Alfresa : Integrated Report 2023≪All pages, 2 page spread≫

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Alfresa Holdings Corporation

1-1-3, Otemachi, Chiyoda-ku, Tokyo 100-0004, Japan TEL: [phone]E-MAIL: [e-mail] URL: https://www.alfresa.com/eng/

Alfresa Group Integrated Report

Alfresa Holdings Corporation

Alfresa Group

Integrated Report 2023

Fiscal Year Ended March 31, 2023

Table of Contents

To Our Stakeholders

The Alfresa Group's Value Creation

1. To Our Stakeholders
2. Values and Vision

4 The Pharmaceuticals Distribution Industry and the Functions Required of a Pharmaceuticals Wholesaler

6 Business Domains and Business Models

8 Progress in Value Creation and the Strengths We Have Cultivated

1. Prospects for Further Value Creation Message from the President

1. Message from the President

Medium- to Long-Term Strategy

18 The Alfresa Group's Medium- to Long-Term Vision

22 Progress on Important Sustainability Issues and the 22-24Mid-term Management Plan

26 Performance Highlights and Future Outlook

Business Strategy

28 Ethical Pharmaceuticals Wholesaling Business

32 Self-Medication Products Wholesaling Business

1. Manufacturing Business

1. Medical-RelatedBusiness

1. Other New Businesses, Overseas Business

1. Total Supply Chain Services

Financial and Capital Strategies /

IT and DX Strategies

1. Financial and Capital Strategies

1. Furthering IT and DX

Non-Financial Strategy

50 The Alfresa Group's Social Mission

1. Contributions to Regional Communities
2. Contributing to Regional Healthcare
3. Human Resource Strategy

61 Environmental Initiatives

66 Initiatives to Reduce Environmental Impact

Governance

1. Roundtable Discussion with Outside Directors

1. Corporate Governance

1. Management Team

1. Engagement with Shareholders and Investors
2. Compliance and Risk Management

Data Section

1. 11-YearFinancial Summary

1. Analysis of Financial Status

1. Consolidated Financial Statements

96 Consolidated Balance Sheets

1. Consolidated Statements of Income and Comprehensive Income
2. Consolidated Statements of Changes in Net Assets
3. Consolidated Statements of Cash Flows 102 Corporate Profile
   103 Stock Information

Editorial Policy

This integrated report was edited while referring to the following guidelines and disclosure standards:

• International Financial Reporting Standards (IFRS) Foundation's Integrated Reporting Framework and SASB Standards
• Ministry of Economy, Trade and Industry's Guidance for Integrated Corporate Disclosure and Company-Investor Dialogues for Collaborative Value Creation
• Global Reporting Initiative Standards
  For additional ESG information, please visit the Company's website.

Corporate Governance

https://alfresa.com/eng/csr/esg/governance/corporategovernance/

Sustainability

https://www.alfresa.com/eng/csr/

ESG Data https://www.alfresa.com/eng/csr/report/

Scope Covered:

Alfresa Holdings Corporation	Self-Medication Products Wholesaling
Ethical Pharmaceuticals Wholesaling	Business
• Alfresa Healthcare Corporation
Business	Manufacturing Business
• Alfresa Corporation
• Shikoku Alfresa Corporation	• Alfresa Pharma Corporation
• TS Alfresa Corporation	• QINGDAO NESCO MEDICAL CO., LTD.
• Meisho Co., Ltd.	• Alfresa Fine Chemical Corporation
• RYUYAKU CO., LTD.	Medical-Related Business
• Tohoku Alfresa Corporation
• Alfresa Medical Service Corporation	• APOCREAT Corporation
• Alfresa Shinohara Chemicals Corporation	Information system business for the
• A⋅L plus Co., Ltd.
	Alfresa Group
	• Alfresa System Corporation

Period Covered

April 1, 2022, to March 31, 2023

Production Process

The Alfresa Group utilizes the integrated report while engaging in dialogues with investors to elicit their opinions. In addition, the Group distributes the integrated report to all Group employees and collects their opinions and impressions. The outcomes of these engagements are reflected in the planning and production of the following year's integrated report in a bid to continuously improve its content.

The content of the integrated report is communicated to directors and members of the Audit & Supervisory Board and published with the approval of the officer in charge of corporate communication.

Reflect opinions of investors, employees,

and other stakeholders

Plan and produce the report

Report to directors, receive approval from the officer in charge, and then publish

Utilize the report when engaging with investors and employees

Aiming to Realize a Healthcare Consortium

September 29, 2023 marks Alfresa Holdings Corporation's 20th anniversary of establishment. In 2003, AZWELL Inc. and Fukujin Co., Ltd., conducted a share transfer that established Alfresa Holdings. The Company, whose main focuses were the Ethical Pharmaceuticals Wholesaling Business and the Manufacturing Business, has grown through targeted nationwide development of the wholesaling business. Later, the Company restructured the Self-Medication Products Wholesaling Business, reinforced the Manufacturing Business, expanded the dispensing pharmacy business, spun off the SPD business to a wholly owned subsidiary, and entered the research reagent wholesaling business, molding itself into today's Alfresa Group. I would like to take this opportunity to thank all of the people who have supported the Group's growth to date.

The Group's operating environment is changing rapidly, affected by such factors as an aging population, a shrinking workforce, rising social insurance costs, technological innovation and digitalization, and Japan's nationwide implementation of the Community-Based Integrated Care System.

In this report, we look beyond the 22-24Mid-term Management Plan. We focus on the Company's direction leading up to the fiscal year ended March 31, 2023, as outlined in the Alfresa Group's Medium- to Long-Term Vision, to introduce comprehensively from a variety of perspectives the activities aimed at realizing Our Vision as outlined in our corporate principles: "We aim to become a Healthcare Consortium that provides products and services in every health-related field."

We look forward to demonstrating the ongoing progress of the Alfresa Group to our stakeholders.

Alfresa Group Integrated Report 2023

1

The Alfresa Group's Value Creation

Values and Vision

The Alfresa Group is committed to working to address the eight Important Sustainability Issues that were identified in accordance with the Group's principles and Basic Sustainability Policy. The 22-24Mid-term Management Plan, which goes through the fiscal year ending March 31, 2025, and the Alfresa Group's Medium- to Long-Term Vision, which continues to the fiscal year ending March 31, 2033, are milestones along the path to the Group's goal of becoming a "Healthcare

The Alfresa Group's Basic Sustainability Policy

Consortium that provides products and services in every health-related field."

The Alfresa Group's Principles

Our Philosophy

We create and deliver a fresh life for all.

The Alfresa	The Alfresa	The Alfresa
Group's
Group's Human	Group's
Environmental
Rights Policy	Diversity Policy
Policy

Corporate	The Alfresa
Group
Governance
Compliance
Guidelines
Guidelines

Important Sustainability Issues

1. Improvement of quality of products and services
2. Value creation and innovation
3. Environmental protection
4. Contribution to local communities
5. Active participation of human resources
6. Compliance
7. Risk management
8. Corporate governance

Our Vision

We aim to become a Healthcare Consortium that provides products and

services in every health-related field.

Our Promises

Reliability Safety Sincerity

• We always provide reliable products and services and strive to enhance customer satisfaction.
• We respect individual characteristics and personalities and strive to maintain and improve a pleasant working environment.
• We raise corporate value as a corporate group operating in the health-related industry.
• We conduct proper trade under fair and free competition.
• We strive to proactively engage with society by providing appropriate information in a timely manner.
• We contribute to local communities through our business operations.
• We strive to protect the global environment.

Note: Healthcare Consortium is a registered trademark owned by the Alfresa Group in Japan.

The Alfresa Group's Aspiration (Long-Term Goals)

Become a Healthcare Consortium that provides products and

services in every health-related field

Medium- to Long- Term Vision

Improve corporate value over the medium to long term by becoming a Healthcare

Consortium and improving capital efficiency through balance sheet controls

22-24Mid-term Management Plan

Leap into the Future

"An Evolving Healthcare Consortium"

1.Enhancement of business models and creation of new value

2.Contribution to local health and treatments through united Group efforts

3.Contribution toward a sustainable society through initiatives to protect the environment

4.Promotion of a human resource strategy focused on diversity

5.Cultivation of a corporate culture with compliance as its highest priority

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3

The Alfresa Group's Value Creation

The Pharmaceuticals Distribution Industry and the Functions Required of a Pharmaceuticals Wholesaler

The Alfresa Group has built a robust distribution network for ethical pharmaceuticals that it refers to as a capillary-type distribution network. By enhancing functionality to keep pace with medical advances and changes in the social environment, we will continue to ensure a stable supply of needed pharmaceuticals when and where they are required.

Japan's Demographics and

Social Security Costs

Japan's social insurance system depends fairly heavily on public fund- ing, while keeping a definitive relationship between the benefits from and payments into the social insurance system. In recent years, this dependency on public funding has increased markedly, as the number of later- stage elderly people receiving health- care and nursing benefits has grown. The government is, therefore, trying to curtail the increase in expenditures related to social insurance relative to the growth in the number of elderly people. The cost of pharmaceuticals is being reviewed, and a more efficient and high-quality healthcare provision system is being created.

Framework for

Pharmaceuticals

Distribution in Japan

Pharmaceuticals include ethical pharmaceuticals that are prescribed by doctors and used in accordance with their instructions, and over-the-counter (OTC) pharmaceuticals that consumers can buy at drugstores and other places. Approximately 96% of pharmaceuticals handled by pharmaceuticals wholesalers are ethical pharmaceuticals, and nearly all of these ethical pharmaceuticals (except some generic drugs) are procured from manufacturers by pharmaceuticals wholesalers, who deliver them to medical institutions. Pharmaceuticals wholesalers distribute the majority of OTC pharmaceuticals to drugstores, etc.

Pharmaceuticals wholesalers play a key role in the distribution of pharmaceuticals in Japan.

Source: The Federation of Japan Pharmaceutical Wholesalers Association's Guide for Fiscal 2023

NHI Drug Price Standard

System and Actual

Market Prices

Through the National Health Insurance (NHI) Drug Price Standard system, the national government sets official drug prices and lists the drugs that are covered by the NHI system. Medication charges that arise when medical institutions bill for medical fees or when dispensing pharmacies bill dispensing fees are calculated based on NHI drug prices. Starting in April 2021, NHI drug price revisions became annual revisions in practice with the introduction of interim-year revisions. These revisions are designed to reflect actual market prices (wholesale prices) into official drug prices in a timely fashion, thereby closing the gap between official and market prices.

NHI drug price

The official price of ethical pharmaceuticals decided by the national government

Wholesale price (market price)

The price of pharmaceuticals sold by pharmaceuticals wholesalers to medical institutions

Wholesale procurement cost

The price that pharmaceuticals wholesalers pay to procure pharmaceuticals from manufacturers

Structure of Profits at

Ethical Pharmaceuticals

Wholesalers

Profits at ethical pharmaceuticals wholesalers are derived from the primary trade price spread between the wholesale price and wholesale procurement cost, rebates*2 and allowances*3 that manufacturers pay to wholesalers, and information provision fees, etc.*4 Negative primary trade price spread*5 continues at ethical pharmaceuticals wholesalers.

*2 Rebates: Discounts and refunds based on transaction volume, payment conditions for purchases, and delivery methods, etc.

*3 Allowances: Rewards for sales marketing activities

*4 Information provision fees, etc.: Fees for providing

information about sales records, product recall fees, and post-marketing survey fees

*5 Negative primary trade price spread: Where the wholesale price is lower than the wholesale procurement cost

Industry-Specific Business

Practices and the

Guidelines*6

In 2018, the government drew up guidelines (revised in January 2022) for the purpose of accelerating initiatives to improve distribution and address issues in the distribution of ethical pharma- ceuticals, striving to eliminate the negative primary trade price spread, ending the practice of deliveries prior to price agreements,*7 and promoting unit price-based transactions.*8 Related parties to the guidelines have been following them accordingly.

*6 The guidelines: Guidelines for the Improvement of Commercial Transaction Practices of Ethical Drugs for Manufacturers, Wholesalers, and Medical Institutions / Pharmacies published by the Ministry of Health, Labour and Welfare

*7 The practice of deliveries prior to price agreements: Transactions where products are delivered to medical institutions, etc., prior to agreements on wholesale prices

*8 Unit price-based transactions: Transactions with wholesale prices set for individual pharmaceuticals to end the practice of bundled transactions, where discounts are negotiated on the total price of several pharmaceuticals

Universally Required Functions

Functions That Will Be Required by Pharmaceuticals Wholesalers in the Future

Ensuring the Timely Delivery

of Pharmaceuticals Where

They Are Needed

Whether in normal times or during disasters or pandemics, the supply of lifesaving pharmaceuticals must never be interrupted. Systems must be established to provide a stable supply of pharmaceuticals to medical institutions and other healthcare facilities nationwide.

Strictly Controlling the Quality of Pharmaceuticals

Given that pharmaceuticals are lifesaving products, strict quality control must be maintained throughout the distribution pro- cess. Compliance with PIC/S GDP,*1 the international standard for the appropriate distribution of pharma- ceuticals, requires strict temperature management within specific ranges, regardless of the season.

*1 PIC/S GDP: International guidelines that define appropriate methods to ensure the integrity of pharmaceutical products during the distribution process

Connecting Pharmaceutical

Companies and Medical

Institutions

Pharmaceuticals wholesalers play various roles to safely and sincerely deliver lifesaving pharmaceuticals from the companies that produce them to medical institu- tions. These roles include proposing efficacious and safe pharmaceuticals that match patients' needs, utilizing nationwide sales and distribution net- works, and providing information to pharmaceutical companies and medical institutions.

Selling Based on the Value of Pharmaceuticals

Actual market prices of pharmaceuticals need to be promptly reflected in official drug prices. To eliminate disparities between the two, the valuable pharmaceuticals that companies have developed need to be individually priced and sold at appropriate prices.

Responding to New Modalities

Recent years have seen advances in the practical application of pharmaceuticals for various new modalities, such as nucleic acid medicine, cell therapy, and gene therapy. In addition to therapeutic drugs, we have seen advances in diagnostics to determine hereditary tendencies in disease risk and highly specialized personalized medicine, requiring a wide variety of pharmaceuticals that are produced in small lots.

Connecting the Medical Practitioners Who Attend Patients

Efforts are underway in various regions to develop the Community-Based Integrated Care System, which provides comprehensive services in health- care, caregiving, and lifestyle support. This system aims to help individuals to continue living in familiar communities, maintaining their own unique lifestyles, even if they require long-term care. This approach requires coordination among and collaboration of various medical practitio- ners, including hospitals, clinics, pharmacies, and professionals in the caregiving and related fields, to create a supportive community network.

Increasing Patient Access to Healthcare

With the advancement of the Community-Based Integrated Care System and the digitalization of healthcare, we anticipate greater demand for pharmaceutical deliveries to patients' homes. Additionally, the development of therapeutic drugs for rare diseases is progressing, prompting the need for support to connect patients who previously had no effective treatment options to appropriate therapies.

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The Alfresa Group's Value Creation

Business Domains and Business Models

Medical products, starting with the pharmaceuticals that are prescribed at hospitals and distributed at dispensing phar- macies, play a vital role in maintaining people's health and lives. Centered on the Ethical Pharmaceuticals Wholesaling Business, the Alfresa Group is engaged in a range of business fields, including the manufacture and wholesale of pharmaceuticals and other products to the operation of dispensing pharmacies. The Group works as one to support the pharmaceutical supply chains that are part of Japan's social infrastructure. By expanding and transforming our business portfolio, we aim to become a Healthcare Consortium capable of providing products and services in a host of health- related areas.

Net Sales	1.8%
¥2,696.0 billion	9.1%
Operating Income
¥30.1 billion	88.8%

1.3%	1.4%
Net sales	7.0%
composition
ratio
	89.5%

1.1%

Operating

income

composition

ratio

Ethical Pharmaceuticals

Wholesaling Business 

Self-Medication Products

Wholesaling Business 

Manufacturing Business

Medical-Related Business

Suppliers

Number of distribution bases 217

Investors and shareholders

Number of "our people" 14,117(consolidated)*1

Customers

Approx. 1,680

manufacturers

Manufacturing contracts

Procurement

Procurement

Procurement

Pharmaceutical companies, etc.

Information

Investments

Manufacturing Business

Procurement

Ethical Pharmaceuticals Wholesaling Business

Procurement

Self-Medication Products Wholesaling Business

Products Products

Medical-Related Business

Business Development

Overseas Business Development

Development of Information Systems for Customer and Supplier Support

Shareholder returns, etc.

Manufactures and markets active pharmaceutical ingredients (APIs), pharmaceuticals, diagnostic reagents, medical devices, and other products, and undertakes consigned manufacturing of pharmaceuticals

Provides ethical pharmaceuticals and other products, including diagnostic reagents and medical devices and materials, and provides services to hospitals, clinics, dispensing pharmacies, and other customers

Provides OTC drugs, health foods, supplements, and other products to drugstores and pharmacies

Provides a range of services to patients via the dispensing pharmacy business and other businesses

In addition to collaborating with business segments within the Group, by working with various companies, we aim to promote business related to regenerative medicine products, support the Community-Based Integrated Care System with digital technol- ogy, and foster initiatives to develop data-driven businesses.

Develops our business mainly in Asia through our own initiatives as well as partnerships with overseas companies

Develops and promotes shared use of information systems for the Group, aiming to improve the efficiency, sophistication, and standardization of pharmaceuticals distribution

Pharmaceutical information

providers

Medical representatives (MRs)

SPD*2 business

Pharmaceuticals sales force

Marketing specialists (MSs)

2,970 persons

Products

Delivery specialists

Sales assistants (SAs)

2,097 persons

Dispensing pharmacists

911 persons

Service

Information

Approx.

200,000

locations

Medical institutions (hospitals, clinics, etc.)

Dispensing phar-

macies, drug- stores, nursing care facilities, etc.

Dispensing

Patients

Fresh life for all.

*1 Includes part-time and temporary employees (2,345 = Average number of workers per year) (As of March 31, 2023) *2 Supply, processing, and distribution (SPD): Contract logistics within hospitals

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The Alfresa Group's Value Creation

Progress in Value Creation and the Strengths We Have Cultivated

At the outset, the Alfresa Group had two businesses: the Ethical Pharmaceuticals Wholesaling Business and Manufacturing Business. To take our Ethical Pharmaceuticals Wholesaling Business nationwide, we grew through consolidations and mergers. Later, the Company restructured the Self-Medication Products Wholesaling Business, reinforced the Manufacturing Business, expanded the dispensing pharmacy business, spun off the SPD business to a wholly owned sub- sidiary, and expanded its network in the diagnostic reagent wholesaling business, molding itself into today's Alfresa Group.

No.1net sales

in the ethical pharmaceuticals ­ wholesaling industry

Overview of the Parent Organizations

Prior to the Group's Foundation (Partial)

1918

Yokoi Pharmacy

1948					Operating income
				¥12.4 billion
Showa Pharmaceuticals (Aichi Prefecture)
AZWELL Inc.
	2003
1952		Alfresa Holdings	¥1,066.5 billion
		Corporation
Nippon Shoji Kaisha, Ltd. (Osaka Prefecture)	established

1920

Nakashima Shigeru Shoten

1964		Net sales
Fukujin Co., Ltd.
(Tokyo Prefecture)		Sales / Operating Income

Development of the Self-Medication Products Wholesaling Business and the

Manufacturing Business based on the Ethical Pharmaceuticals Wholesaling Business

¥2,744.0 billion

¥32.0

billion

Leveraging Our

Strengths to

Create Value

Business alliances with wholesalers of foods, cosmetics, daily necessities, etc., and

expansion into healthcare and medical-related domains such as the dispensing pharmacy business

1938	2004.3	2005.3	2006.3	2007.3	2008.3	2009.3	2010.3	2011.3	2012.3	2013.3	2014.3	2015.3	2016.3	2017.3	2018.3	2019.3	2020.3	2021.3	2022.3	2023.3	2024.3
Fukujin Pharmacy
																				(forecast)

History of the Alfresa Group

Until September 2003

Formation of the Pharmaceuticals Wholesaling Distribution System

As products that play an essential role in human life, pharmaceutical products need to be delivered on time where needed. Most pharmaceuticals wholesaling compa- nies, therefore, started out as sales agencies for designated ethical pharmaceuticals manufacturers, and over many years they have built close relationships in every area to form a distribution network for ethical pharmaceuticals wholesaling.

September 2003

Establishment of Alfresa Holdings Corporation

Alfresa Holdings Corporation was established as the joint holding company of Fukujin Co., Ltd., based in the Kanto region, and AZWELL Inc., based in the Tokai and Kansai regions, marking the start of its journey as a next-generation group of pharmaceuticals wholesaling companies that contribute to human health by providing the products and services their customers need under the vision of becoming a Healthcare Consortium.

March 2009

Becoming Japan's Top Wholesaler Group*1 for Ethical Pharmaceuticals

Leading regional companies that share our vision for a Healthcare Consortium joined the Alfresa Group, which became Japan's top wholesaler of ethical pharmaceuticals after building a nationwide distribution network. This distribution network played a vital role in ensuring the steady supply of pharmaceuticals in society after the Great East Japan Earthquake in 2011.

*1 Source: Internal data

At present

Expansion into Domains Related to Health and Medicine

The Alfresa Group meets changing market and customer needs with its supply chain for pharmaceuticals and other products, spanning produc- tion, wholesale, and retail sales. In addition, the Group has built collaborative and cooperative relationships with companies outside the Group in different sectors to diversify its business domains and create new value- added services.

Strengths We Have

Cultivated in the

Ethical

Pharmaceuticals

Wholesaling

Business

A Highly Functional Logistics Infrastructure

The Alfresa Group sources products totaling around 350,000 stock-keeping units (SKUs) from approximately 1,000 companies in the ethical pharmaceutical wholesaling business. We have 16 logistics centers located across Japan's most populous prefectures. We also have four urban pharmaceutical centers in areas with high concentrations of medical institutions. This nationwide network enables us to supply safe, secure, high-quality pharmaceuticals to medical institutions across Japan at all times.

• Steady supply system with 209 distribution bases across Japan
• • 16 large-scale distribution centers across Japan
  • 4 urban pharmaceutical centers across Japan
  • 9 facilities for the management
    and storage of regenerative medicine products across Japan
• 2 regenerative medicine distribution stations located in the east and west parts of Japan, respectively

• Figures for Ethical Pharmaceutical Wholesale Business

Abundant Human Capital

The people who work with us at the Alfresa Group enter the Company with a sense of mission to support the social infrastructure-a focus that is developed further over the course of their careers.

• Our approximately 2,800 marketing specialists*2 involved in the ethical pharmaceutical wholesaling business maintain strong contacts with medical institutions and other customers, visiting them in person and conducting sales remotely (e.g., online). Of this number, some 2,000 are certified as medical management specialists, who help to realize the Community Health Care Vision by connecting medical practitioners, patients, and family members. In addition, around 2,000 sales assistants support the stable supply of pharmaceuticals.

*2 Marketing specialists (MSs): Sales personnel who have special knowledge about products and services in the pharmaceuticals wholesaling business

• Approximately 2,800 marketing specialists

• Over 2,000 medical management specialists

• Over 2,000 sales assistants

Strong Relationships of Trust with Suppliers

One of the Alfresa Group's strengths is the strong relationships of trust it has built with medical institutions, as well as with pharmaceutical companies and other suppliers. Based on long-standing,trust-based business relationships cemented by its marketing specialists, the Alfresa Group has earned the leading share of the Japanese market in the ethical pharmaceuticals wholesaling industry. The Group's many functions also underpin robust relationships with numerous business partners. These functions include a nationwide sales network, the ability to make pharmaceutical proposals, fair pricing based on product value, high-quality logistics, and the provision of information to business partners.

• The number-one share of sales in Japan
• Over 160,000 customer institutions
• Approximately 1,000 companies in the ethical pharmaceuticals wholesaling business

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The Alfresa Group's Value Creation

Prospects for Further Value Creation

Building upon our strengths in the Ethical Pharmaceuticals Wholesaling Business, which include strong relationships with our trading partners, a highly functional logistics infrastructure, and abundant human capital, we will focus on enhancing the businesses the Group was founded on, fostering growth businesses, and developing new businesses as sources of value creation. Through digitization, digitalization, and digital transformation, we aim to leverage the functionality of our pharmaceutical supply chain, built across the entire Group, to strengthen and expand our total supply chain services. We are committed to creating social value by contributing to patients, medical practitioners, medical institu- tions, local communities, and domestic and international companies.

Medical Practitioners, Medical Institutions, Local Communities

Contributing to Community Healthcare

Sources of Value Creation

Strong Relationships of Trust with Suppliers

Our strong relationships of trust with pharmaceutical companies and other suppliers enable us to deliver a wide range of products and services to our customers nationwide, including medical institutions and dispensing pharmacies. In the ethical pharmaceuticals wholesaling industry, we have earned the leading share of the Japanese market.

• To ensure that we remain the company of choice for busi- ness partners and customers, we will continue to improve our logistics infrastructure and leverage our abundant human capital. Furthermore, we will strive to help resolve the challenges our business partners and customers face.

Highly Functional Logistics Infrastructure

As part of the social infrastructure that distributes lifesaving pharmaceuticals, we have logistics bases located close to medical institutions. We maintain substantial levels of inventory and ensure appropriate temperature control, doing our utmost to provide pharmaceuticals reliably, safely, and sincerely to medical institutions and patients.

• We will continue expanding our capabilities to accommo- date new modalities and adapt to the need for small-lot,high-mix pharmaceuticals as the field of personalized medi- cine expands.

Abundant Human Capital

In the Ethical Pharmaceuticals Wholesaling Business, we have around 2,800 marketing specialists, who work with some 2,000 sales assistants to sustain a steady supply of pharmaceuticals. They also provide new value that contributes to medical institutions, as well as the pharmaceutical companies that are our suppliers.

• We will leverage digital technology to help streamline busy medical environments by reducing physicians' workloads and enhancing operational efficiency. We will also connect medical and care professionals with individuals through the activities of marketing specialists qualified as medical management specialists. In addition, we will provide information to physi- cians via pharmaceutical companies' MRs* and create oppor- tunities for communication among medical practitioners, allowing them to focus even more on patient care.

• MRs (medical representatives): Salespeople at pharmaceutical manufac- turers who provide information about drugs to doctors and pharmacists, as well as gather and communicate information

Enhance and

Expand Total Supply

Chain Services

Strengthen Core Businesses

• Ethical	• Manufacturing
Pharmaceuticals	Business
Wholesaling Business	• Dispensing pharmacy
• Self-Medication	business
Products Wholesaling
Business

Cultivate Growth Businesses

• Medical goods	• Newly developed
• Self-prevention	pharmaceuticals
products	• Post-marketing sur-
• New channels	veillance, etc.

• Consigned manufac- turing of pharmaceuticals

Develop New Businesses

• Regenerative medi-	• Treatment-adjacent
cine supply chain	business
• Health technology,	• Dispensing center
data-driven business	business, etc.

Furthering Digital Transformation (DX)

We will combine the in-person sales function of the Ethical Pharmaceuticals Wholesaling Business with digital tools to promote workstyle reforms for medical practitioners and enhance the operational efficiency of medical institutions. We will promote activities that connect these parties by utilizing digital tools and contributing to initiatives such as the Community-Based Integrated Care System.

Patients

Extending Healthy Life Expectancies

We aim to improve access to pharmaceuticals by providing the necessary products and services to patients at the right time and in the appropriate manner, thereby contributing to their treatment, health, disease prevention, and overall quality

of life. Our goal is to extend healthy life expectancies.

Domestic and

Overseas Companies

Contributing through Innovations in Healthcare

By providing manufacturing, distribution, and new services to R&D-oriented companies in Japan and overseas, we will create an environment in which pharmaceutical companies can focus their resources on drug discovery. For patients, this will lead to new treatment options.

Our Aspiration

By leveraging Group synergies in our manufacturing functions, wholesale and distribution functions, family pharmacy functions, and information management functions in the health and medical fields, we aim to accompany people along their life journey and become a "Healthcare Consortium that provides products and services in every health-related field."

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Message from the President

Message from the President

We aim to become a Healthcare Consortium

as we strive to enhance our corporate value over the medium to long term.

Looking Back on 20 Years of Progress

Alfresa Holdings Corporation celebrated its 20th anniversary in September 2023. We would like to express our sincere gratitude to all stakeholders who have supported our growth thus far.

In 2007, four years after its establishment, I had the honor of joining the Group from CS YAKUHIN CO., LTD., when I was appointed Company director. I still vividly remember the energy and passion that filled the room when I attended my first Board meeting, where veterans from Group pharmaceutical wholesale companies nationwide gathered to discuss and generate ideas. Since then, companies around Japan have joined the Group, not only in ethical pharmaceuticals wholesaling but also in such areas as self-medication whole- saling, pharmaceuticals manufacturing, and dispensing pharmacies. Accordingly, net sales have grown from around ¥1.0 trillion to nearly ¥2.7 trillion, and our business scale has expanded. Over the past 20 years, we have truly been forming a Healthcare Consortium.

In 2019, the Japan Fair Trade Commission conducted an on-site inspection of Alfresa Corporation for an alleged violation of the Antimonopoly Act. Following this inspection, I assumed the post of president and representative director in June 2020 as part of a renovation of the management struc- ture. The COVID-19 pandemic broke out that same year, and the following year marked the start of interim NHI drug price revisions. In short, we faced some strong headwinds during that three-year period but we were able to strengthen our structure. One way was integrating businesses within different segments-theSelf-Medication Products Wholesaling Business, the Manufacturing Business, and the dispensing pharmacy business-and boosting management efficiency. In the Ethical Pharmaceuticals Wholesaling Business, we

Ryuji Arakawa

Representative Director & President Alfresa Holdings Corporation

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13

Message from the President

Message from the President

have enhanced Group governance in response to delivery improvement guidelines and are addressing challenges within the pharmaceuticals distribution industry. Additionally, we have actively invested in health technology and venture companies in drug discovery. We believe that such collaboration with promising outside partners is essential to adapt to the rapidly changing operating environment.

We have made significant progress in formulating various policies and guidelines related to sustainability and implementing corresponding initiatives. We established the Basic

Sustainability Policy, as well as formulated the Diversity Policy, the Environmental Policy, and the Human Rights Policy. Starting in 2022, we also began disclosing information following the recommendations of the Task Force on Climate- related Financial Disclosures (TCFD). I firmly believe that sustainability initiatives are essential for embodying Our Philosophy, where "we create and deliver a fresh life for all," one of the principles of the Alfresa Group. The framework we have established over the past three years will be a cornerstone of the Group's sustainable growth.

Background to the Formulation of the Alfresa Group's Medium- to Long-Term Vision

The Group's operating environment is changing rapidly due to the implementation of interim-year NHI drug price revisions and rising logistics and other costs. We recognize that our survival hinges on our ability to respond swiftly to these changes.

Against this backdrop, we formulated the Alfresa Group's Medium- to Long-Term Vision, which we announced in May 2023, to consistently enhance corporate value over the medium to long term. By taking a longer-term perspective that extends beyond the medium-term management plan, our vision outlines a clear growth story for enhancing our corporate value and sets specific target values for up to the fiscal year ending March 31, 2033, 10 years hence. The Alfresa Group's Principles are at the core of our

management. We have aligned the principles with the Alfresa Group's Aspiration (Long-Term Goals) under the Basic Sustainability Policy. The background for this plan is our recognition of the Group's stock market valuation; our PBR has been below 1 since 2020. By formulating and executing an attractive growth strategy, we aim to clarify our forward direction and undertake measures to restore profits. We also believe in the importance of improving capital efficiency by improving our balance sheet controls. Taking into account the changing environment, we have decided to formulate a financial and capital strategy that focuses on expanding profits in core businesses and growth and new businesses, while building an optimal capital structure.

that have the potential to save many patients, we can contribute to regional medical cooperation and further enhance our Group's mindshare among medical institutions.

Due to the interim NHI drug price revisions, which result in substantial annual adjustments, improving profit margins under the conventional business model for ethical pharmaceuticals wholesaling has become difficult. While we continue working to improve distribution and aim to secure profits by

development of these growth businesses will be a key factor in realizing our medium- to long-term vision.

In new businesses, we will engage in health technology and data business, such as the GEKKA WORKS initiative mentioned earlier, as well as regenerative medicine supply chain services and the dispensing center business. We aim to generate ¥150.0 billion in sales by fiscal 2032 by developing and cultivating these businesses. Of these areas, we have particu-

Cultivating Growth and New Businesses by Leveraging the Foundations Cultivated to Date

selling at appropriate prices, we foresee difficulties in achieving any significant future improvements. Based on this

larly large aspirations for regenerative medicine supply chain services. The Japanese market for regenerative medicine is

The Alfresa Group's Medium- to Long-Term Vision sets numerical targets for the fiscal year ending March 31, 2033: net sales of ¥4.0 trillion, an operating income of ¥70.0 billion or more, and an ROE of at least 8.0%. As we work toward these goals, we will pursue a business strategy aligned with our objective of becoming a Healthcare Consortium. Also, we will promote balance sheet controls in a bid to augment capital efficiency. We analyzed PBR, PER, and ROE when formulating our financial strategy. PER reflects the low growth expectations for the pharmaceuticals wholesaling industry, including ourselves. ROE indicates our recent lackluster performance and shows how we have room to improve capital efficiency on the balance sheet. We believe these factors have been the main contributors to the current state of stagnation. I will outline our strategies in further detail below.

Our business strategy aims to boost the profitability of our core businesses, including the Ethical Pharmaceuticals Wholesaling Business. At the same time, we look to increase profits by expanding our growth and new businesses,

leveraging the strength that accrues from having a total supply chain that spans manufacturing to wholesaling and dispensing pharmacies. As the distributor of choice for pharmaceutical companies, our customers are growing ever more important in our core businesses. Understanding this, we will strengthen our logistics network, ensuring compliance with the PIC/S GDP international standard for properly distributing pharmaceuticals. At the same time, we need to remain the supplier of choice for medical institutions, who are also our customers. We believe Docshiru will make an important contribution in this regard. Docshiru is a membership-based web service for doctors offered by GEKKA WORKS Co., Ltd., which we established in November 2022. Docshiru allows doctors to share information and knowledge, facilitating the provision of sustainable, high-quality medical care in Japan. Doctors who have never met can use this platform to connect, improving the quality of healthcare, patient care, and physicians' working efficiency and ultimately providing unprecedented conve- nience. We believe that by offering services related to data

understanding, we believe developing growth businesses and new businesses is essential to achieving the goals outlined in the Alfresa Group's Medium- to Long-Term Vision. Growth businesses encompass various activities, such as the consigned manufacturing of pharmaceuticals and pharmaceutical development, which include formulations with high pharmacological activity through clinical trials undertaken in the Manufacturing Business. In the Ethical Pharmaceuticals Wholesaling Business, growth areas include medical goods and post-marketing surveillance (PMS*1). Self-prevention products represent one growth area in the Self-Medication Products Wholesaling Business. As of the fiscal year ended March 31, 2023, sales from these businesses amounted to approximately ¥250.0 billion. We aim to increase this figure to ¥850.0 billion by the fiscal year ending March 31, 2033. Medical goods such as diagnostic reagents and medical devices have been a particular focus for the past seven years. We are beginning to benefit from market growth, and these goods are steadily becoming a source of revenue. The

expected to be worth ¥850.0 billion by 2030.*2 We believe the Group can play an important role in this market. In addition to our manufacturing capabilities, we have a distribution function that allows us to reliably deliver products to medical institutions while understanding the needs of patients. Based on this analysis of the environment, in April 2022, we launched Cell Resources Corporation, intending to conduct businesses from cell extraction and processing to the manufacture of regenerative medicine. In April 2023, at Alfresa Holdings Corporation, we established the Total Supply Chain Services Planning and Promotion Department and, within that depart- ment, the Regenerative Medicine Planning and Development Office. Total supply chain services are unique to the Alfresa Group. We offer a seamless, end-to-end solution encompassing the introduction, development, manufacturing, logistics, distribution, and post-market surveillance of pharmaceutical products, including regenerative medicines. We support pharmaceutical companies engaged in drug discovery and development by ensuring a stable supply of regenerative medicine

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Message from the President

Message from the President

master cells in Japan. Additionally, we expand partnerships with major pharmaceutical companies, startups, and other partners to build supply chains for producing and delivering regenerative medicines to patients. Furthermore, assuming the trend toward regulatory relaxation continues, we believe the dispensing center business is a promising area in which to leverage our logistics expertise to contribute to our custom- ers, such as dispensing pharmacies.

Targeting an ROE of 8.0% or higher, we will consider the flexible implementation of share buybacks, as well as the raising of funds through debt. We will continue to engage in dialogue with investors in our quest for an optimal balance between financial soundness and capital efficiency.

*1 Post-marketing surveillance (PMS): Investigations conducted to ensure the quality, effectiveness, and safety of pharmaceuticals and medical devices after they are sold

*2 Source: "Fiscal 2019 Final Report on Regenerative Medicine and Gene Therapy Market Research Services," Arthur D. Little, Japan

and Cell Resources Corporation. In another major move, Cell Resources took over a regenerative medicine manufacturing business from Tella Pharma, Inc.

Given the recent disruptions in the supply system for generic drugs, we recognize the urgent need to reduce the burden on MSs*3 and other employees who provide support in the field. To improve the situation, we will utilize DX to drive

sales reforms. We are developing a "sales dashboard" system that consolidates and visualizes the customer information, action tasks, and alert notifications necessary for daily sales activities. This system will enable MSs to access the data they need for sales activities whenever they need it.

*3 Marketing specialists (MSs): Sales personnel who have special knowledge about products and services in the pharmaceuticals wholesaling business

These growth businesses and new businesses will enable us to grow and expand significantly on the back of our reputation by gaining the top market share for ethical pharmaceuticals wholesaling. We aim to leverage this strength beyond the Ethical Pharmaceuticals Wholesaling Business segment and

Maintaining Thorough Compliance While Fulfilling Our Mission As Part of the Social Infrastructure

extend it to the entire Group's operations. We will also enhance our offerings by integrating digital transformation (DX) and strengthening our total supply chain services.

Turning to our financial and capital strategies, our policy during the period of the 22-24Mid-term Management Plan is to maintain dividend on equity (DOE) of at least 2.4% and gradually improve it thereafter. To fulfill our role of ensuring a stable supply of pharmaceuticals while maintaining financial soundness, we will seek to optimize our capital structure.

We play a vital role as a part of the essential social infra- structure, just like suppliers of electricity, gas, and water, in ensuring stable access to pharmaceuticals to protect the nation's health. This underlying mission has remained unchanged and aligns with Our Philosophy, which is one of the Alfresa Group's Principles. Meanwhile, our ideal is to become a Healthcare Consortium that provides products and services in every health-related field. Rather than something that can ever be fully completed, I believe a Healthcare Consortium is an aspiration that should continuously evolve to meet the changing needs of society, patients, customers, and business partners.

The Alfresa Group's Medium- to Long-Term Vision outlines a story for creating social value. We have identified "extending healthy life expectencies," "contributing to community health- care," and "Contributing through Innovations in Healthcare" as the values we aim to create for society in the next 10 years. Among these, we believe that extending healthy life expectancies is the greatest challenge for Japan, a country with a long average lifespan. This is also the most meaningful value for us to create. We will help extend healthy life expectancies by improving access to pharmaceuticals, including regenerative medicines, and by contributing to treatment, health, preven- tion, and improvements in the quality of life of patients and

Steady Progress during the Mid-term Management Plan's First Year, but Acceleration Necessary

Going forward, I must continually maintain a "people come first" policy. The Group is built on cooperation and collaboration with various stakeholders; we should never forget this

customers. In addition, we will contribute to community healthcare through collaboration with health technology startups, focusing on reforming medical professionals' work-

In the fiscal year ended March 31, 2023, the inaugural year of the 22-24Mid-term Management Plan, the Ethical Pharmaceuticals Wholesaling Business benefited from the rising demand for medical goods, which pushed up net sales 4.3% year on year, to ¥2,696.0 billion. Likewise, operating income increased 3.6%, to ¥30.1 billion. Profit attributable to owners of the parent fell 19.9%, to ¥25,786 million, owing to a smaller gain on sale of investment securities than in the previous fiscal year, as well as to a write-down of investment securities and a provision for loss on Antimonopoly Act. During our first year under the plan, progress was generally on track. However, the impact of interim-year NHI drug price revisions was significant. The operating income margin was 1.12%, below our target of 1.5% for the fiscal year ending March 31, 2025. Therefore, we intend to accelerate the Group management policies outlined in the medium-term plan, such as the "enhancement of business models and creation of new value." In April 2023, we carried out organizational reforms within Alfresa Holdings Corporation. In addition to the previously mentioned Total Supply Chain Services Planning and Promotion Department, we have established the Group Medical Wholesaling Business Management

Department to augment the overall capabilities of the Ethical Pharmaceuticals Wholesaling Business.

In the fiscal year ended March 31, 2023, we welcomed Miyazaki Onsendo Shoten Co., Ltd., which engages in the Ethical Pharmaceuticals Wholesaling Business, into the Group as a wholly owned subsidiary. This move will increase our share in the Kyushu area and contribute to regional healthcare by enhancing our ability to respond to large-scale disasters. April 2023 marked a merger in the Manufacturing Business between Alfresa Pharma Corporation and Sannova Co., Ltd. Alfresa Pharma engages in the manufacturing, import and export, and marketing of diagnostic reagents, medical devices, and materials for pharmaceuticals in addition to the manufacturing and marketing of pharmaceuticals. Sannova handles contract manufacturing of pharmaceuticals and quasi-drugs. Through increased efficiency, the enhancement of our consignment marketing system, and the implementation of strategic investment, through this merger, we will pursue customer satisfaction by creating new value through consigned manufacturing and the manufacture and sales of pharmaceuticals and medical devices. We established GEKKA WORKS, described earlier, in new businesses

and prioritize the well-being of all stakeholders. We also need to uphold compliance indefinitely.

Antimonopoly Act violations must never be repeated. We should always prioritize ethical behavior over sales and profits and reflect on any past instances where we may have chosen other priorities. It is crucial that we not only continue implementing measures to prevent recurrence but also that executives, including myself, and the leaders of each Group company consistently emphasize the importance of prevention. We will continue working to ensure that our efforts to prevent recurrence do not become mere formalities and that each Group member remains highly aware of compliance. By expanding the Group's internal discussion of incidents related to the Antimonopoly Act and encouraging the reporting of similar cases, the number of consultations and reports to our dedicated compliance hotline and antitrust hotline have increased. We recognize that the mechanisms for prevention are currently functioning. However, there is a concern that, over time, memories may fade as people come and go in the organization. That is why we must consistently emphasize and enforce these principles across generations.

ing styles, improving medical institutions' management effi- ciency, and realizing the Community-Based Integrated Care System. We will also provide manufacturing, distribution, and new services to domestic and overseas companies, striving for innovation in healthcare. We believe that creating such social value and providing products and services in all health- related areas are the essence of enhancing our corporate value. In pursuing these challenges, we recognize that the support of our employees, as well as our business partners and stakeholders who work together with us, is essential. We sincerely ask for your continued understanding and support as we work to "create and deliver a fresh life for all."

September 2023

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