Fujisawa and Yamanouchi Will Establish Zepharma Inc., an OTC Pharmaceutical Company
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Fujisawa and Yamanouchi Will Establish Zepharma Inc., an OTC Pharmaceutical Company - JCN Newswire
Fujisawa and Yamanouchi Will Establish Zepharma Inc., an OTC Pharmaceutical Company

Tokyo, May 17, 2004 - (JCN Newswire) - Fujisawa Pharmaceutical Co., Ltd. (TSE: 4511) and Yamanouchi Pharmaceutical Co., Ltd. (TSE: 4503) have reached a definitive agreement to integrate their OTC businesses and establish a new joint venture through Joint Business NewCo Division, as previously announced on October 16, 2003. The board of directors of
the Parties made resolutions at their respective board meetings today to this effect.

The key highlight of the transaction is as follows:
1) The New JV will operate under the name of 'Zepharma Inc.' and commence its operations on October 1, 2004;
2) The New JV will be headquartered in Tokyo, Japan;
3) The Parties will have an equal equity ownership of 50:50 in Zepharma;
4) The New JV will have highly recognized brands in major therapeutic categories, such as gastrointestinal (Gaster 10), cold remedy (Precol and Cakonal), dermatological product (Makiron, Eurax, and PyroAce), anti-allergy drug (AG Eyes/AG Nose), and will strive to enhance its competitiveness and provide higher consumer satisfaction in the OTC pharmaceuticals market through the integration of marketing know-how and R&D capabilities of the Parties;
5) The New JV will aims to further improve its profitability with its focused and flexible organization comprising of 200 employees, as well as the establishment of more efficient operational structures ;
6) The New JV will be granted the first refusal rights for switch OTC pharmaceutical
candidates originating from the Parties.

Outline of the Corporate Division

1. Purpose of the Corporate Division

The Parties currently conduct OTC businesses in Japan (including quasi-drugs, cosmetics, and food, etc.) that are well recognized by and popular among the consumers. The establishment of Zepharma through Joint Business NewCo Division is intended to reinforce competitiveness in the OTC businesses, and strengthen the future growth of the New JV, by fully utilizing the synergies expected to result from the integration, including marketing know-how and R&D expertise of the Parties and so on, efficient organizational planning through specialization in core business functions by outsourcing manufacturing and logistics, and collaboration with the Parties focusing on the ethical pharmaceutical businesses.

Zepharma will operate under the spirit of self-independence and a new corporate culture which is neither that of Fujisawa nor Yamanouchi. The ultimate goal of Zepharma is to become a company that provides higher consumer satisfaction in the field of self-medication by responding to the changes in the OTC market trends in a timely manner by valuing the voices of consumers.

2. Summary of the Corporate Division

(1) Schedule of the Corporate Division:
Board Approval of the Corporate Division Plan: May 17, 2004
Signing of the Definitive Agreement: May 17, 2004
Effective Date of the Corporate Division: Oct. 1, 2004 (expected)
Registration of the Corporate Division: Oct. 1, 2004 (expected)

(2) Structure for the Corporate Division:
1) Structure of the Corporate Division-
This transaction is structured as Kyodo Shinsetsu Bunkatsu as effected under the Japanese Commercial Code, where the Parties separate their OTC businesses respectively and integrate the separated usinesses into Zepharma, the ordinary shares of which will be allotted to the Parties. The Joint Business NewCo Division hereunder will be conducted utilizing the Kan'i Bunkatsu (Simplified Division) program.
2) Rationale for the Selection of the Structure-
This structure was selected for the ease and flexibility in the separation of the OTC businesses of the Parties and subsequent establishment of the New JV in comparison with the structure utilizing conventional business transfer structure.

(3) Allotment of Shares:
1) Allotment Ratio-
The New JV will issue 6,000 ordinary shares in total allotted to Fujisawa and
Yamanouchi, 3,000 each.
2) Basis of Evaluation of Allotment Ratio-
Based on the results of valuation analyses conducted by financial advisors appointed
by each of the Parties, the Parties had negotiations and came to an agreement on the
above allotment ratio. The Parties have received fairness opinion on the allotment
ratio from a financial point of view from their respective financial advisors: Lehman Brothers for Fujisawa and Nomura Securities for Yamanouchi.

(4) Cash Payments through the Corporate Division:
Neither Parties will receive cash payment through the Corporate Division.

(5) Rights and Obligations to be Succeeded by the New JV:
The New JV will assume the assets and liabilities attributable to the Parties' OTC
businesses (includes quasi-drugs, cosmetics, and food, etc.), including any
corresponding rights, obligations and contractual positions there of on the effective date of the Corporate Division. The assets and liabilities to be assumed will be determined based on the balance sheet as of March 31, 2004 with certain subsequent adjustments done until one day prior to the effective date of the Corporate Division.

However, the New JV will not succeed any intellectual property rights of the Parties
which are related to the businesses other than the OTC businesses and any equity stakes in the Parties' respective OTC-related subsidiaries.

(6) Outlook of Fulfillment of Obligation:
The Parties will not obtain individual consent of the creditors to effect the transfer of the liabilities from each of the Parties to the New JV under the Corporate Division. As a result, a creditor can choose to claim their liabilities to any of the Parties or the New JV. However, each of the Parties or the New JV will take ultimate responsibility for the liabilities attributable to each of them, regardless of which one of the Parties or the New JV the creditor chooses to make a claim.

There would not be any predicaments affecting the certainty of fulfilling any obligations by either Fujisawa, Yamanouchi, or the New JV, as there is no event that is expected to occur which will adversely affect the fulfillment of such obligation after the effective date of the Corporate Division and that the Corporate Division is not expected to create any material impact on the position of the Parties.

(7) Directors and Auditors of the New JV:

Board Members
Rep. Director and President: Masaji Ohe Corporate Vice President, OTC & Consumer Products Division of Fujisawa Rep. Director and Executive Deputy President: Koji Yoshinaga Director of the Board, Consumer Healthcare of Yamanouchi Member of the Board: Yoshikazu Yokomaku Director of Sales Planning and Sales Promotion Dept., Consumer Healthcare Division of Yamanouchi Member of the Board: Masanori Yamada Associate Executive Director, OTC & Consumer Products Division of Fujisawa Member of the Board: Kenji Ando Director of Marketing Dept., Consumer Healthcare Division of Yamanouchi Member of the Board: Katsuhiko Yoshida Director, Planning & Administration, OTC & Consumer Products Division of Fujisawa Corporate Auditors
Corporate Auditor: Masaya Ishii Corporate Auditor of Fujisawa Corporate Auditor: Hajime Nakajima Director of the Board, Director of Consumer Business Dept. of Yamanouchi 5. Overview of the Transferor Corporations, Post Corporate Division:
The business names, principal location of office, paid-in capital, and fiscal year ends for the transferor corporations, post Corporate Division are as described above. Due to the Corporate Division, the business segments that are to be separated into the New JV will be eliminated from the business area of the transferor corporations, on a non-consolidated basis.

As a result of the transaction, total assets of Fujisawa and Yamanouchi are to decrease by approximately JPY1.6 billion and JPY1.8 billion, respectively.
On February 24, 2004, the Parties reached a basic agreement to merge as of April 1, 2005, and is currently in the process of concluding a definitive agreement.

6. Impact on the Financial Performance of the Transferor Corporations:
The new JV will be an affiliate company, which is consolidated to the Parties by equity method and the impacts on the Parties’ financial performance are included in expected figures for the fiscal year ending March 31, 2005 that were announced by Fujisawa and Yamanouchi on April 27, 2004 and May 13, 2004, respectively while the impacts are considered little.

Outline of Zepharma Inc.
Company Name: Zepharma Inc. Planned Date of Incorporation: October 1, 2004 Principal Location of Office: 7-1, Nihonbashi-Honcho 2-chome, Chuo-ku, Tokyo Paid-in Capital: JPY 300 million Ownership Ratio: Fujisawa 50%, Yamanouchi 50% Representative: Masaji Ohe, Representative Director and President,(Currently Corporate Vice President, OTC & Consumer Products Division of Fujisawa) Koji Yoshinaga, Representative Director and Executive Deputy President,(Currently Director of the Board, Consumer Healthcare of Yamanouchi) Number of Employees: Approximately 200 (roughly same number of employees are to be transferred) Business: Development and sales of OTC pharmaceuticals, quasi-drugs, cosmetics, and food, etc. Main Products: Gastrointestinal drug "Gaster 10", cold remedy "Precol" and "Cakonal", dermatological products "Makiron (disinfectant)," "Eurax (dermatological)," and "PyroAce (athlete's foot)", anti-allergy drug "AG Eyes/AG Nose," vitamin supplement "Neuvita Gold," natural ski soap "Minon," and condom line "Sunsea"
* Above outline are expected data as of the date of establishment, October 1, 2004

Origin of the Company Name

The name of the New JV, Zepharma is comprised of the combination of the Greek
terminology "ze" which means "to live", and "pharma" which describes a pharmaceutical company. The "ze" part also represents the pursuit of the ultimate (z) - "zetima" and everlasting passion - "zeal". Furthermore, the word "zephyr," which is pronounced similarly, describes the gentle breeze that carries a breath of Spring. The determination of the New JV, a determination to bring about fresh breeze into the world of self-medication with a strong passion to contribute to the comfortable well being of people, is included in the naming of Zepharma.

3. Management Philosophy/Vision

(1) Management Philosophy
-To contribute to the comfortable well-being of people by providing innovative products and information that enhance the quality of self-medication.

Mission Statement:
-Pursue the greatest consumer satisfaction
-Provide employees with a rewarding job and opportunities for self-fulfillment
-Sustain growth of the enterprise value
-Co-existence with the society and natural environment though fair minded
operational practices

-Always start from the voices of customers
-Trustworthy people, products, and process
-Idea is the most valuable asset
-Challenging innovation and speed
-Independence of individuals and teamwork
-Emphasize communication

(2) Vision
Goals for 2010:
-Achieve #1 consumer satisfaction in the field of self-medication
-Establish a profitable and competitive business model though proactive reforms
-Become a company with full of challenging spirit and dynamism with a culture to
reward those who exhibited excellence and effort

Performance Goals for 2010:
-Sales: Over JPY 50 billion(organic growth + external resources)
-Operating Income: 10% of sales
-Productivity per Employee: No. 1 in industry in sales and profits
-Ref: The business size of Zepharma estimated based on the latest results of Fujisawa and Yamanouchi is about JPY 23 billion.

4. Organization Structure

(1) Personnel
Employees: Approx. 200 (150 in Sales & Marketing)
Temporary Hires: Approx. 40
(2) Operational Bases
Headquarters (Tokyo), Research Laboratory (Yokohama), Branches (Sendai, Kannetsu,
Tokyo, Nagoya, Kyoto, Osaka, Hiroshima, Fukuoka), and Satellite Offices (Sapporo,
Chiba, Saitama, Yokohama, Kobe)
* Satellite offices are regional offices bases under the branches.

5. Basic Management Strategy

Management Strategy in Accordance with Development Stage:
-First Stage (stage for organic growth utilizing current resources): Increasing profitability and reinforcing growth, etc.
-Second Stage (stage for significant leap procuring external resources, in addition to organic growth): Acquiring products, M&A, etc.

Overall Strategy:
Establish a revenue base and corporate presence, and promote alliance strategy.
- Focusing & concentration - establish / reinforce revenue base through
improvement in efficiency
- Establish brand recognition and confidence among the consumers
- Adopt external resources / seek and materialize alliance opportunities

Management System:
Create a corporate culture that emphasizes on speed, performance, and prompt

Business Strategy:
Strengthen competitiveness and growth through integration.
- Sales/Marketing: Develop current major brands to its full potential Further focus on brands in the 3 major therapeutic categories with over JPY 3 billion in sales
(gastrointestinal drugs, cold remedy, and dermatological drugs (including athlete’s
- R&D: Enhance / Speed up the development of new products:
New products to be launched in midterm: gastrointestinal drugs, cold remedy, and life style drugs
- Quality Assurance: Institute fully reliable quality assurance and safety control systems from the perspective of consumers

About Fujisawa Pharmaceutical Company Limited

Fujisawa Pharmaceutical (TSE: 4511) produces and markets pharmaceuticals, medical equipment and supplies, home care business, chemicals and animal health products. The company is one of Japan's largest drug makers, with its main strength in antibiotics. About 35 percent of sales come from overseas, much of which is from sales of its immunosuppressive agent Prograf.

About Yamanouchi Pharmaceutical Co., Ltd.

Yamanouchi Pharmaceutical Co., Ltd. (TSE: 4503) is promoting collaboration with other pharmaceutical companies as well as bioventure companies and academia to raise the quality and speed of its R&D activities. Yamanouchi is accelerating new drug discovery research not only with its own R&D capability but also through alliances with a wide range of partners. Yamanouchi's primary objective in R&D is to create a steady stream of innovative new drugs.


Corporate Communications
Fujisawa Pharmaceutical Co., Ltd.
4-7, Doshomachi 3-chome, 
Chuo-ku, Osaka 541-8514, Japan
Tel: +81-6-6206-7857 
Fax +81-6-6206-5016

Corporate Communication Dept.
Yamanouchi Pharmaceutical Co., Ltd.
3-11, Nihonbashi-Honcho 2-chome, 
Chuo-ku, Tokyo 103-8411, Japan
Tel: +81-3-3244-3201 
Fax: +81-3-5201-7473

May 17, 2004
Source: Fujisawa Pharmaceutical Company Limited
Source: Yamanouchi Pharmaceutical Co., Ltd.

Fujisawa Pharmaceutical Company Limited (TSE: 4511)
Yamanouchi Pharmaceutical Co., Ltd. (TSE: 4503)

From the Japan Corporate News Network
Topic: Business Tieup

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