In April 2005, Kyowa Hakko made a new start as a technology-driven company with Pharmaceuticals and Bio- Chemicals as its core fields of operation. We have begun our Ninth Medium-Term Management Plan, under which we have positioned the next three years as a period of investment for the purpose of building a growth foundation, and we are planning aggressive investment in R&D. This section introduces the various topics that Kyowa Hakko is focusing on as it looks to the future.

In Pharmaceuticals, we have three key strategic objectives. The first is the reinforcement of our domestic operations. For two years, we have been implementing the SMART (Sales and Marketing Transformation) Project, which is beginning to show results with such core products as Coniel®, Allelock®, and Durotep® Patch. We will continue to advance this project and expand our domestic sales of pharmaceuticals.

The second objective is the promotion of the POC (Proof of Concept) Fast strategy, which will help us to compete with the giant, global pharmaceutical companies despite our smaller operational scale. Under this strategy, on the foundation of our strengths in drug discovery, we will conduct R&D with a special emphasis on speed from discovery to proof of concept. Once POC for new drugs is obtained, we will choose from a broad range of options, including joint research, out-licensing, and other alliances, with consideration for timing and success rate. In this way, we will launch new drugs more rapidly and maximizetheir value.
 
The third objective is the expansion of our overseas operations. We will build our presence in overseas markets by launching KW-6002, an anti-Parkinson’s disease agent, as soon as possible in Europe and the United States; by expanding our operations in China through the launch of Coniel® and Allelock®; and by emphasizing the operational development of our Potelligent™ strong-acting monoclonal antibody technology, which can provide dramatic results in the development of biopharmaceuticals.

In Bio-Chemicals, we have three key strategic objectives to leverage our distinctive strengths and record growth in the health care market on a foundation of amino acids and other fermented bulk products. The first objective is to enhance our market position by bolstering our cost competitiveness in amino acids. Kyowa Hakko and Ajinomoto Co., Inc., are the world’s two largest manufacturers of amino acids for pharmaceuticals, foods, and industrial applications, but in recent years companies in China and South Korea have entered the market with low-price strategies.

Kyowa Hakko will take steps to reinforce its production system with manufacturing bases in Japan, the United States, and China, including raising production capacity in China. At the same time, we will increase productivity through rationalization and the use of new manufacturing technologies, boosting our cost competitiveness in amino acids.

The second objective is to strengthen our health care operations, from which we expect future growth. By using our Healthcare Research Laboratories, we will identify consumer needs, develop products, and conduct planning and proposals, thereby expanding our mail order and OEM businesses. In the U.S. health care market, we will strengthen our marketing capabilities. In these ways, we will expand our health care operations.

The third objective is the creation of a future core field of business. In dipeptide operations, where we have developed a novel manufacturing process, we are aiming for the rapid launch of alanyl-glutamine, for which significant market expansion is expected in such applications as infusions, enteral nutrients, and so-called medical foods.

Our Chemicals operations had a new start in April 2004 under the name of Kyowa Hakko Chemical Co., Ltd., which targets flexible operational development and market-cultivation-oriented operations based on an integrated system spanning research, development, production, and sales. Strategic objectives for basic chemical products, such as solvents and raw materials for plasticizers, are to continue to promote joint ventures and other alliances with other companies, thereby bolstering the market positions of our core products and increasing our competitiveness. Next, we will expand our sales of high-value-added functional products for which market growth is expected, such as specialty chemicals and high-purity solvents, including environmentally friendly and IT-related products. At the same time, we will promote the development of new products and new markets and increase the share of Chemicals operations accounted for by these high-value-added products.

In April 2005, Food operations were separated into a wholly owned subsidiary, Kyowa Hakko Food Specialties Co., Ltd.

Kyowa Hakko Food Specialties’ mission is to earn the trust of customers by providing safe, high-quality products that contribute to improving health and diets. By using our fermentation and other original technologies, we are developing food materials that will earn distinctive market positions. With the establishment of a marketing system that unifies R&D and sales activities and a strengthened quality assurance system, Kyowa Hakko Food Specialties will develop markets with solutions-based marketing.

In seasonings, one of our core product areas, we aim to be a leader in natural seasonings, such as extract, amino acid, and brewed seasonings. In bakery products and ingredients, another core area, we will enhance our relationships with major bread companies by offering unique products, such as flavor enhancers and bread improvers.

Currently, we operate plants for the manufacture of natural seasonings and freeze-dried food materials in China. We will bolster our marketing capabilities in China and other Asian countries and work to develop new markets.