisal variance shall all be handled by direct input into net assets and the sales price shall be calculated by moving average method).

Those with no market price Cost method based on moving average method Inventories By cost method based on total average method (balance sheet

value is calculated by writing down the book value reflecting decreased profitability).

(2) Method for depreciation of fixed assets

Tangible fixed assets

(excluding lease assets)

By straight-line depreciation method Period of depreciation for major items are as follows: Building 2 to 18 years Equipment & fixtures 4 to 10 years

Intangible fixed assets

(excluding lease assets)

By straight-line depreciation method Software used by the Company are depreciated based on the

availability period in the company (5 years) Lease assets Depreciation is calculated on the straight-line method over the

lease period as the useful period, assuming no residual value. Non-ownership-transfer finance leases that commenced prior

to March 31, 2008 are handled by the accounting procedure pursuant to the method concerning ordinary lease transactions.

(3) Accounting method for deferred assets New share issuing expense The full amount shall be handled as expenses at the time of

occurrence.

(4) Standards for converting assets and liabilities in foreign currencies into Japanese yen

Monetary debts and credits in foreign currencies are converted into Japanese yen at the spot exchange rate on the final day of the term, and exchange differences are handled as profit or loss.

(5) Accounting method for provisions Allowance for bad debt For future loss due to bad debt, the amount of nonrecoverable

debt is estimated based on historical rate for general credit and inspected result for doubtful credit. For the fiscal year reported, allowance for bad debt is not recorded because there is no doubtful credit.

Allowance for retirement benefits

It is accounted for based on an estimate of retirement benefits liability as of the end of the fiscal year reported for the purpose to provide for payment of employee retirement benefits.

(6) Accounting procedure for consumption tax and local consumption tax

By tax-excluded method. (Change in accounting method)

Effective from the fiscal year reported, the Company has adopted new accounting standards, “Accounting Standard for Asset Retirement Obligations” (ASBJ statement No. 18, March 31, 2008) and the “Guidance on Accounting Standard for Asset Retirement Obligations” (ASBJ guidance No. 21, March 31, 2008). Due to this change, operating loss and ordinary loss increased by 1,906 thousand yen and loss from tax and net loss increased by 7,238 thousand yen for the period. Also, fixed leasehold deposit and security deposit in investments and other assets decreased by 5,331 thousand yen.

(Notes on balance sheet)

None to be reported. (Notes on income statement) R&D spending included in general and administrative expenses 1,945,029 thousand yen

(Notes on statement of changes in shareholders’ equity) (1) Type and number of issued and treasury shares

Number of shares at the end of previous fiscal year (shares)

Increase during the fiscal year reported (shares)

Decrease during the fiscal year reported (shares)

Number of shares at the end of the fiscal year reported

Common stock

Issued shares 111,737 19,019,163 - 19,130,900

Treasury shares - 75 - 75

(Note) 1. Increase in number of shares outstanding of common stock by 19,019,163 shares is due to an increase of 28,572 shares by third-party allotment, an increase of 5,100,000 shares by new stock issuance by offering, and an increase of 13,890,591 shares by 100-for-1 stock split as at June 2, 2011. 2. Increase in number of treasury shares of common stock by 75 shares is due to the purchase of fractional shares.

(2) Number of shares subject to stock acquisition rights issued as at the end of the fiscal year reported

Common stock 1,512,000 shares (Note) Excludes stock acquisition rights of which the commencement date of exercise

period has not yet arrived.

(Notes on deferred tax accounting) Breakdown of main reasons for deferred tax assets and deferred tax liabilities

Deferred tax assets (thousand yen) Overdepreciation of assets to be written off one-time 1,702 Overdepreciation of depreciable assets 763 Overdepreciation of deferred assets 265,563 Denial of R&D spending 345,528 Denial of trade account payable 7,737 Denial of other accounts payable 27,129 Denial of allowance for retirement benefits 745 Denial of local enterprise tax payable 6,988 Denial of asset retirement obligations 2,751 Loss carried forward 1,343,142 Sub-total deferred tax assets 2,002,052 (Valuation allowance) (2,002,052)

Total deferred tax assets - Deferred tax liabilities Total deferred tax liabilities - Net deferred tax assets - (Notes on fixed assets used under lease arrangements)

Finance lease transactions other than those in which the ownership of the lease property transfers to the borrower (1) Amounts equivalent to original cost, accumulated depreciation, accumulated impairment

loss, and ending balance of leased properties

Classification Amount equivalent to original cost (thousand yen)

Amount equivalent to accumulated depreciation (thousand yen)

Amount equivalent to ending balance (thousand yen)

Fixtures and equipment - - -

Software - - -

Total - - -

(2) Amount equivalent to balance at end of term for unexpired lease payments

Amount equivalent to balance at end of term for unexpired lease payments Within 1 year - thousand yen Longer than 1 year - thousand yen Total - thousand yen

(3) Paid lease payments, amount reduced from lease asset impairment loss, amounts equivalent to depreciation and interest payment, and impairment loss

Paid lease payments

1,561 thousand yen

Amount equivalent to depreciation

1,437 thousand yen

Amount equivalent to interest payment

14 thousand yen

(4) Method for calculating depreciation

By straight-line depreciation method with the residual value as zero and the lease period as the period of depreciation.

(5) Method for calculating the amount equivalent to interest

By interest method with respect to the method of allocation to each term, with the difference between the total amount of lease payments and the amount equivalent to the acquisition costs of the lease properties as the amount equivalent to interest.

(Impairment loss)

There are no impairment losses allocated to lease assets. (Note) Non-ownership-transfer finance leases that had commenced prior to the first accounting period when

lease accounting was adopted are handled by the accounting procedure pursuant to the method concerning ordinary lease transactions.

(Notes on financial instruments) (1) Situation of financial instruments (i) Policies relating to financial instruments

The Company procures the funds necessary in light of the pipeline development plan (primarily by new share issuance through third-party allotment and offering). Temporary surplus fund is invested on financial products which are highly safety and liquidity.

(ii) Description of financial instruments and their risks

Accounts receivable and advance related to joint development, both operating receivables, are exposed to the credit risks of customers and joint development partners. Operating receivables denominated in foreign currencies suffer foreign exchange fluctuation risks. The company intends to select securities which have relative low risk for falling below par. However, it might carry a finite risk. Most of trade accounts payable and other accounts payable, both operating payables, are due within two months. Again, operating payables with foreign currencies suffer foreign exchange fluctuation risks. Most of fixed leasehold deposit and security deposit are security deposits related to rented offices and their redemption is subject to the credit risk of the lessees Lease obligations related to finance lease transactions are primarily for the purpose of fund raising for capital investment, and the maturity date is five years from the accounting date at the longest.

(iii) Risk control structure for financial instruments

1. Control of credit risk (the risk of contractual default by business partners)

Regarding operating receivables, the Company’s marketing department regularly monitors the conditions of major business partners and tracks the due date and balance by account according to the credit administration rule so as to swiftly detect the possibility of bad debts due to deteriorating financial conditions and reduce their adverse impacts.

2. Control of market risk (fluctuations risks of foreign exchange and interest rates) The Company deposits money primarily in financial institutions with high credit ratings. The Company attempts to avoid risk of marketable securities falling below par by selecting those with certain higher ratings and investment period in accordance with the Company’s fund management rule. Operating receivables and payables denominated in foreign currencies are settled at the spot exchange upon receipt and payment because more risks are involved in carrying deposits in foreign currencies considering the frequency of occurrence.

3. Control of liquidity risk related to fund procurement (risk of insolvency on the payment date) The Company manages liquidity risk by the department in charge formulating and revising the cash management plan in a timely manner based on the reports from other departments.

(iv) Supplemental explanation related to fair market values of financial instruments

Fair market values of financial products include the value based on market price and also reasonably estimated price. Fluctuations are factored in the calculation of fair market valued. As such, they may vary by using different assumptions.

(2) Matters related to fair market values of financial instruments Book values on balance sheet, fair market values, and their differences as at December 31, 2011 are as follows:

Book values on balance sheet

(thousand yen)

Fair market values (thousand yen)

Differences (thousand yen)

(1) Cash and deposit 4,558,714 4,558,714 - (2) Accounts receivable 162,409 162,409 - (3) Marketable securities 1,952,533 1,952,533 - (4) Advance 124,589 124,589 - (5) Uncollected consumption tax 69,571 69,571 -

Total assets 6,867,818 6,867,818 - (1) Trade accounts payable 308,953 308,953 - (2) Lease obligations (short-term) 719 719 -

(3) Other accounts payable 277,898 277,898 - (4) Income taxes payable 19,073 19,073 - (5) Lease obligations (long-term) 2,691 2,691 -

Total liabilities 609,336 609,336 - Total derivative transactions - - -

(Note) 1. Method of calculating fair market values of financial instruments and matters related to marketable securities and derivative transactions

Assets (1) Cash and deposit, (2) accounts receivable, (4) advance, (5) uncollected consumption tax

These items are settled in a relatively short term and fair market values are nearly equal to book values; hence, book values are used.

(3) Marketable securities The price of bonds is based on that indicated by financial institutions.

Liabilities (1) Trade accounts payable, (3) other accounts payable, (4) income tax payable

These items are settled in a relatively short term and fair market values are nearly equal to book values; hence, book values are used.

(2) Lease obligations (short-term), (5) lease obligations (long-term) Book value of lease obligation is used as proxy for its fair market value because

there is proximity between the present value calculated by discounting the total amount of principal and interest with the discount rate that is assumed for newly entered lease transactions and the book value.

Derivative transactions None to be reported as the Company is not engaged in any derivative transactions.

(Note) 2. Items with difficulty to assess fair market values No market price exists for fixed leasehold deposit and security deposit (the book value on balance sheet is 23,264 thousand yen) and it is deemed difficult to assess fair market value; hence, it is not included in the table above.

(Note) 3. Redemption schedule of monetary credits and marketable securities with maturity after the closing date.

Classification Within 1 year (thousand yen)

Longer than 1 year and shorter than 5 years (thousand yen)


Longer than 10 years (thousand yen)

(1) Cash and deposit 4,558,714 －－－ (2) Accounts receivable 162,409 －－－ Securities Of which held-to-maturity securities

(1) Bond 200,000 －－－ (2) Others 1,752,263 －－－ Advance 124,589 －－－ Total 6,797,976 －－－

(Note) 4. Repayment schedule of lease obligations after the closing date.

Classification

Within 1 year (thousand yen)


Longer than 2 years and shorter than 3 years (thousand yen)



Longer than 5 years (thousand yen)

Lease obligations (short-term) 719 - - - - -

Lease obligations (long-term) - 673 682 692 642 -

Total 719 673 682 692 642 -

(Notes on for-rent properties)


(Notes on profit/loss on equity method) None to be reported.

(Notes on transactions with related parties)

Parent of the Company and major corporate shareholders

Category Name of corporations

Percentage of voting rights owning/owned

Relationship with related parties

Content of transactions

Transaction amount (thousand yen)

Item Remaining balance

Major corporate shareholders

Cephalon, Inc.

13.5% owned

Equity investment Business alliance for the development and marketing of products

Subscription to third-party allotment

(Note 1)

772,240 - -

Major corporate shareholders

JAFCO V2 Investment LP

12.1% owned

Equity investment

Subscription to third-party allotment

(Note 2)

1,063,860 - -

Transaction terms and the decision-making policy thereof (Note) 1. This was a part of third-party allotment executed on February 17, 2011. The issue

price was determined with reference to the price calculated on the discounted cash flow method.

(Note) 2. This was a part of third-party allotment executed on February 25, 2011. The issue price was determined with reference to the price calculated on the discounted cash flow method.

(Note) 3. JAFCO V2 Investment LP became a major shareholder of the Company on February 25, 2011, and the transaction amount pertains to transactions thereafter.

(Notes on per-share information) (1) Net assets per share 345.28 yen (2) Net loss per share 143.60yen Average number of shares during the term

14,655,716 shares

(Other notes)

The Company has overdraft and commitment line contracts with three banks in a business relationship to efficiently procure working capital. Amounts of borrowing available based on these contracts at the end of the fiscal year reported are as follows:

Total amount of overdraft limit and commitment line

1,350,000 thousand yen

Balance of borrowing outstanding - thousand yen

Net amount 1,350,000

thousand yen (Significant subsequent events)


Report of Audit

We, the Board of Statutory Auditors, prepare this report of audit with regard to the

execution of Directors’ duties during the 7th Term from January 1, 2011 to December

31, 2011, as the uniformed opinion of all statutory auditors after the careful discussion

based on the audit reports prepared by respective statutory auditors, and report as

follows.

1. Method for and contents of audits by statutory auditors and the Board of Statutory

Auditors

The Board of Statutory Auditors formulated the audit policy and plan for the Term

reported, and received the reporting from respective auditors with regard to the

state of implementation and results of audits as well as received the reporting from

directors and the accounting auditor with regard to the state of execution of their

duties requesting additional explanations as deemed necessary.

Respective auditors, in conformity with the standards for audits by statutory

auditors that the Board of Statutory Auditors set forth and in accordance with the

audit policy and plan for the Term, strived to collect information and improve

audit environments by communicating with directors, the internal audit section,

and other employees. We also attended Board of Directors’ meetings and other

important meetings, received the reporting from directors and employees with

regard to the state of execution of their duties requesting additional explanations as

deemed necessary, reviewed documents for important settlements, and researched

the situation of operations and assets. Moreover, we monitored and inspected the

states of the system to ensure that the execution of directors’ duties described in

the business report were compliant with laws and ordinances and the Company’s

Article of Incorporation and other systems required to secure the appropriateness

of operations as stock company maintained based on the contents of resolution by

the Board of Directors with regard to the maintenance of systems stipulated by

Ordinance for Enforcement of the Companies Act Article 100 (1) and (3)

(hereinafter “internal control systems”). Based on the method described above, we

reviewed the business report and supplementary documents with regard to the

Term reported.

In addition, we monitored and inspected the maintenance of independent position

and the execution of appropriate audits by the accounting auditor, as well as

received the reporting from the accounting auditor with regard to the state of

execution of its duties requesting additional explanation as deemed necessary.

Besides, we received the notification from the accounting auditor that “the system

to ensure that its duties are executed as appropriate (the items listed by respective

paragraphs of Ordinance on Accounting of Companies Article 131)” was

maintained in accordance with “the standards for quality control of audits

(Business Accounting Council, October 28, 2005)” requesting additional

explanation as deemed necessary. Based on the method described above, we

reviewed the financial report (including balance sheet, profit and loss statement,

statement of changes in net assets, and notes on non-consolidated financial

statements) and supplementary statements for the Term reported.

2. Results of audit

(1) Results of audit of business report

a. We admit that the business report and supplementary statements fairly

present the Company’s situation in accordance with laws and

ordinances and the Company’s Articles of Incorporation.

b. Any misconduct in the execution of Directors’ duties or any material

facts in violation of laws and ordinances and the Company’s Articles of

Incorporation are not noticed.

c. We admit that the contents of resolution by the Board of Directors with

regard to the internal control systems are appropriate. Also, there is no

matter to be noted as for the descriptions in the business report

regarding these internal control systems and the execution of Directors’

duties.

(2) Results of audit of financial report and supplementary statements

We admit that the method for and result of audits conducted by Ernst &

Young ShinNihon LLC, the accounting auditor, are appropriate.

March 2, 2012

Board of Statutory Auditors,

SymBio Pharmaceuticals Limited

Masahiko Goto,

Executive Auditor (Outside Auditor)

Koshi Ohizumi,

Executive Auditor (Outside Auditor)

Saneaki Ichijyo, Outside Auditor

Chikara Shimazaki, Outside Auditor

Reference documents for General Shareholders’ Meeting

Agendas and reference documents Agenda 1: Election of a director

We ask shareholders to elect an outside director to further strengthen the corporate management structure. The profile of candidate for director is as follows:

Name (date of birth) Career, status, responsibility, and significant additional posts

Number of the Company’s

shares owned

Takako Ebata (December 22, 1959)

June 1992

MBA, Sloan School of Management, Massachusetts Institute of Technology

None

July 1992 McKinsey & Company, Inc. Japan March 2003 Director, Amgen K.K. June 2005 Project Associate Professor, Academic

Planning & Coordination Office, the University of Tokyo

June 2006 Outside director, Astellas Pharma Inc. April 2007 Project Associate Professor, Public Relations

Office, the University of Tokyo August 2009 Member of House of Representatives

(present) (Situation of significant additional posts) None to be reported

(Note) 1. The director candidate and the Company do not have any special interests in each other. 2. The director candidate Takako Ebata is the candidate for outside director. 3. The reasons for the election of the outside director candidate are as follows: We request the election of Takako Ebata as outside director to seek her advice and opinion on the

Company’s management from the objective standpoints independent from the Company’s management members engaged in business operations, making the most of her knowledge and experience as outside directors of pharmaceutical companies.

4. The Company’s Articles of Incorporation provide that we are able to enter into the liability limitation agreement with an outside director to limit liability for damage in the event that he/she fails to perform his/her duties, so that he/she can fully play his/her expected roles. Based on this provision, the Company and the outside director candidate Takako Ebata have entered into the liability limitation agreement.

Summary of contents of liability limitation agreement is as follows: - In the event that the outside director is deemed to be liable for damages due to the negligence of her

duties, higher of the amount of 1,000,000 yen or above set forth in advance or the amount set forth in laws and ordinances at the maximum shall be borne.

- The aforementioned liability limitation shall be applied only in cases it is with good intentions and there is no gross negligence in such outside director's performance of her duties causing liability.

Agenda 2: Issuance of stock acquisition rights as stock options to the Company’s directors

(1) Reason for proposal We propose to issue stock acquisition rights as stock options to the Company’s

directors aiming to enhance their motivations and morale towards improved performance.

Therefore, the resolution is requested with respect to the contents of compensation to be paid by the Company to its directors as stock option based on the provisions of Companies Act Article 361.

(2) Amount and contents of compensation

It has been approved by Extraordinary Shareholders’ Meeting held on August 3, 2005 that the aggregate amount of compensation for the Company’s directors shall be 130,000,000 yen or less per year. It is asked that stock acquisition rights be granted to the Company’s directors as compensation provided by Companies Act Article 361 (1) within the annual amount of 130,000,000 yen (of which, 21,000,000 yen to outside directors), separately from the aforementioned maximum amount of the compensation to the Company’s directors.

(3) Persons subject to allotment

Persons subject to allotment of the stock acquisition rights shall be the Company’s directors.

If Agenda 1 is resolved, the number of the Company’s directors would be six (of which, three are outside directors). However, only five existing directors (of which, two are outside directors) would be subject to allotment of the proposed stock acquisition rights.

(4) Contents of stock acquisition rights as stock options as compensation to directors

The contents of stock acquisition rights to be issued to directors as stock options shall be as follows: (i) Type and number of shares to be issued upon exercise of stock acquisition rights and

its calculation method 390,000 shares of the Company’s common stock (of which, 62,500 shares to outside

directors) shall be the upper limit of the number of shares subject to stock acquisition rights that are issued within one year from General Shareholders’ Meeting for respective fiscal years. 100 shares of the Company’s common stock for each unit of stock acquisition rights. However, in the event that adjustments are made to the number of shares as set forth below, adjustments shall be made likewise. In the event that the Company makes the stock split or consolidation, however, the number of shares subject to unexercised stock acquisition rights shall be adjusted using the formula set forth below, and any fractions less than one share

resulting therefrom shall be rounded down. (Number of shares after adjustment) = (Number of shares before adjustment) x (Ratio of split or consolidation)

In addition to aforementioned cases, in the event that any reasons for adjusting the exercise price set forth in (iv) below arise, the number of shares to be issued by the exercise of respective stock acquisition rights shall be adjusted as appropriate so that the amount of exercise price after adjustment multiplied by number of shares after adjustment equals to the amount of exercise price before adjustment multiplied by number of shares before adjustment. Also, the Company shall make adjustments to the number of shares as deemed necessary, in case proposed stock acquisition rights are succeeded to in acquisition-type or consolidation-type mergers, or in case the Company conducts incorporation-type company split or corporate divestiture.

(ii) Total number of stock acquisition rights 3,900 units (of which, 625 units to outside directors) shall be the upper limit.

(iii) Amount to be paid for stock acquisition rights Free of charge.

(iv) The price of assets to be contributed for the exercise of each unit of stock acquisition rights or the method for calculating it The paid-in amount for each unit of stock acquisition rights shall be determined by multiplying the exercise price per share to be issued set forth as below by the number of shares subject to each unit of stock acquisition rights set forth in (i).

The exercise price per share to be issued shall be 570 yen. In case the exercise price set forth above is below the closing price of the Company’s common stock in the ordinary session at Osaka Securities Exchange on the allotment date of stock acquisition rights (or the previous closing price if any transaction is not made on the date), the exercise price shall be this closing price. This exercise price shall be adjusted by the following formula in the event of stock split or consolidation, rounding up any fractions of less than one yen resulting therefrom.

Exercise price after adjustment = Exercise price before adjustment ×

1 Ratio of split or consolidation

Also, in the event of issuing new shares at below its fair market value or disposing of treasury shares (excluding the case of issuing new shares by the exercise of stock acquisition rights), the exercise price shall be adjusted by the following formula, rounding up any fractions of less than one yen resulting

therefrom.

Number of

shares already issued

+

Number of newly issued shares × paid-in amount per share

Exercise price after adjustmen

t

=

Exercise price

before adjustmen

t

× Share price before issuing new shares

Number of shares already issued+ number of newly issued shares

"Number of shares already issued" in the above formula shall mean the amount calculated by subtracting the number of treasury shares owned by the Company from the total number of issued shares. In the event of the disposal of treasury shares, “issuing new shares” should be reread as “disposing of treasury shares”, "newly issued shares" shall be reread "treasury shares disposed of" and "paid-in amount per share" shall be reread "disposal amount per share." Also, the Company shall make adjustments to the paid-in amount as deemed necessary, in case proposed stock acquisition rights are succeeded to in acquisition-type or consolidation-type mergers, or in case the Company conducts incorporation-type company split or corporate divestiture.

(v) Period for exercising stock acquisition rights Two years after the resolution for granting stock acquisition rights and before ten years have passed after such resolution.

(vi) Capital stock and capital reserve to be contributed in the event of new share issuance by the exercise of proposed stock acquisition rights. In the event of new share issuance by exercising stock acquisition rights, the amount to be contributed to capital stock shall be half the upper limit amount of an increase in capital stock and capital reserve calculated in accordance with Corporate Accounting Rules Article 17 (1), with any fractions less than one yen resulting from such calculation rounded up. In this case, the amount to be contributed to capital reserve shall be the amount subtracting the amount to be contributed to capital stock from the upper limit of an increase in capital stock and capital reserve calculated in the aforementioned manner.

(vii) Conditions for exercising stock acquisition rights (I) Any fractions less than one unit of respective stock acquisition rights cannot

be exercised. (II) The individuals to whom proposed stock acquisition rights are allotted

(hereinafter “holder of proposed stock acquisition rights”) must be in a status of director, auditor, or employee of the Company or any of its affiliates at the time of exercise. However, this shall not be applicable to any of the following cases: (a) In case a director or an auditor of the Company or its affiliates has

resigned due to the expiry of his/her term. (b) In case an employee of the Company or its affiliates has retired due the

mandatory retirement age. (c) In case it is resolved by Board of Directors meetings that a director, an

auditor, or an employee of the Company or its affiliated has resigned or retired amicably.

(III) Even in prior to the beginning of period during which proposed stock acquisition rights shall be able to be exercised (hereinafter “the exercise period”), if the resolution is made with regard to such corporate reorganization as acquisition-type or incorporation-type mergers in which the Company is the dissolved company, incorporation-type company split or corporate divestiture in which the Company is the split company, or share exchange or share transfer in which the Company becomes the wholly-owned subsidiary (hereinafter generally “corporate reorganization”) by the Company’s Shareholders’ Meeting (including the cases that the resolution is assumed to be made by Shareholders’ Meeting according to Companies Act Article 319; the same hereinafter) or by the Company’s Board of Directors (only in cases the resolution by Shareholders’ Meeting is not required with

regard to such corporate reorganization), proposed stock acquisition rights shall be able to be exercised from the resolution date to the date prior to the effective date of such corporate reorganization regardless of the period set forth in (v) above.

(IV) In the event that a holder of proposed stock acquisition rights deceases, the heir shall be able to exercise proposed stock acquisition rights within six months from the commencement of inheritance; (a) if the holder deceases in prior to the exercise period, with the upper limit of half the number of stock acquisition rights held by the deceased holder of stock acquisition rights.

(b) if the holder deceases during the exercise period, with the upper limit of all the number of stock acquisition rights held by the deceased holder of stock acquisition rights.

However, in case the heir to the original holder of stock acquisition rights deceases, his/her heir shall not be able to exercise proposed stock acquisition rights.

(V) The disposal of proposed stock acquisition rights by pawnage and in any other forms shall not be admitted.

(VI) Other conditions shall be stipulated by the contract for allotment of stock acquisition rights entered into between the Company and holders of proposed stock acquisition rights based on resolutions by Shareholders’ Meetings and by Board of Directors meetings.

(viii) Limitations on obtaining the proposed stock acquisition rights by transfer The approval from the Company’s Board of Directors shall be required to obtain proposed stock acquisition rights by transfer.

Proceedings to exercise voting rights on the Internet

Please confirm the following points if you plan to exercise voting rights on the Internet. If you intend to attend General Shareholders’ Meeting in person, you are not required to exercise voting rights either by the postal mail (the form to exercise voting rights) or on the Internet.

1. Web site to exercise voting rights (1) The exercise of voting rights on the Internet is possible only by accessing to the web site to

exercise voting rights that the Company designates (http://www.evote.jp/) through personal computer or mobile phone (i-mode, EZweb, or Yahoo! Keitai)*. (Please be noted that the web site is not accessible from 2 a.m. to 5 a.m. every day.) *i-mode, EZweb, and Yahoo! are the registered trademarks of NTT DOCOMO, Inc., KDDI Corporation, and Yahoo! Inc., (United States), respectively (2) The exercise of voting rights through personal computer depends on the Internet connection environment. You may not be able to exercise voting rights through personal computer in case the firewall is set for the Internet connection, any anti-virus software is installed, or the proxy server is used.

(3) When you exercise voting rights through mobile phone, please use the internet connection service of either i-mode, EZweb, or Yahoo! Keitai. For security reasons, any mobile phone device incompatible with encrypted communication (SSL communication) or transmission of the identical information of device cannot be used.

(4) Voting rights can be exercised on the Internet before 『17:30 pm on Wed. March 28, 2012』, but it is advisable to exercise voting rights at your earliest convenience and contact the help desk should any question arise.

2. Method for the exercise of voting rights on the Internet (1) Please indicate your votes for and against respective agendas on the web site to exercise

voting rights (http://www.evote.jp/) using the log-in ID and temporary password noted on the form to exercise voting rights.

(2) Please be advised that you will be prompted to change the temporary password on the web site to exercise voting rights in order to prevent any unauthorized access (“spoofing”) or alternation of your votes.

(3) Log-in ID and temporary password will be newly issued each time Shareholders’ Meeting is convened.

3. Handling of the voting rights exercised in duplicate. (1) In case the voting rights are exercised both by the postal mail and on the Internet, those

exercised on the Internet shall supersede. (2) In case the voting rights are exercised on the Internet in multiple occasions, those exercised

in the latest occasion shall be deemed effective. Similarly, in case the voting rights are exercised through both personal computer and mobile phone, those exercised in the latest occasion shall be deemed effective.

4. Costs incurred for the access to the web site to exercise voting rights The costs incurred for the access to the web site to exercise voting rights (such as

Internet connection charge, phone charge) shall be borne by the shareholder. The packet communication and other fees are charged for the usage of mobile phone, which shall also be borne by the shareholder.

Inquiries regarding systems

Securities transfer division (help desk), Mitsubishi UFJ Trust and Banking Corporation Phone: 0120-173-027 (inquiries accepted from 9:00 to 21:00, toll-free)

Map to the place of General Shareholders’ Meeting

7-12 Marunouchi 1-chome, Chiyoda-ku, Tokyo Sapia Tower 6th Floor Tokyo Station Conference Room 605 Phone

■Transportation ● One-minute walk from Shinkansen Express Exit (Nihonbashi Exit) of JR Tokyo Station ● Two-minute walk from Yaesu North Exit of JR Tokyo Station ● One-minute walk from Otemachi Station, Tokyo Metro Tozai Line