Financial Results FAQ for Security Analyst

Q1.We hear that you will announce an interim-term management plan originating in fiscal 2007 in sometime this autumn. However, taking into view that since your announcement of business prospects at the managements integration briefing in last May, Zepharma joined your group among other events, and that your environment has changed, are you or are you not going to revise numerical projections upward?

A1.Numerical projections for our business prospects for fiscal 2007 to 2009 will be based on those of last May.

Q2. Please explain the breakdown of the sales and administrative expense that will significantly increase in the current term (fiscal 2006).

A2.In the US, the posting of the portion for 15 months covering modifications to the fiscal term (3 months' portion is 19.0 billion yen), pre-marketing expense for CS-747 and increase in MR staff generated over 30.0 billion yen, and sales and administrative expense will also increase by some in our European businesses. In addition, there is newly a posting of the sales and administrative expense of Zepharma, depreciation of Zepharma's business rights (goodwill), and the R&D expense (approx 8.0 billion yen) will rise. Relatedly, the sales and administrative expense of non-drug business companies that we plan to spin off from the group will decrease by approximately 25.0 billion yen. These increase and decrease factors contribute in total to an increase of over 40.0 billion yen over the past year.

Q3.You planned this at an internal exchange rate of 115 yen to the dollar. We wish to know the effects of fluctuation in the currency.

A3. A fluctuation of 1 yen yields about 1.0 billion yen on sales, and several hundreds of million yen on profit.

Q4.Will the padding on the portion for 3 months for the US, which is 19.0 billion yen, be gone sometime in the next fiscal term or later?

A4. If the business base remains constant, this will be gone. However, separately, the absolute value of the sales and administrative expense will rise as a result of further expansions in our businesses in the US.

Q5. Operating profit will drop to 108.0 billion yen in this term, however, you planned a recovery to 157.0 billion yen in the next term (fiscal 2007). We would like to know the reason for a recovery of this extent.

A5. 39.0 billion yen is from a synergy effect of the merger. Others are from our growth.

Q6. We wish to know the status on CS-747 enrolment.

A6. There is no significant change since our report on the conditions at our briefing on research and development held on March 28. We are making progress toward an application in Europe and the US in the second half of 2007.

Q7. We wish to know the breakdown on special profit and loss in the fiscal 2006 plan.

A7. We disclosed a loss of 23.0 billion yen as a total of the special profit and loss. Special profit is chiefly the sales profit from spin-offs of non-drug businesses away from the group, and is a third-party negotiations matter and we expect various analogous issues, therefore we wish to disclose only the special profit and not numbers. As for the special loss, it is based on the view at the management integration briefing in last May.

Q8.The effective tax rates are 36% and 49% in fiscal 2005 and 2006 respectively. How should we view the rates for the next fiscal term and later?

A8. The tax rate has risen as a result of clearing the cumulative loss in the US this year, a year in which there was a loss carried over in the US business. We wish to keep the rate at around 40% for next year and onwards.

Q9.There still is no modification made to the fiscal term for Europe, however, for Europe, will the portion for the 15 months covering modifications to the fiscal term be posted in the next term (fiscal 2007)?

A9.With respect to Europe, we plan to post them in the next fiscal term.

Q10.Will you perform a share buy-back?

A10. Both Daiichi Pharmaceutical and Sankyo have performed this. If there still is latitude after strategic investments, Daiichi Sankyo will flexibly perform buy-backs with an eye on share price level.

Q11.How have you planned the sales of CS-8663 (Olmesartan & Amlodipine Combination)?

A11.We have a target of over 200.0 billion yen sales of Olmesartan franchise for fiscal term 2009, and expect that the sales of CS-8663 will contribute greatly to this figure.

Q12.How have you planned the sales of the new products for fiscal term 2006, Urief and Loxonin Pap?

A12.We plan to have Urief sale more than 3.0 billion yen, and Loxonin Pap more than 1.5 billion yen.

Q13.We wish to know the sales profit from the formerly Luitpold business in Europe in fiscal term 2005 .

A13.Approximately 2.0 billion yen.

Q14.We wish to know the staffing plan for MR staffs in the US in fiscal term 2006.

A14.More than 600 persons at the formerly Sankyo, and more than 200 at the formerly Daiichi, and we plan to increase this number to 900 at Daiichi Sankyo Inc (DSI).

Q15.What was the level of contribution margin (practically) in the US before royalties in fiscal term 2006?

A15.200 some million dollars.

Q16.Will changes be made to the profit sharing agreement with Forest Laboratories, as a result of this MR staff increase in the US?

A16.There is no change to the agreement.

Q17.Is CS-8663 also included in the profit sharing agreement with Forest Laboratories?

A17.CS-8663 is a product of Daiichi Sankyo. Its sales format will be considered going forwards.

Q18.Are there any products with the development suspended?

A18.There are no suspensions since our briefing on research and development of March 28.

Q19.We wish to know the breakdown on the increase in sales and administrative expense for the US in fiscal term 2006.

A19.Approximately 36.0 billion yen for the US overall. Approximately 19.0 billion yen is posted for the 3 months for Daiichi Sankyo Inc and Luitpold, profit share to Forest Laboratories is 6.0 ~ 7.0 billion yen, and as for others, there was an increase as a result of increase in MR.

Q20.Specifically what will be done with the pre-marketing for CS-747?

A20.Devise publication strategies and perform research to differentiate our products from competitor products. We have already increased staff at the head office units.

Q21.The operating profit projected for fiscal term 2006 is 108.0 billion yen. We wish to know the breakdown for Sankyo and Daiichi Pharmaceutical.

A21.We have not made this disclosure. Daiichi Sankyo Inc and Daiichi Sankyo Healthcare are subsidiaries of Sankyo by reason of percentage of share holdings, and individual disclosure no longer has meaning.

Q22.Is it possible in fiscal term 2006 for Sankyo and Daiichi Pharmaceutical to each compensate for the portion of revised drug prices?

A22.There is an impact of approximately 18.0 billion yen to Sankyo for the drug prices revision, and approximately 16.0 billion yen to Daiichi Pharmaceutical. However, we believe that we can secure a revenue at the level of fiscal 2005, with contributions from new products and growth in existing products in Japan at both companies.

Q23.Will a cost synergy for fiscal 2006 be seen?

A23.As announced last May, we expect some cost synergy in the US for the current fiscal term (about 5.0 billion), however, this effect is limited in Japan. This effect will show more from fiscal term 2007.

Q24.Will corrections to staff size be performed?

A24.This will be performed by the complete integration, which is April 2007.

Q25.Correction to staff size is 1800 persons for Japan. How should be interpret this?

A25.We decided the staff count needed from April of fiscal term 2007. We are considering the 9000 persons in domestic pharmaceuticals businesses. We implement the human resource measures for achieving the optimum target value.

Q26.What is the target age of the correction to staff size?

A26.At present, we have only announced that human resource measures will be implemented to the group. We wish to refrain from the details.

Q27.What is the pay level of Daiichi Sankyo Healthcare? We believe that a correction to compensation was performed when Zepharma spins off from Astellas.

A27.We will review not only Daiichi Sankyo Healthcare but also Daiichi Sankyo Group allover compensation in April 2007.

Q28.We see that the special profit and loss is negative 23.0 billion yen. However, the integration cost was about 90.0 billion yen, which was indicated at the managements integration briefing of last May, so isn't there a deviation in the amount?

A28.The expenses for integration were based on what was announced in May 2005, and there is no big deviation.

Q29.If there are points to watch with respect to cost rates in the subsequent terms, then we wish to know them.

A29.In the current term, the factor of increasing cost rates is mainly relating to spin offs of non-pharma businesses from the group. In fiscal term 2007, we believe more improvement will be made as a result of spin offs of production company and others.

Q30.Wont there be impairment loss from Mevalotin facilities due to decrease of export of Mevalotin raw materials ?

A30.Last term, we processed an impairment loss of approximately 3.0 billion yen as a result of a partial suspension of the Mevalotin culture house at Sankyo Onahama Plant. We believe such impairment will not be generated aftertime.

Q31.The COG rate of Daiichi Pharmaceutical Group has improved from what we saw in January when they were upwardly revised. What are the contributing factors?

A31.They have three factors: a lump-sum payment for Plavix, further effect of improved method of manufacturing on Levofloxacin, and efforts by spin-offed Daiichi Pharmatech to reduce cost rates.

Q32.Will the effort of reductions in COG rates by Daiichi Pharmaceutical Group lead to further cost reduction of the manufacturing sector of new Daiichi Sankyo Co., Ltd?

A32.We believe that there will be a similar effect on the new production company.

Q33.How does Daiichi Sankyo see the outcome of cost synergy announced last year, actually?

A33.Anti-synergy was smaller than expected. We expect the cost synergy to be as announced last year.

Q34.In this term, what is the profit and loss for Panaldine and Plavix combined?

A34.We promote Panaldine for the cardiac disease area, Plavix for the brain disease area. For Panaldine we anticipate fall in revenue, but we expect to receive a co-promotion revenue of some amount for Plavix.

Q35.Will the lump-sum payment for Plavix occur in the current term?

A35.Daiichi Pharmaceutical has received in return for a certain business, under a certain commitment.

Q36.We wish to know the current required staff count overseas.

A36.Daiichi Sankyo Inc 1,500, Luitpold 500, Europe 1,500, and 1,000 in Asia, etc.

Q37.Will disclosures of enumeration data be made separately for Sankyo and Daiichi Pharmaceutical going forwards?

A37.Daiichi Sankyo Inc and Daiichi Sankyo Healthcare are under Sankyo Group and Zepharma is directly linked to Daiichi Sankyo, so the group is complex. In consideration of that point, going forward, disclosures will be made by Daiichi Sankyo Group.

Q38.Can we understand that exports of Levofloxacin will be stagnant, from now?

A38.We wish to grow this until the patents expire.