Chugai Pharmaceutical : Finance Report (Jan-Dec 2023) (Posted on March 28)

Chugai Finance Report

(An Excerpt of Securities Report 2023)

Fiscal year ended December 31, 2023

Consolidated Financial Statements

1. Consolidated income statement and consolidated statement of comprehensive income

(1) Consolidated income statement in millions of yen

Year ended December 31

(2) Consolidated statement of comprehensive income in millions of yen

Year ended December 31

2022

Net income recognized in income statement

Other comprehensive incomeRemeasurements of defined benefit plans (Notes 7 and 21) Financial assets measured at fair value through OCI (Notes 7 and 21)

Items that will never be reclassified to the income statement

325,472 374,429

2,055 3,021

(168) (282)

1,886

2,739

Financial assets measured at fair value through OCI (Notes 7 and 21)

Cash flow hedges (Notes 7 and 21)

Currency translation of foreign operations (Notes 7 and 21)

Items that are or may be reclassified to the income statement

6

(2,121)

7,012

4,897

(13)

(8,759)

5,540

(3,233)Other comprehensive income, net of tax (Note 7)

Total comprehensive income

Attributable to:

Chugai shareholders (Note 21)

6,783 332,256

(494) 373,935

332,256

373,935

2. Consolidated balance sheet in millions of yen

Assets Non-current assets:

Property, plant and equipment (Note 8)

Right-of-use assets (Note 9)

Intangible assets (Note 10)

Deferred tax assets (Note 7)

Defined benefit plan assets (Note 23)

Other non-current assets (Note 11)

Total non-current assets

Current assets:

Inventories (Note 12)

Accounts receivable (Note 13)

Current income tax assets (Note 7)

Marketable securities (Note 14)

Cash and cash equivalents (Note 15)

Other current assets (Note 16)

Total current assets

December 31, 2022

409,939 375,340

10,762 11,311

19,860 25,141

64,474 65,244

7,481 5,172

53,605 51,013

566,121 533,221

273,480 292,206

318,892 512,538

1,456 1,745

280,308 280,938

458,674 222,169

33,616 26,941

1,366,426

1,336,537

Total assets

Liabilities Non-current liabilities:

Deferred tax liabilities (Note 7)

Defined benefit plan liabilities (Note 23)

Long-term provisions (Note 17)

Other non-current liabilities (Note 18)

Total non-current liabilities

Current liabilities:

Current income tax liabilities (Note 7)

Short-term provisions (Note 17)

Accounts payable (Note 19)

Other current liabilities (Note 20)

Total current liabilities

1,932,547

1,869,758

(5,787) (7,086)

(3,146) (3,311)

(2,593) (2,756)

(7,224) (8,489)

(18,750) (21,641)

(40,798) (98,543)

(3,442) (1,980)

(112,468) (209,835)

(131,510) (113,372)

(288,217)

(423,730)

Total liabilities

(306,967)

(445,372)

Total net assets

Equity:

Capital and reserves attributable to Chugai shareholders (Note 21)

1,625,580

Total equity

1,424,387

1,424,387

1,625,580

1,424,387

Total liabilities and equity

1,869,758

3. Consolidated statement of cash flows in millions of yen

Year ended December 31

4. Consolidated statement of changes in equity in millions of yen

Attributable to Chugai shareholdersShare capital

Year ended December 31, 2022

At January 1, 2022

Net income

Financial assets measured at fair value through OCI (Notes 7 and 21)

Cash flow hedges (Notes 7 and 21) Currency translation of foreign operations (Notes 7, 21) Remeasurements of defined benefit plans (Notes 7 and 21)

Total comprehensive income

73,202 - - - -

Capital surplusRetained earnings

68,223

1,054,050

• - 374,429

  - -- - - - -

  -Other reserves

  (7,457)

  -

  (296)

  • - (8,759)

  - 3,021

  SubtotalTotal equity

  1,188,017 374,429

  1,188,017 374,429

  (296)

  (296)

  (8,759) (8,759)

  5,540

  -

  5,540 5,540 3,021 3,021

  • 377,450 (3,515)

  373,935

  373,935

  Dividends (Note 21)

  Equity compensation plans (Note 21) Own equity instruments (Note 21) Transfer from other reserves to retained earnings

  At December 31, 2022

  - - - -

  73,202

• - (138,148)

(379)

• - (138,148)

961

(138,148)

- - 0

-- -

(0)

(379)

(379)

961

961

-

-

68,806

1,293,352

(10,973)

1,424,387

1,424,387

Year ended December 31, 2023

At January 1, 2023

Net income

Financial assets measured at fair value through OCI (Notes 7 and 21)

Cash flow hedges (Notes 7 and 21) Currency translation of foreign operations (Notes 7, 21) Remeasurements of defined benefit plans (Notes 7 and 21)

Total comprehensive income

Dividends (Note 21)

Equity compensation plans (Note 21) Own equity instruments (Note 21) Transfer from other reserves to retained earnings

At December 31, 2023

Notes to Consolidated Financial Statements

1. General accounting principles and significant accounting policies

(1) Basis of preparation of the consolidated financial statements

These financial statements are the annual consolidated financial statements of Chugai Pharmaceutical Co., Ltd., ("Chugai") a company registered in Japan, and its subsidiaries ("the Group"). The common stock of Chugai is publicly traded and is listed on the Tokyo Stock Exchange under the stock code "TSE: 4519". The consolidated financial statements were approved by Osamu Okuda, Representative Director, President & CEO, and Toshiaki Itagaki, Director, Executive Vice President & CFO on March 27, 2024.

Roche Holding Ltd. is a public company registered in Switzerland and the parent company of the Roche Group, which discloses its results in accordance with International Financial Reporting Standards ("IFRS"). The shareholding percentage of Roche Holding Ltd. in Chugai is 59.89% (61.12% of the total number of shares issued excluding own equity instruments). The Group became a principal member of the Roche Group after entering into a strategic alliance in October 2002.

The Group meets all of the requirements for a "Specified Company under Designated International Financial Reporting Standards" as stipulated under Article 1-2 of the "Regulations Concerning Terminology, Forms, and Preparation Methods of Consolidated Financial Statements" (Ministry of Finance of Japan Regulation No. 28, 1976). Hence, in accordance with Article 93 of the Regulation, the consolidated financial statements have been prepared in accordance with IFRS.

The consolidated financial statements are presented in Japanese yen, which is Chugai's functional currency, and amounts are rounded to the nearest ¥1 million. As a result, the totals shown in the consolidated financial statements do not necessarily agree with the sum of the individual amounts. They have been prepared using the historical cost convention except for items that are required to be accounted for at fair value.

(2) Key accounting judgments, estimates and assumptions

The preparation of the consolidated financial statements requires management to make judgments, estimates, and assumptions that affect the reported amounts of revenues, expenses, assets, liabilities, and contingent amounts. Actual outcomes could differ from those management estimates. The estimates and underlying assumptions are reviewed on an on-going basis and are based on historical experience and various other factors. Revisions to estimates are recognized in the period when the estimate is revised.

The judgments, estimates, and assumptions that have a material impact on the amounts recognized in the consolidated financial statements of the Group are principally the same as the fiscal year ended December 31, 2022.

The following are considered to be the key accounting judgments, estimates and assumptions made in the preparation of the consolidated financial statements and are believed to be appropriate based upon currently available information.

Revenue.

Sales are recorded net of allowances for rebates, cash discounts and product returns. The estimates of rebates payable are recorded as current liabilities. The Group makes accruals for expected sales rebates based on analyses of existing contractual or legislatively-mandated obligations, historical trends and the Group's experience. As these deductions are based on management estimates, they may be subject to change as better information becomes available. Such changes that arise could impact the accruals recognized in the balance sheet in future periods and consequently the level of sales recognized in the income statement in future periods. Variable consideration is only recognized when it is highly probable that there will be no significant reversal.

Out-licensing agreements may be entered into with no further obligation or may include commitments to conduct research, late-stage development, regulatory approval, co-marketing or manufacturing. These may be settled by a combination of upfront payments, milestone payments, and reimbursements for services provided. Whether to consider these commitments as a single performance obligation or separate ones, or even being in scope of IFRS 15 'Revenues from Contracts with Customers', is not straightforward and requires some judgment. Depending on the conclusion, this may result in all revenue being calculated at inception and either being recognized at once or spread over the term of a longer performance obligation. The consideration received may include a variable amount. The Group recognizes variable consideration only when it is highly probable that there will be no significant reversal.

As a practical expedient, the Group does not adjust the promised amount of consideration for the effects of a significant financing component, if the group expects, at contract inception, that the period between when the group transfers a promised good or service to a customer and when the customer pays for that good or service will be one year or less.

Impairment. Intangible assets not yet available for use are reviewed annually for impairment. Property, plant and equipment, right-of-use assets and intangible assets in use are assessed for impairment when there is a triggering event that provides evidence that an asset may be impaired. To assess whether any impairment exists estimates of expected future cash flows are used. Actual outcomes could vary significantly from such estimates of discounted future cash flows. Factors such as changes in discount rates, the planned use of buildings, machinery or equipment, closure of facilities, the presence or absence of competition, technical obsolescence and lower than anticipated product sales could lead to shorter useful lives or impairment.

Post-employment benefits. The Group operates a number of defined benefit plans and the fair values of the recognized plan assets and liabilities are based upon statistical and actuarial calculations. Key estimates are required for the measurement of the net defined benefit obligation, which is particularly sensitive to changes in the discount rate and expected mortality. The actuarial assumptions used for those estimates may differ materially from actual results due to changes in market and economic conditions, longer or shorter life spans of participants, and other changes in the factors being assessed. These differences could impact on the defined benefit plan assets or liabilities recognized in the balance sheet in future periods.

Legal. The Group provides for anticipated legal settlement costs when there is a probable outflow of resources that can be reliably estimated. Where no reliable estimate can be made, no provision is recorded and contingent liabilities are disclosed where material. The status of significant legal cases is included as Additional Information. These estimates consider the specific circumstances of each legal case and relevant legal advice, and are inherently uncertain due to the highly complex nature of legal cases. The estimates could change substantially over time as new facts emerge and each legal case progresses.

Environmental. The Group provides for anticipated environmental remediation costs when there is a probable outflow of resources that can be reasonably estimated. Environmental provisions consist primarily of costs to fully clean and refurbish contaminated sites, including landfills, and to treat and contain contamination at certain other sites. These estimates are inherently judgmental due to uncertainties related to the detection of previously unknown contaminated sites, the method and extent of remediation, the percentage of the problematic materials attributable to the Group at the remediation sites, and the financial capabilities of the other potentially responsible parties. The estimates could change substantially over time as new facts emerge and each environmental remediation progresses.

Income taxes. The uncertainty of estimates significantly affects the measurement of current and deferred tax assets and liabilities. Some of these estimates are based on interpretations of existing tax laws or regulations. Where tax positions are uncertain, accruals are recorded within income tax liabilities for management's best estimate of the ultimate liability that is expected to arise based on the specific circumstances and the Group's historical experience. Factors that may have an impact on the measurement of current and deferred taxes include changes in tax laws, regulations or rates, changing interpretations of existing tax laws or regulations, future levels of research and development spending and changes in pre-tax earnings.

Leases. Where the Group is the lessee, key judgments include assessing whether arrangements contain a lease and determining the lease term. To assess whether a contract contains a lease requires judgment about whether it depends on a specified asset, whether the Group obtains substantially all the economic benefits from the use of that asset, and whether the Group has a right to direct the use of the asset. In order to determine the lease term judgment is required as extension and termination options have to be assessed along with all facts and circumstances that may create an economic incentive to exercise an extension option, or not to exercise a termination option. Estimates include calculating the discount rate which is based on the incremental borrowing rate.

(3) Accounting policies

Consolidation policy

Subsidiaries are all companies over which the Group has control. Chugai controls an entity when the Group is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. Companies acquired during the year are consolidated from the date on which control is transferred to the Group, and subsidiaries to be divested are included up to the date on which control passes from the Group.

Inter-company balances, transactions and resulting unrealized income are eliminated in full. Changes in ownership interests in subsidiaries are accounted for as equity transactions if they occur after control has already been obtained and if they do not result in a loss of control.

Associates are companies over which the Group exercises, or has the power to exercise, significant influence, but which it does not control and they are accounted for using the equity method.

Foreign currency translation

Most foreign subsidiaries of the Group use their local currency as their functional currency. Certain foreign subsidiaries use other currencies (such as the euro) as their functional currency where this is the currency of the primary economic environment in which the entity operates. Local transactions in other currencies are initially reported using the exchange rate at the date of the transaction. Gains and losses from the settlement of such transactions and gains and losses on translation of monetary assets and liabilities denominated in other currencies are included in income, except when they are qualifying cash flow hedges. In such cases the gains and losses are deferred into other comprehensive income.

Upon consolidation, assets and liabilities of foreign subsidiaries using functional currencies other than Japanese yen are translated into Japanese yen using year-end rates of exchange. The income statement and statement of cash flows are translated at the average rates of exchange for the year. Translation differences due to the changes in exchange rates between the beginning and the end of the year and the difference between net income translated at the average and year-end exchange rates are taken directly to other comprehensive income.

Revenue

Sales. Revenue from the sale of goods supplied is recorded as 'Sales'.

Sales are recognized when a promise in a customer contract (performance obligation) has been satisfied by transferring control over the promised goods to the customer. Control over a promised good refers to the ability to direct the use of, and obtain substantially all of the remaining benefits from, those goods. Control is usually transferred upon shipment or delivery to or upon receipt of goods by the customer, in accordance with the delivery and acceptance terms agreed with the customers. The Group generally receives payment from customers within four months from the delivery of goods to the customer. There is no significant financing component. The amount of sales to be recognized (transaction price) is based on the consideration the Group expects to receive in exchange for its goods, excluding amounts collected on behalf of third parties such as consumption tax or other taxes directly linked to sales. The Group recognizes deferred income (contract liability) if consideration has been received (or has become receivable) before the Group transfers the promised goods to the customer.

Other revenue. Other revenue includes royalty income, income from out-licensing agreements, and income from profit-sharing arrangements with collaboration partners.

Revenue for a sales-based or usage-based royalty promised in exchange for a license of intellectual property is recognized when the subsequent sale or usage occurs.

Income from out-licensing agreements typically arises from the receipt of upfront, milestone and other similar payments from third parties for granting a license to product or technology related intellectual property (IP). Out-licensing agreements may be entered into with no further obligation or may include commitments to conduct research, late-stage development, regulatory approval, co-marketing or manufacturing. Licenses granted are usually rights to use IP and are generally unique. Therefore, the basis of allocating revenue to performance obligations makes use of the residual approach. Upfront payments and other licensing fees are usually recognized upon granting the license unless some of the income shall be deferred for other performance obligations using the residual approach. Such deferred income is released and recognized as revenue when other performance obligations are satisfied. Milestone income is recognized at the point in time when it is highly probable that the respective milestone event criteria is achieved, and the risk of revenue reversal is considered remote. The Group generally receives payment from customers within four months from the time when performance obligations are satisfied. There is no significant financing component.

Income from profit-sharing arrangements with collaboration partners is recognized when underlying sales and cost of sales are recorded by the collaboration partners. The Group generally receives payment from customers within four months from the time when performance obligations are satisfied. There is no significant financing component.

Cost of sales

Cost of sales includes the corresponding direct production costs and related production overheads of goods sold and services rendered. Royalties, alliance and collaboration expenses, including all collaboration profit-sharing arrangements are also reported as part of cost of sales. Start-up costs between validation and the achievement of normal production capacity are expensed as incurred.

Research and development

Internal research and development activities are expensed as incurred for the following:

• • Internal research costs incurred for the purpose of gaining new scientific or technical knowledge and understanding.

• • Internal development costs incurred for the application of research findings or other knowledge to plan and develop new products for commercial production. The development projects undertaken by the Group are subject to technical, regulatory and other uncertainties, such that, in the opinion of management, the criteria for capitalization as intangible assets are not met prior to obtaining marketing approval by the regulatory authorities in major markets.

• • Post-marketing studies after regulatory approval, such as phase IV costs in the pharmaceuticals business, generally involve safety surveillance and on-going technical support of a drug after it receives marketing approval to be sold.

  They may be required by regulatory authorities or may be undertaken for safety or commercial reasons. The costs of such post-marketing studies are not capitalized as intangible assets, as in the opinion of management, they do not generate separately identifiable incremental future economic benefits that can be reliably measured.

Acquired in-process research and development resources obtained through in-licensing arrangements, business combinations or separate asset purchases are capitalized as intangible assets. The acquired asset must be controlled by the Group, be separately identifiable and expected to generate future economic benefits, even if uncertainty exists as to whether the research and development will ultimately result in a marketable product. Consequently, upfront and milestone payments to third parties for pharmaceutical products or compounds before regulatory marketing approval are recognized as intangible assets. Assets acquired through such arrangements are measured on the basis set out in the "Intangible assets" policy. Subsequent internal research and development costs incurred post-acquisition are treated in the same way as other internal research and development costs. If research and development are embedded in contracts for strategic alliances, the Group carefully assesses whether upfront or milestone payments constitute funding of research and development work or acquisition of an asset.

Employee benefits

Short-term employee benefits include wages, salaries, social security contributions, paid annual leave and sick leave, profit sharing and bonuses, and non-monetary benefits for current employees. The costs are recognized within the operating results when the employee has rendered the associated service. The Group recognizes a liability for profit sharing and bonuses where contractually obliged or where there is a past practice that has created a constructive obligation.

Termination benefits are payable when employment is terminated by the Group before the normal retirement date, or whenever an employee accepts voluntary redundancy in exchange for these benefits. Termination costs are recognized at the earlier of when the Group can no longer withdraw the offer of the benefits or when the Group recognizes any related restructuring costs.

Post-employment benefits

For defined contribution plans, the Group's contributions are recognized within the operating results when the employee has rendered the associated service.

For defined benefit plans the liability or asset recognized in the balance sheet is the net amount of the present value of the defined benefit obligation and the fair value of the plan assets. All changes in the net defined benefit liability (asset) are recognized as they occur as follows:

Recognized in the income statement:

• • Current service costs are charged to the appropriate income statement heading within the operating results.

• • Past service costs, including curtailment gains or losses, are recognized immediately in other operating income (expense) within the operating results.

• • Settlement gains or losses are recognized in other operating income (expense) within the operating results.

• • Net interest on the net defined benefit liability (asset) is recognized in financing costs.

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Chugai Pharmaceutical Co. Ltd. published this content on 25 March 2024 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 28 March 2024 08:31:08 UTC.