Financial Results FAQ for Security Analyst

Q1. The first fiscal half performance overshot by almost 22 billion yen, while for a full year this figure is smaller and at about 2.2 billion yen. Please explain this difference.

A1. Exports of Pravastatin originally slated to start post-October were postponed to the first fiscal half in the end. The postponement in export of Pravastatin and in transparency over the period of January to March of next year were contributing factors. Additionally, SPI's Benicar is moving at a steady pace, and we plan to grow this further by an increasing Sales and Marketing expenses in the second fiscal half, resulting in an increase of Selling, General, and Administrative expenses. The postponement to next fiscal year of new products for Japan that were slated in the master plan of Daiichi Pharmaceutical has also been a factor.

Q2. Did the merger costs have any impact?

A2. Merger cost was also generated in the first fiscal half. 1 billion yen is projected for the second fiscal half for areas we had not previously considered. We also included, among others, the implications of mergers between offices in America, and projected approximately 5 billion yen for special losses of Daiichi Sankyo and not of the operating company.

Q3. Research & Development expenses projected at 5.5 billion in the first fiscal half and 6.2 billion yen for the full year were not attained. Is there any special reason?

A3. Research & Development plan is designed on best scenario basis, and slight delays in development have slipped to the subsequent fiscal year.

Q4. Do (unattained Research & Development expenses) have anything to do with the merger?

A4. We are currently reviewing the pipelines, and at the present time there are no plans to accelerate, suspend, or delay developments.

Q5. Will you continue your relationship with Forest Laboratories?

A5. The joint Sales & Marketing agreement with Forest Laboratories is a profit sharing, agreement valid through December 2007. Whether we decide to work alone as Daiichi Sankyo or continue to work jointly with Forest Laboratories from 2008 onwards will be considered going forward.

Q6. Who is in command at Holdings with respect to Sales, Development, and Research?

A6. Sales and Research activities are at present conducted by both Sankyo and Daiichi Pharmaceuticals. Consequently the senior management of both companies (Ikegami/Morita) hold the responsibilities and are in command. With respect to development pipelines, an integrated organization of both companies (GEMRAD) has been formed and reports to Daiichi Sankyo. This means I personally supervise their evaluations.

Q7. It seems the application filing for CS-747 is somewhat behind schedule. Is this due to an issue with the product or due to an administrative process?

A7. Recruiting in Eastern Europe is slightly behind schedule.

Q8. Going forward, will IR activities going forward be conducted on quarterly settlement reports basis, or on basis of particular arrangements?

A8. We will consider appropriate timing going forward. At the present time, we plan to report at each settlement report period, including merger progress status.

Q9. The merger of offices overseas will result in a special loss of 5 billion yen. Will this to an extent allow reductions in Selling, General, and Administrative expenses and fixed costs next year, and how much will the savings come to?

A9. We projected 5 billion yen for special losses on the merger as a whole and not on the merger of offices in America and Europe. We will compute the level of savings generated by streamlining of offices in America and Europe as we design our budget for fiscal 2006.

Q10. On methodology of declaring Research & Development expenses, this article is at present reported for each pipeline individually. From a perspective of streamlining, how should it be viewed in the next fiscal year and onwards?

A10. Reporting of Research & Development expenses is currently under consideration by members of GEMRAD. We expect that GEMRAD will essentially manage projects already in development, and expenses relating to these projects would be managed by Daiichi Sankyo group as a whole. Early stages of drug discovery research will still be managed by each company in fiscal 2006, and the Research & Development expenses of Daiichi Sankyo will therefore be comprise the total of what each operating company manages individually and the expenses managed by Daiichi Sankyo group via GEMRAD.

Q11. Are there collaborations on products other than Olmetec®?

A11. Olmetec® is the very first collaboration, and going forward the most appropriate collaboration products will be selected by a task force.

Q12. The planned merger costs are 109 billion yen by fiscal 2006, the majority being incurred in the next fiscal year. Please confirm whether there are changes to the periods when costs and amounts are generated.

A12. In the current fiscal year, approximately 5 billion yen was reported as merger related expenses of Daiichi Sankyo group on the whole under Selling, General, and Administrative expenses. Additionally, we projected approximately 5 billion yen in special losses in the latter half. The balance will depend on what actions we take in 2006, however, we expect the maximum on May 13th.

Q13. Please comment on the short-term impact of the clinical trials of CS-505 on P/L . Also please describe the strategy, if any, on application of the cash flow which will temporarily increase due to reduction in Research & Development costs.

A13. We had expected outlay in the short term as a result of prioritizing Research & Development expenses and initial Sales & Marketing expenses. The surplus cash will essentially be used strategically for growth. We wish to review the extent of share buy-back and appropriate timing.

Q14. Were the three items that were stopped/suspended a result of reconsideration relating to the merger? Or was the decision made based upon stop/suspend criteria you have used to date?

A14. GEMRAD is at a project review stage. The decisions were based upon Go/No-go criteria of the current decision making organizations of Sankyo and Daiichi Pharmaceutical.

Q15. Did you suspend DX-9065a because you decided there is no or little market for injectable anti-Xa agents?

A15. It was suspended to allow us to concentrate our management resources on DU-176b and give priority to the oral form.

Q16. Are there any plans to develop a combination drug of Olmesartan and Amlodipine in Japan?

A16. In Japan, we plan to develop CS-866AZ, which is a combination drug of Calblock (Ca antagonist).

Q17. The forecast on sales cost ratio of Sankyo Group in the second fiscal half was revised from the original 37.1% to 37.4%. What is the cause of deterioration? The Daiichi Pharmaceutical Group is also experiencing deterioration from the first fiscal half to second fiscal half. What is the cause here?

A17. The cause of deterioration in the sales cost ratio of Sankyo Group in the second fiscal half was an increase in unrealized profit in transactions within the Group, chiefly in Olmesartan. With regard to Daiichi Pharmaceutical Group, the slight deterioration in the second fiscal half is a result of, among others, computation of currency gain into sales performance for the first fiscal half. This was not considered for the second fiscal half. Additionally the NHI price revision expenses for next April were not in the forecast. The cost of each product has not caused any particular impact.