Message from the CEO

In FY2023, our revenue exceeded 500 billion yen. This is the first time since our founding that this has happened, marking a significant milestone. Additionally, operating profit reached 159.9 billion yen, with profit for the year also reaching a record high of 128 billion yen. Revenue has increased for nine consecutive terms, with six consecutive terms of profit growth, both indicating solid business performance. Of these, we consider it particularly significant that our R&D investment exceeded 100 billion yen for the first time, which we consider our most important benchmark. Our medium-term management plan targeting FY2031 calls for annual R&D expenses of 200 billion yen, and this requires revenue to reach the 1 trillion yen level, calculated in reverse. We assess that we have reached the midpoint of our 15-year medium-term management plan, which started in FY2017 and ends in FY2031, and as such are halfway to meeting out targets.

In forecasts for FY2024, we expect a decline in both revenue and profit due to NHI price revisions, reduced royalty income, and the absence of one-time income from the settlement of a patent-related lawsuit. However, we will continue to invest over 100 billion yen in R&D and steadily work on the maximization of product value to overcome these difficult times, and to pave the way for further growth.

The environment surrounding the pharmaceutical industry is becoming increasingly harsh. Global pharmaceutical companies and bio-ventures have been engaged in drug discovery for a wide range of diseases for a long time, and accordingly, the areas with unmet medical needs are narrowing. The remaining areas involve treatments for high-difficulty diseases, with drug discovery itself becoming more challenging. With the cost of generating each drug rising every year, this means the hurdles for new drug development are extremely high. Furthermore, the economic impacts of NHI price reductions due to the NHI drug price scheme are posing challenges. The pharmaceutical industry is therefore facing an environment in which it must continue to work on new drug development under extremely difficult conditions. However, this situation was anticipated during the formulation of our current medium-term management plan.

It is precisely because we are in an era of rapid environmental change, that it is crucial for us to return to our core purpose— the reason we conduct business. No matter how the environment changes, we will continue to base our business activities on a patient-centered approach. Rather than merely lamenting the situation, we should instead use it to consider how we can provide value to patients, and adapt to the significant changes to come.

Our long-term vision is to deliver innovative new drugs worldwide as a Global Specialty Pharma. The prerequisites for achieving this are to first enhance our pipeline to ensure a rich supply of new drug candidates. Only once we have this, we will be able to continuously produce innovative new drugs.

Another prerequisite is accelerating our global expansion. Currently, we primarily conduct business in Japan and sell our own products directly in South Korea and Taiwan, but we are aiming to establish a direct sales system in the United States and Europe. To this end, it is necessary to activate open innovation during the research and development stage, and the management team must support research by in-licensing drug candidates and medicines to enhance the pipeline, as well as conducting mergers and acquisitions. Currently, there are approximately 5,000 bio-ventures in the U.S., but this is a highly dynamic environment with about 2,000 being founded and 2,000 shutting down each year. With regard to M&A, Corporate Development & Strategy and a team stationed in the U.S. are constantly exploring venture companies and drug candidates worldwide, particularly in the U.S. Additionally, a separate team managing Ono Venture Investment Fund I, L.P., a corporate venture capital fund established in California, is also conducting a separate search.

For several years, we have been keeping a close eye on U.S. company Deciphera Pharmaceuticals, which we acquired in June 2024, focusing on its promising pipeline as well as it having its own sales organization. About a year ago, we listed it as a specific candidate and conducted due diligence within one to two months after entering negotiations, and we feel that having observed the company for several years allowed us to make appropriate decisions in a short time. Deciphera is currently looking to add indications to its new drug QINLOCK, and toward other compounds’ applications, approvals, and sales. Meanwhile, we have other projects underway, including the development of ONO-4059 (VELEXBRU tablets), and so Deciphera will maintain a certain degree of independence in business operations for the time being in order to focus on tasks at hand.

Our talent strategy is a top priority in our company-wide efforts in promoting global expansion. We are not yet experienced in dealing with the laws and regulations of each country and region into which we are entering. Securing talent with sufficient skills and experience here means that we must both nurture internal talent and recruit externally, just as how we approach drug candidates. In particular, while we urgently need to hire motivated and competent local staff in the U.S., our brand recognition is lower than that of major U.S. pharmaceutical companies. Accordingly, our local staff have been working hard to post recruitment ads in various media. Additionally, to attract as many excellent talent as possible, we relocated the office of our U.S. subsidiary, ONO PHARMA USA, INC., to Boston, which has a rich pool of healthcare talent. Recruitment for positions necessary to establish our own sales and medical structure is progressing, and we have gradually become able to hire talent that meet a certain level. However, the common U.S. mindset of changing jobs every three years presents a challenge in terms of retaining talent. It takes over ten years to develop a single drug, and the turnover of talent every three years creates many challenges in terms of a talent strategy that we are working to overcome.

We are promoting diversity in our management positions with three pillars: young talent, career hires, and women. In promoting young talent to management positions, we have partially abolished the seniority-based system. We are also seeing an increase in mid-career hires in management positions. However, we previously hired few women, resulting in a shortage of women in the appropriate age group who can take on executive positions, leading to delays in addressing this issue. The current ratio of female managers is 5.8%, and we have set goals to increase it to 10% by FY2026 and 20% by FY2031, the final year of our medium-term management plan. We are increasing recruitment of women, and if the current employees in the age group up to 40 make steady progress through training programs and continue to develop, we expect to achieve a 20% ratio by FY2031. In addition to various training programs aimed at developing skills and promoting younger employees, we have established a training system aimed at fostering diverse viewpoints, such as an internal job challenge program allowing employees to concurrently work in other departments. Also, in addition to classroom learning, we also provide employees with opportunities for hands-on experience, such as one-year secondments to a venture company, or an overseas assignment.

With the working population set to shrink further, we must communicate that joining our company offers attractive work opportunities, not just competitive salaries. Failure to do this may result in difficulties in securing even the minimum required workforce, let alone attracting top talent. We believe that supporting employees’ challenges and providing opportunities for growth as well as creating an environment in which a diverse group of people can work with enthusiasm will achieve the goals of our medium-term management plan and generate profits, and that providing a good return to employees will help us continue to secure and develop talent in the future.

From FY2024, we transitioned to a three-executive management system, with President Takino, Executive Vice President Tsujinaka, and myself as Chairman, all holding representative rights. As we welcome the halfway point of our medium-term management plan, patents for various products including OPDIVO will begin to expire. This will lead to a more challenging business environment in the latter half of the management plan when compared to the smooth progress experienced so far. Overcoming these challenges requires that we strengthen our global expansion. Given these circumstances, we decided that expanding leadership from one key person to a team of three would allow us to drive the management plan more effectively, hence our decision to implement the three-executive structure.

In fact, when I became president in 2008, the situation was somewhat similar. Within three to four years, the patents for 90% of our products in terms of revenue were facing expiration. Given that we had no product candidates near launch in the research labs, we had no choice but to acquire them from outside the company, and so I asked the business development department to acquire three drug candidates that would be ready for launch within three years, and I also traversed the world searching for new drug candidates. The person who was with me in this frantic search was now President Takino. Although we did not meet our three-year target, we managed to acquire a significant number of drug candidates over five to seven years. The success of OPDIVO, which undoubtedly seemed uncertain at first, came six years after I became president in 2014. The success of OPDIVO started with a struggle and came after 15 years of everyone toiling together.

Although I have stepped down as president, I will continue to be involved in overall management strategy decisions as CEO, while also handling external negotiations and providing support to various departments. With President Takino, who has extensive overseas experience and has been involved in drug discovery, leading internal operations, and Vice President Tsujinaka focusing on a talent-based management foundation, I believe we will be able to steadily advance our global strategy.

We place great importance on providing returns that satisfy all of our stakeholders. However, the pharmaceutical industry operates on long-term business cycles in which it takes 10 to 15 years to develop a product, thus making it difficult to guarantee consistent growth. We therefore hope that you understand that we are focused on medium-term growth and performance, and that these include such periods.

When we look back to around 50 years ago, at the time we successfully achieved the world’s first total chemical synthesis of prostaglandins, the Company was in a financially very difficult place, but through partnerships with top scientists worldwide, we were able to generate innovative drugs. Combined with the subsequent success of OPDIVO, I feel that our company possesses an indomitable vitality. We hope that all of our stakeholders will eagerly anticipate ONO taking on future challenges.