We will continue to transform SHIONOGI into a truly global company to realize the SHIONOGI Group Vision.

Isao Teshirogi, Ph.D.

Representative Director, President and CEO

Q1

How do you assess fiscal 2025, the final year of STS2030 Phase 2? How would you assess SHIONOGI’s progress toward its target of 800 billion yen in revenue for fiscal 2030?

Fiscal 2025 was a pivotal year for SHIONOGI. In the final year of STS2030 Phase 2, we delivered both strong results and structural transformation. Revenue and all profit measures reached record highs, with revenue and operating profit setting new records for the fourth consecutive year. These results demonstrate that our growth strategy is bearing fruit and that SHIONOGI continues to grow sustainably.

There are, however, shortcomings that I must reflect on seriously as a business leader. In fiscal 2025, as in fiscal 2024, we failed to meet the operating profit target announced at the beginning of the year. SHIONOGI had consistently delivered on its profit targets through dependable growth in its core businesses and rigorous cost management, even when revenue targets were difficult to achieve. I therefore take very seriously the fact that operating profit fell short of our commitment to stakeholders for two consecutive years. My confidence in our strategic direction has grown, but these results have reminded me how challenging it is to invest for growth while taking profitability to a higher level. We will apply these lessons to our management and work to regain the trust of all our stakeholders, including shareholders and investors, by consistently meeting the targets we set.

At the same time, I do not believe fiscal 2025 should be judged solely on one year’s financial results. It marked a major turning point toward realizing the SHIONOGI Group Vision. We made substantial investments for future growth, acquired new business foundations, and strengthened our management foundations. In doing so, we established a firm footing for SHIONOGI’s next stage of growth.

These business investments have greatly expanded our growth opportunities and brought the path toward the SHIONOGI Group Vision, including our fiscal 2030 revenue target of 800 billion yen, into sharper focus. The foundation needed to reach the target is getting stronger. I believe we have moved beyond asking whether we can achieve 800 billion yen in revenue to a stage where we can take a concrete view of when we will reach it.

Reaching 800 billion yen in revenue is an important milestone. Our real ambition, however, is to become a company that sustains growth beyond that point and continues to enhance corporate value over the long term. We will firmly embed the business foundations acquired in fiscal 2025 and realize their full value. Building on this foundation, we will announce a new medium-term business plan in fiscal 2027, looking toward the realization of the SHIONOGI Group Vision and growth beyond it, and pursue further gains in corporate value.

Q2

What is the strategic significance of the recent series of business investments, including the additional investment in ViiV Healthcare, the acquisition of JT Pharmaceutical Business and Torii Pharmaceutical, and the acquisition of the edaravone business?

The key point I want to convey is that every one of these investments was a decision to take SHIONOGI into its next stage of growth and bring us closer to realizing the SHIONOGI Group Vision.

These decisions rested on our conviction that the HIV business, a mainstay of SHIONOGI’s earnings, would continue to generate stable earnings over the medium to long term. The business continues to grow steadily. Uptake of the oral two-drug combinations and long-acting injectable (LAI) formulations offered by our UK partner, ViiV Healthcare, is exceeding expectations. We have also obtained favorable clinical results for S-365598 (ViiV Healthcare development code: VH184), the ultra-long-acting integrase inhibitor discovered by SHIONOGI and being developed jointly with ViiV Healthcare. These achievements give us greater clarity than ever that the HIV business will continue to serve as SHIONOGI’s medium- to long-term earnings foundation beyond 2030.

For pharmaceutical companies, the patent cliff—the sharp decline in revenue and profit when patents on key products expire—is an unavoidable management challenge. Understanding the long-term prospects of the HIV business was therefore essential to shaping SHIONOGI’s growth strategy. We became confident that wider adoption of LAI formulations and other products would enable the HIV business to continue supporting our growth even after patents on oral single-agent and combination products expire. That confidence allowed us to move from preparing for a future decline in earnings to investing proactively for growth beyond that point.

I have long believed that business investments, including M&A, should be made from a stable business foundation with future growth in mind, rather than to make up for shortfalls in near-term revenue or profit. This principle has guided the entire series of investments.

The HIV business is vital to SHIONOGI’s future growth and earnings. Our additional investment in ViiV Healthcare is a strategic step to maximize the future value of the HIV business and deepen our relationship. Through greater involvement in ViiV Healthcare’s management, we aim to develop a long-term partnership in which we grow the business together.

The acquisition of JT Pharmaceutical Business and Torii Pharmaceutical has two main objectives. The first is to reinforce the business model we aspire to: sustainable growth through in-house drug discovery. I firmly believe that in-house drug discovery capabilities are the source of a pharmaceutical company’s competitiveness. By strengthening our research talent and functions through integration with JT Pharmaceutical Business, we are further enhancing these capabilities and accelerating our transformation into a globally competitive pharmaceutical company.

The second objective is to strengthen our domestic business. SHIONOGI’s commitment to infectious diseases will not change. Yet to continue taking on the challenge of infectious diseases, a field subject to the effects of outbreaks, and to sustain our R&D investment, we also need a business foundation that generates stable earnings. Torii Pharmaceutical has established a strong business foundation in Japan, particularly in allergy and dermatology. By combining this foundation with SHIONOGI’s strengths, we aim to make our domestic business more stable and create new opportunities for growth.

The acquisition of the edaravone business, which provides a treatment for amyotrophic lateral sclerosis (ALS) and other conditions, is an important step in expanding our U.S. business. A stronger presence in the United States, the world’s largest pharmaceutical market, is essential to SHIONOGI’s sustainable growth. I have long believed that we should build our U.S. business in stages, starting in areas where we can apply our strengths, rather than investing in extensive infrastructure from the outset. Guided by this approach, we have steadily accumulated evidence for cefiderocol, a treatment for serious infections, in an area of high unmet need. This has enabled us to establish a business that delivers a medicine needed in clinical practice. The experience has given us confidence that we can grow in the U.S. market with an efficient organization suited to the nature of the business.

To take our U.S. business further, I believed we needed another pillar alongside infectious diseases. Rare diseases were one candidate. This field has high unmet needs and requires specialized expertise in business operations, making it well suited to our U.S. strategy of expanding through the effective use of limited resources. We also recognized the need for a business foundation encompassing sales capabilities and relationships with patient advocacy groups to turn late-stage candidates into future businesses. These include zatolmilast, a potential treatment for fragile X syndrome and Jordan syndrome, and S-606001, a potential treatment for Pompe disease. Against this background, the acquisition of the edaravone business has given us sales capabilities and an operating base in rare diseases in the United States, laying the groundwork to develop this into a focus area.

Our work in ALS has further convinced me that this is an important field in which SHIONOGI can apply its strengths. Although patient populations are small, the burden on patients and their families is considerable, and many diseases still lack adequate treatment options. As a pharmaceutical company whose strength lies in in-house drug discovery, we have an important mission to contribute in these areas.

This series of growth investments is not intended to prepare for a future decline in earnings. With the HIV business as a solid foundation, we are investing to achieve growth beyond it. These decisions have enabled SHIONOGI to acquire and strengthen the business foundations needed for its next stage of growth. I believe we have made steady progress in preparing for further growth.

Q3

What progress has been made across these three business investments, and how do you intend to generate synergies and translate them into new value?

Our efforts go beyond simply integrating businesses. While deepening our collaboration with ViiV Healthcare, we are integrating the businesses, people, and research capabilities gained through the other investments to create new value. We have now entered a phase in which these efforts are beginning to generate tangible value, and progress to date has been broadly in line with, or even ahead of, our expectations.

First, in HIV, which is central to our business foundations, updates from ViiV Healthcare and its parent company, GSK, show continued strong growth in LAI formulations. The updates also outline the growth prospects for Cabenuva for treatment and Apretude for prevention, currently the only marketed LAI products containing an integrase inhibitor. Patent protection for Cabenuva is expected to extend through 2040, while the aim is to extend protection for next-generation formulations to around 2047. These developments have further strengthened the HIV business as a source of medium- to long-term earnings.

Development of S-365598 (VH184) is also advancing steadily. A Phase 2b trial is underway, and a candidate compound for combination therapy (a partner drug) has been selected to enable twice-yearly treatment. I expect these next-generation candidates to become important products supporting HIV business growth beyond 2030. We will continue to strengthen our collaboration with ViiV Healthcare and work to maximize the value of the business.

In the integration of JT Pharmaceutical Business and Torii Pharmaceutical, my greatest priority is R&D. We are reviewing the combined development pipelines of SHIONOGI, JT Pharmaceutical Business, and Torii Pharmaceutical to determine where to concentrate resources. The pipeline has expanded substantially, but the number of candidates is not what matters most. As R&D becomes more challenging, it is more important than ever to identify where we can establish a real competitive advantage and focus our resources there.

In recent years, I have also seen the value of success in late-stage clinical trials and subsequent regulatory approval grow ever greater. Even outstanding research cannot create new value unless we can deliver the resulting medicines to patients. We must reliably advance promising compounds from our own research into late-stage development in areas of high unmet need and then secure approval. During the pandemic, our R&D on the COVID-19 treatment Xocova gave us experience in accelerating research and development and delivering value sooner by concentrating resources across the company. Drawing on the stronger drug discovery base created through integration, we will further strengthen our ability to advance programs from research through development to approval.

We are now refining our R&D strategy and setting priorities across the pipeline. Once we have clearly defined the strengths we will build through integration and the areas in which we will create value, we intend to present the R&D strategy and focus areas for the new SHIONOGI, together with an overall view of the pipeline.

In our domestic business, we are preparing for integration with Torii Pharmaceutical in April 2027. Work to integrate the two companies’ product portfolios and business foundations is progressing steadily, and the benefits are beginning to emerge. Our domestic performance was previously sensitive to outbreaks of infections such as influenza and COVID-19. Today, we are diversifying our product portfolio beyond infectious diseases and moving toward a business structure that is less dependent on whether outbreaks occur.

Co-promotion and coordination of sales activities are also advancing steadily. By drawing on each company’s strengths, we are creating new growth opportunities. We will also integrate our sales and marketing functions and operating infrastructure to further enhance the competitiveness of our domestic business.

Integration of the edaravone business is progressing well. As planned, we have welcomed approximately 140 specialized professionals and established an organization to operate the business in the United States. These teams are actively working to deliver edaravone to patients with ALS. We are seeing steady results in three priority areas: supporting new patients, streamlining treatment initiation, and establishing systems that support continued treatment.

I believe the value of this business extends beyond its current earnings. SHIONOGI is gaining experience in operating a rare disease business. This experience and expertise will be important assets as we expand medicines for other rare diseases globally.

What matters most in these integration efforts is using the businesses, people, and research capabilities we have acquired through the JT-related and edaravone transactions to create new value. Acquisitions alone do not deliver growth. By understanding and combining their respective strengths, we will create value that only the new SHIONOGI can deliver.

Q4

As SHIONOGI grows in scale and becomes more global, how do its management foundations—including its people, organization, digital transformation, and IT—need to be strengthened and developed?

To turn the benefits of these investments and integration efforts into sustainable growth, we must strengthen the management foundations that support them. I see governance, people, digital transformation (DX), and IT as interconnected foundations for the new SHIONOGI’s growth, rather than separate initiatives.

In governance, we transitioned to a company with an Audit and Supervisory Committee in fiscal 2025. Looking back over the year, the significance of this change lies less in the formal structure than in the substantial improvements in the flow of information to the Board of Directors and the quality of its discussions. I have long believed that governance should be judged by how it works in practice, rather than by its structure alone. Alongside the transition, we established an Audit and Supervisory Committee Office and staffed it with personnel from research, development, sales, and other parts of the value chain. As a result, the information provided has improved in both quality and quantity, and collaboration between the Committee and internal control functions has strengthened considerably.

The way the Board operates has also changed. Its first agenda item is now a report from the Audit and Supervisory Committee, allowing all directors to share an understanding of company-wide issues, risks, and areas for improvement identified by the Committee. This has made oversight, including oversight by Outside Directors, even more substantive. The Board can now discuss medium- to long-term management strategy and risk management in greater depth. Major decisions—including the acquisition of JT Pharmaceutical Business and Torii Pharmaceutical, the acquisition of the edaravone business, and our additional investment in ViiV Healthcare—were reached through vigorous discussions within this framework.

I believe these changes have improved the effectiveness of oversight without slowing execution. As SHIONOGI expands and becomes more global, we will continue to develop more effective governance.

Our organization and people are equally critical to supporting this growth. To me, globalization is about more than increasing the share of overseas revenue. It means becoming an organization in which people from diverse backgrounds work together under shared values, regardless of nationality or location, and make decisions based on what is best for SHIONOGI globally.

SHIONOGI has grown through its primarily Japan-based business and royalty income from medicines originating in our own research. The investments made in fiscal 2025 have brought greater diversity to both our businesses and our people. To make the most of these strengths and sustain growth, we must evolve into a company where people around the world participate in management and business operations, bringing their knowledge and experience to decision-making.

The task is not simply to bring people with diverse experience and expertise into the same organization. It is to work together, drawing on each person’s strengths to create new value. We must remain an organization that embraces diversity and encourages people to take on challenges while cherishing the values and culture we share as SHIONOGI. That, to me, is the meaning of ONE SHIONOGI.

DX and IT will become increasingly important in supporting this transformation. AI in particular will serve as a foundation for strengthening competitiveness throughout the company, from research, development, manufacturing, and sales to corporate functions. Yet as AI technology advances rapidly and becomes widely available, the technology itself will cease to differentiate us. What will matter is the data we hold, the knowledge we use to train AI, and how we turn those resources into value. By effectively using the data and knowledge accumulated through drug discovery research, together with information generated in development, manufacturing, and sales, we can improve the quality and speed of decision-making and create new value. We will make full use of SHIONOGI’s high-quality data and expertise and accelerate the use of DX and IT to strengthen our drug discovery capabilities and business competitiveness.

As our business expands and becomes more global, we will further develop our foundations in governance, people, DX, and IT to achieve sustainable growth for the new SHIONOGI.