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Round-Table Discussion with Outside Directors

Round-Table Discussion
with
Outside Directors

Supporting
Ono’s Evolution
into a
Global
Specialty
Pharma

Outside Directors Discuss
the Realities of Ono’s Growth Strategy

Akiko Okuno
Outside Director
Professor, Faculty of
Business Administration,
KONAN UNIVERSITY
Masao Nomura
Outside Director
Corporate Advisor,
Iwatani Corporation
Outside Director,
Keihanshin Building Co., Ltd.
Shusaku Nagae
Outside Director
Special Corporate Advisor,
Panasonic Holdings
Corporation
Outside Audit & Supervisory
Board Member,
Nikkei Inc.

Ono’s Current Position and the Role of Outside Directors

How do you assess Ono’s current position, and from what perspectives do you oversee and evaluate management as Outside Directors?

Nomura: The role of Outside Directors has become increasingly important over the years. I believe our most important responsibility is to objectively evaluate and oversee management from a position independent of the Company. In recent years in particular, companies are increasingly expected to strengthen their earnings power, so I place particular emphasis on whether Ono is continuing to enhance its corporate value over the medium to long term. Our mission is to determine whether management is protecting the interests of stakeholders while pursuing sustainable growth.
Okuno: Ono’s share price had remained sluggish for the past several years, but in FY2025, we began to see tangible results from the Company’s growth strategy, including the successful Phase 2 trials of in-house drug candidates, steady sales of Deciphera products, and progress with the post-merger integration (PMI). I feel that the market’s assessment of Ono is gradually beginning to change as the strategy has progressed largely as intended and begun to deliver tangible results. The pharmaceutical business does not produce results overnight, so it is essential to assess progress from a medium- to long-term perspective. I often look at the Company through the lens of human capital. For example, I understand that in initiatives to promote women’s advancement, numerical targets have sometimes outpaced employees’ understanding and acceptance on the ground. The challenge is to gain understanding for HR initiatives based on the medium- to long-term strategy, normalize them, and ultimately qualitatively change the organization.
Nagae: We are not experts in the pharmaceutical industry. As Outside Directors, however, we need to assess whether the acquisition of Deciphera is actually driving the globalization of Ono’s organization, systems, and human resources.
Okuno: The pharmaceutical industry is highly specialized, and it is extremely difficult for us to evaluate every aspect of R&D and individual investment decisions in detail. Rather than judging the merits of each individual project, I believe our role is to oversee management from broader perspectives, such as whether those decisions are consistent with the medium- to long-term strategy and aligned with investor expectations.
Nomura: I look at whether a business can be sustained over the long term. I focus on the validity of the business plan, including market size, the competitive environment, and the time required to generate returns. If there is something unrealistic in a plan, inconsistencies will emerge somewhere. I participate in discussions with an eye toward identifying such issues.
Nagae: When major management decisions are required, I believe an important question is whether there is a clear path to success. For example, I look at whether the basic assumptions underlying the strategy—such as demand, the competitive landscape, and profitability—are sound. Plans do not always unfold exactly as expected, but it is essential to objectively assess whether the strategy itself is coherent. I believe that is an important role of Outside Directors.
Okuno: Another important role of Outside Directors is to respond to unforeseen circumstances. It is precisely when the Company faces an unexpected event or misconduct that Outside Directors must scrutinize the Company’s response particularly carefully and, if necessary, become actively involved.

Progress on the Growth Strategy

How do you assess the progress of Ono’s growth strategy toward becoming a Global Specialty Pharma, including the results achieved and the challenges that remain?

Nagae: Among Ono’s four growth strategies, the acquisition of Deciphera marked a major turning point in the “Acceleration of Global Business Advancement.” Deciphera will take the lead in conducting business in the U.S. and Europe, but whether Ono’s global business can establish itself on a solid footing will depend on the success of the PMI. How we move this process forward is therefore extremely important. We also need to deepen our understanding of the actual situation by engaging directly with local employees.
Nomura: Deciphera has significant strengths in its research capabilities, and we can also expect synergies in drug discovery research. At the same time, Ono’s development pipeline has also been producing a succession of positive results, and the pipeline as a whole is gaining momentum. I see this as evidence of the progress made in efforts to reinforce the pipeline.
For a pharmaceutical company, the pipeline is the source of growth. The key is how to sustain this momentum. We therefore need to look beyond individual projects and consider whether Ono has the organizational capabilities and culture needed to continue generating promising candidates.

Okuno: FY2025 was a year in which we began to see concrete results, including the establishment of POC for multiple in-house drug candidates and the in-licensing of new global products. I see these developments as an encouraging indication of the path to Ono’s next phase of growth as we look ahead to the expiration of the OPDIVO patent.
Nagae: Pharmaceutical companies compete while building on their respective areas of expertise. Ono first needs to determine where it can win. As drug development takes considerable time, increasing speed is also becoming even more important. The Company needs to improve R&D efficiency, including through the use of AI, steadily bring promising candidates to market, and continue generating the next wave of candidates. Building sufficient depth in the pipeline thus remains an important challenge.

Dialogue with the Capital Markets

How do the capital markets assess Ono’s corporate value, and how should the Company respond to their expectations?

Nagae: The capital markets are looking not only at current performance, but also at Ono’s future potential. The share price reflects not only business results, but also the feasibility of the Company’s medium-term growth and its growth story.
The key is to ensure that feedback obtained through dialogue with investors is properly shared with the Board of Directors and incorporated into its discussions. At Ono, comments and assessments received through IR and SR activities are promptly reported back to the Board of Directors, enabling us to conduct discussions that take external perspectives into account.
Okuno: We also remain constantly mindful of indicators related to capital efficiency and corporate value, such as ROE and PBR. However, rather than focusing solely on current figures, we need to determine how these indicators are likely to change as initiatives are implemented in line with the medium- to long-term growth strategy and whether the strategy needs to be revised. The Company must also communicate this clearly to external stakeholders in order to earn an appropriate valuation from the market. IR and SR activities therefore need to help investors understand how the acquisition of Deciphera and the progress of Ono’s global expansion fit into its medium- to long-term growth strategy, and what they can expect as a result.
Nomura: The Tokyo Stock Exchange has called on listed companies to disclose their initiatives for management that is conscious of the cost of capital and the share price. As Outside Directors, we also need to understand the background to this request and reflect it in our discussions. Ono previously achieved high levels of ROE and PBR, but these indicators subsequently declined, partly due to concerns over the expiration of the OPDIVO patent and the impact of large-scale investments such as the acquisition of Deciphera. It is therefore essential to explain, together with the outlook for earnings, how these investments will contribute to future growth. As an Outside Director, I intend to continue making recommendations that contribute to enhancing corporate value, while keeping ROE, PBR, and the cost of capital firmly in mind.
Okuno: Judging from the results achieved so far, I believe the decision to acquire Deciphera was the right one. Given the nature of the pharmaceutical business, continuous investment in R&D is essential. As Ono advances development globally, there may be periods when it is difficult to achieve short-term earnings growth. Nevertheless, these are necessary investments for medium- to long-term growth, and the Company must pursue them with conviction.

Nomura: When it comes to capital allocation, the key is striking the right balance among shareholder returns, growth investments, and investment in human resources. I believe the introduction of a progressive dividend policy has sent a clear message, while the Company has also demonstrated its commitment to investing proactively for the future. There can be no growth without taking risks. While maintaining a sound footing, it is important to allocate cash in a well-balanced manner.
Nagae: There are various ways to assess capital efficiency, including ROE and ROIC, but given the characteristics of the pharmaceutical business, it can be difficult to judge performance on the basis of any single indicator. There is an inherent trade-off between investment and shareholder returns. In Ono’s case, however, the Company is actively investing while also providing shareholder returns, and I believe it has maintained an appropriate balance. The pharmaceutical business inherently requires substantial investment, and decisions need to reflect that reality.

Effectiveness of Governance

What challenges do you see in enhancing the effectiveness of the Board of Directors and further strengthening governance?

Nomura: The quality of discussions at the Board of Directors has changed considerably. In the past, detailed matters relating to business execution were sometimes brought before the Board. Today, there is a clearer distinction between matters that should be delegated to executive management and those that warrant Board discussion, allowing us to focus more closely on important matters and medium- to long-term management issues. As a result, more time is now devoted to topics that have become particularly important in recent years, such as progress on the Medium-Term Management Plan and cybersecurity measures. I believe the Board is moving closer to a monitoring-oriented model that places greater emphasis on the speed of decision-making and its supervisory function.
Okuno: The Board effectiveness evaluation combines questionnaires with individual interviews conducted by the Board of Directors Office to elicit candid views and translate them into concrete improvements. Based on the overall findings of the evaluation, the way the Board operates and sets its agenda is reviewed each time to further enhance the quality of discussions. The fact that this process is functioning effectively and being continued is helping to improve the effectiveness of the Board.
Nagae: The Board needs to provide an environment in which internal and outside directors can exchange views freely and deepen discussions when necessary. Outside Directors themselves also need to deepen their knowledge if we are to improve the quality of those discussions. Our role is not simply to receive reports. We need to raise questions from different perspectives and provide fresh insights.
Okuno: Succession planning is an issue that can determine a company’s sustainable growth, and we discuss it on an ongoing basis. It is important first to clarify what kind of talent should lead the next generation of management and then develop them systematically. We have also seen progress in terms of human resource diversity, including the appointment of a female Corporate Officer. We need to continuously develop the next generation of talent and further broaden the pool of potential candidates.
Nagae: Human resource development challenges are often hard to discern from within the organization, which is why Outside Directors need to stay involved from an objective standpoint. Succession may seem like a matter for the future, but preparation must start now. One current challenge is that Outside Directors do not yet have a sufficient understanding of the people who could lead the next generation of management, including those at the Corporate Officer level. At Ono, we have opportunities to engage in discussions not only at Board meetings but also through briefings on specific topics. We need to use these opportunities to gain a better understanding of potential candidates as individuals. Rather than placing expectations on, or becoming dependent on, the development of particular individuals, we need to look across a broad range of candidates and build a robust succession pipeline.
Okuno: We should also be considering succession not only for the senior management team, but for Outside Directors ourselves. What matters is how we maintain a structure that enables the Board as a whole to continue functioning effectively over the long term.
Nomura: I chair the Executive Compensation Meeting, whose members consist solely of Outside Directors. Its role is not simply to determine compensation levels, but also to convey the values that should guide the attitudes and actions of management. We have been discussing how initiatives and achievements that contribute to enhancing corporate value over the medium to long term, rather than short-term performance alone, should be incorporated into evaluations.
Okuno: At Ono, performance-linked stock compensation is aligned with the Medium-Term Management Plan, and we place importance on how the scheme is designed— what achievements should be evaluated and which indicators they should be linked to. This is more than simply reflecting results in compensation; it also sends a message to management and, through evaluation, can influence decision-making and the direction of the organization. We therefore need to ensure that compensation design remains aligned with strategy.
Nagae: From an investor’s perspective in particular, there needs to be clarity about what achievements are being evaluated and how. We need to keep this perspective in mind in our discussions as well.

Oversight for the Next 10 Years

As Outside Directors, what role do you believe you should play in supporting Ono’s sustainable growth?

Nomura: The pharmaceutical industry faces challenges such as patent cliffs and the increasing difficulty of drug discovery. For Ono to achieve sustainable growth beyond OPDIVO, it is essential to continuously create and acquire promising pipeline assets while advancing its global expansion. Strengthening the foundation for medium- to long-term growth will be a key priority going forward.
Okuno: As globalization advances, I expect Ono’s approach to its people and organization has changed significantly as well. It will be important to create an environment in which diverse talent can realize their full potential, while building an organization capable of creating value sustainably. The question is how Ono can leverage the strengths it has built while expanding into new areas. I hope stakeholders will take a long-term view of the Company’s growth.
Nagae: Medicines are indispensable to society, and pharmaceutical companies are expected to achieve growth while also fulfilling their role in society. As a member of the public myself, I sincerely hope that Ono will remain a company that continuously provides medicines that people truly need. To that end, I expect the Company to maintain a robust development pipeline and reliably bring its products to patients. As an Outside Director, I want to support Ono’s growth so that the Company can fulfill its role in opening up new possibilities for people not only in Japan, but around the world.

Round-Table Discussion with Outside Directors