Chugai Pharmaceutical Co., Ltd. (4519) Earnings Call Transcript & Summary

Good morning, ladies and gentlemen. This is Ueno speaking. Thank you very much for joining us at Chugai ESG meeting 2020 despite your busy schedule and difficult circumstances under COVID-19. Thank you for attending either in person or via conference call. Welcome to our second ESG meeting. I trust that most of you attended last year's very first ESG meeting. So today, at this second ESG meeting, I would like to first very briefly review last year's ESG meeting before talking about 4 themes, as shown in the outline. Last year, partly because it was our very first ESG meeting, we reviewed the history of the spirit of the company since its foundation as it restructured to specialize in prescription pharmaceuticals business. And during the late 1960s, as the company faced a very difficult time, the management at that time aspired to make contribution to society through innovative products and rebuilt the company based on the view that corporate value is a comprehensive product of its economic performance, social awareness and human development. We feel that, in a way, that spirit ties into the essence of ESG or SDG programs. While that has been -- that has always been the guiding principle in our business operation, as will be explained later, IBI 21 explicitly addresses sustainability as part of management strategy. Today, I will first talk about the progress in sustainability-oriented management and strategies under IBI 21, the midterm management plan, which started in 2019. I would like to explain to you what happened during the past year, give you an update. And then Toshiaki Itagaki will talk about the significance of communication and dialogue with stakeholders. And as was explained last year, the issues that we need to resolve have been identified as material issues, 25 of them all together in 8 different areas. We are addressing them with clear priority. Since last year, in our daily operation, how are they being addressed and driven with priority, what indicators are being used will be explained. He will also talk about how pre-financial and nonfinancial information is linked to financial indicators and how we are managing those. That will be the main part of his presentation. And following that, we will talk about the drivers of our ESG initiatives, our environmental initiatives. We have been implementing measures under a 5-year midterm environment plan that covers the period from 2016 to 2020. We are in the final year of that plan, and we are going to develop a new plan over a medium to longer term. We are in that phase right now. And one thing we would like to share with you today is in relation to TCFD risk analysis in response to various comments we have received since last year. We believe that we have been able to make some improvements, as indicated in the results of that analysis. And we have set a target to reduce CO2 emissions to 0 by 2050, and we are developing a road map for that. So this will be the main part of that presentation. Finally, but not the least, we'd like to talk about global health. As a pharmaceutical company, our social mission is to provide access to pharmaceuticals, drugs and ensure supply system of pharmaceuticals in local health care system. With regard to global health, different pharmaceutical companies are engaged in different activities with different size and in different regions. Chugai within the Roche Group is playing its role so as to engage in activities that match the local needs. So what perspectives are being used, what regions we are working in, what the needs we are addressing are and where we want to go going forward, our aspiration on those subjects will be covered by Keiji Kono. Without further ado, I'd like to start my part of the presentation. First, as briefly mentioned earlier, since the founding of the company, we have always aspired to be a company that contributes to society and, at the same time, be a company that is indispensable to society to engage in such business activities. As our aspiration in the initial year of IBI 21, we defined the basic policy, the envisioned future, which holds that for Chugai's growth and development and enhanced corporate value, contributing to social growth and development, resolving social issues is a must. Resolving social issues in turn will increase our corporate value. Of course, we are in the business of providing innovative drugs and services. That is the business that we are in. So by focusing on that, we are to realize advanced and sustainable patient-centric health care so as to enhance the corporate value. This will be achieved, of course, by focusing on innovation and creation of good drugs and services by strategic alliance with Roche and our unique science and technologies. And we aspire to be an essential company for society by contributing to society through resolution of social issues. And the social issues we solve are described in 25 materialities in 8 areas with priority, which we announced last year. We have identified 25 items for social issues or need. But we understand the level of social expectation or requirement will change, depending on the social environment and the scale of our company, which is growing over time. Therefore, it is necessary to always capture what is required in a timely manner. And to do that, it is essential to have dialogues with various stakeholders. Next is innovation. This is not limited to create innovative products and services. But at the same time, our business operations should be innovative as well. Otherwise, we cannot expect innovative results. At the beginning of this year, we did not expect the pandemic of COVID-19 like this. As such, environment can change rapidly. With such environmental changes, as I said, the social expectation will also change as our corporate value and scale change. These changes should be continuously watched and captured through dialogues, and we must act in line with the new level of expectations. This means we must implement the PDCA cycle between different levels of expectations, and that will improve our corporate value. Next slide is about our unique initiatives other than products and services. That is shared value creation. There are 6 examples here, and last 3 will be covered later as deep dive themes. So in the interest of time, I'd like to talk about the first item for production, use of single-use plastic bags. This is a method for antibody production and benefits of using these disposable bags is reduction of resource usage as we don't have to wash nor sanitize them after the production process and increased capacity utilization and productivity with quick changeover, and this will lead to stable supply as well. We introduced them with these expectations. At the same time, efficient production has a positive financial impact, and we can reduce wastewater and energy consumption. As such, they have lower burden on natural environment, and this contributes to E of ESG and affecting nonfinancial sustainability. In modern times, it is an example of contribution to ROESG, meaning both ROE and ESG. Next slide shows the overview of IBI 21 with 5 strategies. Today, I'd like to talk about strategy 4 and 5. Strategy 4 and 5 are now included in our management strategy, and this indicates their progress is now monitored and managed with governance. There are 4 committees on the Executive Committee to monitor various items with collaboration. The report to Executive Committee are further provided to Board of Directors. The governance is strengthened to establish a system to implement the PDCA cycle in which Executive Committee perform monitoring and find next issues to be addressed and solved to provide reports to Board of Directors. Next slide is about state of sustainability-related governance to show specifically what sort of items were under monitoring. Next, let me move on to Strategy 5 and human capital and what kind of progress has been made. Health care access and social contribution will be explained later. And the themes described on the next page will be discussed later by the presenters that will follow me. Therefore, I would like to take up the issue of quality management. This is not just about GxP as a pharmaceutical company and how to improve the quality of the data to be filed, but we will be required to seek to enhance the quality of the entire business operations. Therefore, we will need to set an extremely high level of expectation for quality to pursue, where, instead of being content with achieving the minimum requirements of GxP, we will have to engage in activities to further enhance the level and quality. This is usually taken as part of defensive strategies, but we want to position it as part of the offensive strategies by stepping up the level of quality. This slide shows what is advocated by one of the stakeholders, the U.N., or initiatives for the SDGs. For us, goal 3 is the very foundation of our business. But in addition, in order to achieve the goal, we will also need to pursue 4 goals, 8, 9, 12 and 17; as well as 6 other goals required to form the basis of our business activities. Last but not least, on our response to COVID-19 pandemic. As I said at the beginning of this year, we had never expected to find ourselves in the situation that we are in right now. But in the context what have we been doing in this past in terms of providing pharmaceutical products. As you know, Actemra is likely to work for severe pneumonia cases of COVID-19 and Roche is running multiple global clinical trials, of which the results of 2 have been published. So I'm sure you all know how they went. So another clinical trial for Actemra in combination with remdesivir and another in Japan are ongoing. These are all using the existing drug, Actemra, but when it comes to novel therapeutics, Chugai Pharmabody Research commenced research on new antibody therapeutics for COVID-19 in collaboration with Singapore's Agency for Science, Technology and Research, A*STAR. This is my last slide. It is necessary to be responsive to changes in the environment. In that sense, COVID-19 changed the environment dramatically. The question is how we will have to respond to that. First of all, what is important is health care delivery models. Compared to how they were before COVID-19, what we see in the age of with COVID-19 or post-COVID-19 is expected to be significantly different. For example, health care delivery models implemented in noncontact environments will become more common, such as wearable devices, telemedicine, AI diagnosis and interviews with patients by AI. Further down the road, you may see controlling what route patients should take to get around in the hospital and the timings. If that becomes a reality, obviously, for us, pharmaceutical manufacturers, the question is how that will change our activities. This is not an exhaustive list, but examples include modifications that we will need to make in the design of clinical trials, responses to telemedicine, the need to reassess rules of MRs, MSLs and safety staff and the changes in the means of communications with hospitals and medical doctors. Furthermore, what is often talked about, the work style reforms should be included as well. As work from home increases, we will need to consider what would happen to HR system and HR assessments. What about readiness of the IT environment and how the office environment and low-cost operations will change? In the new environment, we may have to look at risk management through lenses of totally different and new perspectives. As Dx makes progress, we will need to verify and accumulate expertise in VR and other new ways of doing business. The environments we are seeing in the midst of pandemic or with COVID-19 may also be significantly different from the one after the pandemic or post-COVID-19. If the time span of being with COVID-19 is 2 or 3 years and post-COVID-19 5 or 10 years, we will need to figure out if they are simply an extension of what came before or something totally different. In other words, we are in the process of revisiting our present business activities in light of the entire world of so-called new normal. I have run over my scheduled time a bit, but this concludes my speech, and I hope you will enjoy the following more in-depth presentations on the 3 topics. Thank you for your attention.

Good morning. This is Itagaki speaking. Deep dive theme #1 is sustainability-related indicators, nonfinancial and pre-financial information. What I'm going to cover is our basic thinking and how we manage them. Through meetings, such as one we're having today and annual reports and websites, taking advantage of these opportunities and media, we are providing nonfinancial and pre-financial information. We are disclosing such information. In putting together these types of information, what are the underlying thinking and what methods we use in putting them together? I would like to start from there. On this slide, to the extreme right, you can see various opportunities for us to engage in information communication. The basis of what we provide is on the left-hand side of the slide, the materiality. In developing IBI 21, midterm management plan, that started last year, we redefined our basic policy as focusing on creating a shared value. To realize the creation of shared value, we considered what the important issues are and we identified materiality based on the analysis of the environment, getting external input from learning, personnel and others as well as conducting surveys inside the company, out of which we extracted 25 material issues. Of those issues of materiality, the most important ones, the ones that need to be addressed during the 3-year midterm plan, are incorporated in strategies. In IBI 21, there are 5 major strategic pillars, and 25 material issues have been incorporated into those to be addressed accordingly. Among those 25 material issues, those that are related to ESG are under IBI strategy #4, the human capital; and strategy #5, strengthening of sustainable platforms. And we are setting targets to implement measures, initiatives and strategies. As for this that are of particular importance that need to be communicated to stakeholders such as yourselves, we are using such means and opportunities as listed on the slide to engage in communication with you as well as providing information to you. That is the overall flow. Of course, the information that we disclose as well as the way we disclose would be revisited in line with changing social needs and other factors. So materiality, IBI 21 and dialogue with external stakeholders. Let me elaborate on each of these 3. Next slide. On the extreme left, you see the columns named category, material issue, and then we have target, and skipping 1 column, indicator and departments or units in charge. On this slide, of the 8 categories and 25 material issues, we are showing the first category, sustainable health care, and there are 6 material issues. And in the following slides, you can see the rest. At the center, there is a column entitled IBI 21, which shows which material issue is incorporated in which strategy. For example, if you look at the very last line, the material issue is quality assurance and stable supply of products. And IBI 5, strengthening of sustainability platforms, is the strategy that is relevant. And it is further divided into various parts, as was explained by Mr. Ueno earlier. This is part 1 of the strategy of 5, strategy #5, the quality management. And furthermore, in the indicator column, beside some descriptions, you can see solid blue stars and white stars with blue outline. The stars represent disclosed indicators. In the next slide, you can see 6 indicators, 11 material issues. The very last line is global environment, in which there are 4 material issues, from climate change to environment management system. They are all within the strategy 5 of IBI 21, more specifically, part 5 of strategy 5, which is global environment initiative. And as for indicators, for example, in climate change, there are 3 indicators. The first indicator is reduced energy consumption per employee by 20% compared to year 2010 by year 2020. And this has blue solid star next to it, meaning that we are disclosing that indicator. Similarly, next page, Page 19, shows the remaining 3 categories and 8 material issues. As for activities and the values that we disclose, some will be covered in the following presentations, deep dive themes 2 and 3. Also, within our company websites, we have a dedicated section entitled Sustainability, and details are shown there. So if you want to know the details, I recommend that you access that dedicated section. So that's the overall picture of materiality, IBI 21, the targets, indicators, the overall picture. Next is a frequently asked question, the relationship between the ESG initiatives and corporate value. So that's what I would like to talk about next. Chugai believes that corporate value is a total sum of economic value and social value. While we engage in various initiatives on sustainability, we believe that all of them are contributing to corporate value. What you see on this slide is a conceptual image overview regarding IBI 21 strategies 1, 2 and 3, as you can see on the upper left-hand corner, relate to drug discovery, clinical trials, production, marketing and others. The business functions along the supply chain are directly related, and when we succeed in these strategies, they are sure to directly contribute to an increase in economic value. ESG-related strategies, including human capital in strategy 4 and sustainable platforms in strategy 5. As for those strategies, rather than directly related to economic value, they contribute to enhancing social value and also serve as the foundation for strategies 1, 2 and 3, contribute to building robust management platform. In that sense, indirectly, they contribute to economic value and enhanced social value, as a result of which, contribute to corporate value. And the benefits are divided into 3 groups: build innovation platform, reduce invested capital and reduce cost of capital. ESG-related activities that we are engaged in are expected to contribute to those. For example, the second line, quality management. As Mr. Ueno explained earlier, of course, as a pharmaceutical company, GxP-related quality, achieving that is a must. In addition, the quality management mindset of all the employees. The high-quality mindset to be fostered and be disseminated would be necessary for a company-wide innovation effort. That culture would be the foundation for that. And the systems that have unreasonableness waste and inconsistency being eliminated and the employees that are free from such negative attitudes as disinterest, lacking in spirit or sense of responsibility. This would lead to improved operational efficiency and productivity, and that is sure to result in improvement in investment efficiency. And maintaining a high level of operational quality and individual product quality would contribute to minimizing the overall risk, and therefore, that would translate into reduced cost as well, so on and so forth. We do not regard sustainability as something that we have to do. Rather, we are more proactive, and we strongly believe that it will contribute to enhancement of corporate value. Here, you see a further breakdown with time line also being indicated. On the right-hand side, you can see the financial indicators, the revenue growth CAGR, which is a KPI, which is a sustainable corporate value seen from the shareholders' perspective. We disclosed this. In addition, in light of capital efficiency, we have ROIC, ROIC as well, although we did not disclose target for this, but we use this KPI for internal management. And to support this, we need growth indicators, profitability indicators as well as efficiency indicators, which are disclosed externally. And relative to those, we have strategies and policies. How they are related to each other is shown on this slide. As mentioned earlier, IBI strategies 1, 2 and 3, relatively speaking, are in relation to drug discovery, clinical trials, production and solutions, safety and marketing. For those matters, they are related to growth indicators, although the time frame differs. Drug discovery is more long term. It takes more time before you see an outcome. So there is some time lag. Still, it's related to revenue indicators. Strategy for human capital and, number 5, sustainable platforms, they are related in terms of supporting strategies 1, 2 and 3. And through more longer term initiatives, they are related to investment efficiency, the investment capital. The effect of addressing sustainability and ESG do contribute to corporate value if you take a longer-term view. And in that sense, continuation is important. And since they don't translate into immediate profit and benefit, the significance and the progress of the relevant initiatives need to be shared with stakeholders in a constant and regular manner. Our initiatives for sustainability are being shared with stakeholders. We disclose relevant information. But if these are done only for the sake of self-satisfaction, it does not serve the purpose. So where we stand relative to others? Where is the room for improvement? To measure that, we need perspective from outside. And what's shown in this slide are the external evaluation of our ESG initiatives. And our initiatives are relatively highly regarded, if we may say so ourselves. For example, Chugai is included in all 4 ESG indices selected by GPIF, and Chugai is one of Dow Jones Sustainability Indices' Asia Pacific Index. We will continue our efforts so that we would be even more well regarded, and needs from society and changes in environment need to be addressed. So we must make detailed analysis of external evaluation, see what's still missing, see where the room for improvement is and, at the same time, identify the changes in society to make necessary reviews of the targets and activities. We would run a PDCA cycle for that. On this page, an example of gap analysis against external ESG benchmarks is shown. Blue bars are our scores and purple dots indicate averages of global top companies, and areas with large gaps are shaded by gray. For instance, the item at the bottom is strategy to improve access to drugs or products, and the score is less than 50. But global top companies are scoring over 90. So a large gap is recognized here. As a result of an analysis on this item, it was identified that back then, we did not have nor disclosed a clear company-wide policy about it. And probably our global initiatives in this area were not necessarily enough. Then such findings are led to the next question, what should be done about it. On the next page, issues identified by the gap analysis and measures taken for them are summarized. On the left, they are priority measures for the issues identified in the gap analysis in 2018. And in the evaluation 1 year later, it was found that those items improved their scores. Items on the right are from the gap analysis in 2019, which we are working on with priority in 2020. The second item from the bottom is health care access, which was shown with a large gap in the previous slide. We formulated and disclosed basic policies and we are expanding initiatives. Mr. Kono will explain more details about such initiatives later. We will continue to implement PDCA cycle with objective indices that promote activities for sustainability. That is all from me. Thank you.

Good morning, everyone. I am Yamada, Head of Sustainability Department. The second deep dive theme is long-term planning, and I'll explain about our initiatives on supply chain management and environment. These 2 items are positioned as important issues in strategy 5 of IBI 21. And even though their effect is indirect and takes some time to be reflected on the financial performance, we are actively working on them to strengthen the sustainable foundation for our corporate value improvement. Please turn to the next slide, 26. First, let me explain the supply chain management. In corporate activities, there is growing requirement from society for appropriate business activities not only within the company, but also in the entire supply chain, including suppliers. In pharmaceutical industry, supply chain management is a substantially critical area in terms of stable drug product delivery to patients. Regarding our approach to supply chain management, although it is sometimes difficult to see 10 years ahead as business models and core products continue to change, our attitude to solve social issues together with suppliers remains unchanged. In order to evolve together with suppliers as our shared value creation partners, we formulate long-term plans for comprehensive supplier due diligence. As shown here, in 3 years of IBI 21, we aim to complete establishment of risk management system and evaluation of major suppliers. As indicated at the bottom, we have the following progress to date. We have clarified internal procedures and developed Chugai Group's supplier code of conduct and started to obtain agreement, mainly from new suppliers. Also, we target supplier due diligence, mainly on domestic suppliers. No serious observations have been found so far, and we will continue to accumulate good track records steadily. And toward 2030, we plan to improve management and evaluation and to expand the scope of evaluation to complete evaluation of major suppliers, secondary suppliers. That is all for supply chain management. Please turn to Slide 27. Across all industries, or rather across the globe, global environmental risks, most notably climate change risks, are increasing their importance. Chugai has been working on midterm environmental plan and targets, which end in this fiscal year. But going forward, we need a plan that extends beyond the current plan. In that new plan, in addition to short term measures, we will need mid to long-term measures which require more resources and in sync with our operations and facility plans. Please refer to the box at the lower left. As mentioned earlier, we expect to achieve all targets in the current plan. And going forward, we need to set more ambitious and long-term targets. I will elaborate more on these issues later. We conducted TCFD scenario analysis from last year to earlier this year to evaluate the impact of climate change on our business. Now I'd like to explain the overview of its results. Please refer to the box on the right. This scenario analysis was conducted based on TCFD recommendations. A step 1 qualitative assessment of risks and opportunities was done, and based on the result of step 1 risk scenario analysis was conducted as step 2 and financial impacts were estimated as well. Please turn to the next slide for the summary of TCFD scenario analysis. At the top, the summary of qualitative risk assessment is shown. While we did not identify any critical climate-related risks requiring long-term large-scale business transformation or investment, general risks common to manufacturers were recognized as described here. Below that, estimated financial impact based on the scenario analysis are outlined. The values indicated here are the weighted average of the probability of disaster occurrence and estimated loss, and you can consider them as risk levels. As indicated here, currently, it is estimated as JPY 3.96 billion. And in case of 2 degrees C scenario, in which the average temperature goes up by 2 degrees C, it is estimated to be up by about 37%. And in 4 degrees C scenario, it is up about 60% to JPY 6.33 billion. In this scenario analysis, the largest risk is estimated for the case of disasters hit East Japan distribution center, which distributes all products as our main logistics center in Eastern Japan. In this case, estimated loss is JPY 72.3 billion, and its current probability of occurrence is estimated at 0.01%, but it becomes 0.06% in 4 degrees C scenario. Now let me move on to the next slide. Here, 3 specific risks identified in the scenario analysis are described. First, Ukima Plant located near Arakawa River; second, East Japan distribution center just mentioned earlier, located near Tone River; and at the bottom, our critical suppliers, which we cannot disclose specific information about. The risks identified for Ukima Plant and the critical suppliers coincide with the risks addressed in the past BCP measures. So we have already taken the measures described here, and we believe their risks are mitigated. Regarding East Japan distribution center, it is planned to be relocated in January 2021, and flood protection measures will be taken based on the local flood map. So we believe its risks will be significantly mitigated as well. Now please turn to the next slide. This slide is about issues involved in medium to long-term planning. As indicated in the materiality of global environment, our environmental targets are categorized into climate change countermeasures, reuse of recyclable resources and protection of biodiversity. Climate change countermeasures is given the highest global priority, and as described below, we will address them by reducing energy consumption, improving energy efficiency and switching to sustainable electricity of renewable energy for short to medium term. And for medium to long term, we will need to explore new energy sources and redesign our facilities and equipment. In reuse of recyclable resources, although water risk is relatively low, we still need to work on it together with waste reduction. As for protection of biodiversity, we will work on waste water management and reduction of toxic chemicals as well as set plans in coordination with local communities. Regarding formulation of midterm environmental plan described below, we need to consider Roche Group's perspective and perspective of responsibility to ensure stable supplies in addition to our long-term perspective. Roche Group sets high goals, and as a member of the group, we must develop a plan in line with their goals. To be more specific, reducing CO2 emission by 40% by 2025 and achieving zero emission of greenhouse gas by 2050. And it is critical to contribute to achieving these targets. Furthermore, we must maintain stable supplies, which is one of the most important responsibilities of a pharmaceutical company. When we introduced new facilities or sources of energy, it should be compatible with the responsibility of stable supplies. Regarding reduction of CO2 emissions, we will set the target for 2050 as it requires a long-term initiative. Please turn to Slide 31. Specific CO2 reduction targets are currently under consideration, but we are aware the need to set ambitious target. As we expect its growing importance and increasing social requirement, we aim to achieve at least 50% reduction by 2030 from the emission in 2019 and zero emission by 2050. For 50% reduction, we intend to achieve the target by accumulating the reduction of so-called scope 2 emissions, such as reducing energy consumption, improving energy efficiency and switching to sustainable power sources in new facilities. But for further reduction, it requires reducing scope 1 CO2 emissions. And this cannot be achieved by just extending the existing measures. Furthermore, toward 2050, we will be required to take measures, which is highly difficult at this moment, such as self-generation of renewable energy and industry-wide structural reforms. However, it is our responsibility to set ambitious goals and take challenges for them as we aspire to be a top innovator. Let me move on to the next slide, which is the last slide for the session. As I said, it is essential for environmental initiatives to have understanding and cooperation from stakeholders in and out of the company. This slide shows a comment from our employee who is working on such environmental issues for your reference. That is all for me. Thank you.

I am Kono, in charge of global health. I'd like to explain about global health as the third deep dive theme. Our mission is to dedicate ourselves to adding value by creating and delivering innovative products and services for the medical community and human health around the world, and this is the basis for our activities. In order to achieve our mission, we have placed priority not only on creating drugs but also on providing solutions and access to medicines. For example, in Japan, we have always been striving to help realize equal access to standard of care cancer treatment, personalized health care, team care and regional health care coordination. On the other hand, however, the environment that surrounds us and expectations from outside are beginning to change considerably. The scope for us to deliver our services used to be mainly domestic, but more recently, it has been significantly expanded to be increasingly more global. While external expectations from investors and society in general, for us to address global issues, including SDGs, are rising as well. Given such changes in the environment, we believe it will be only natural that our work for better access to medicines spread globally or we place more strategic focus on global health. Moving on to Page 35, where I want to discuss our approach to global health initiatives. First of all, based on our unique resources, assets and capabilities, we start from identifying local health care needs to figure out specific initiative policies. By implementing those policies, we hope to help improve autonomous and sustainable access, upgrade local health care providers and administrative skills and raise awareness of local illnesses. Those efforts, as we expect, will in turn lead to creation of shared values, realization of the mission and growth in the corporate value. The point here is local health care needs. Because our efforts are designed to help mainly developing countries and developing countries are simply different in every possible aspect, the health care needs are quite diverse, with many of them difficult to even imagine for us living here in Japan. And I believe it is very important to identify those needs meticulously and if we fail to do so, it doesn't matter how much money we spend as our efforts are likely to end up being ineffective, or worse, might as well backfire. None of our global health initiatives would succeed without the cooperation from the local residents or officials from the local or national governments of the host countries. Therefore, listening to the voices of those local people about what they want for each of the individual cases in great details will be extremely important. Merely spending a lot of money or increasing the amount of money to invest will never work. Even if we bring over the cutting-edge medical practices available in Japan to the host countries, there may be no one skilled enough to take full advantage of such practices, and they could end up hindering the existing local clinical practices, thus, ultimately having even a negative impact. Next, Page 36. Let me explain briefly the management flow. As I said, we start from identifying the local needs in detail. But in addition, we need to select an NGO who can work with us locally, which is really important. We're trying to engage in those activities while being based in Japan. And so we are quite unfamiliar with the local situation. Therefore, partnering with an NGO, who is well-versed in the local situation and has a lot of experience there, is crucial. But NGOs are quite diverse. And so it is also important to select the kind of NGOs who can share our values and objectives in order to make sure the project will be a success. As I'll explain later, we're working with several different NGOs currently. And we really would like to say hats off to the people in those NGOs who are sacrificing their time and efforts by dedicating themselves for the sake of the local communities. So we work with those NGOs to put together plans to carry out projects. As we do so, what we really work to ensure is that our project will not end as a onetime event. Each of the individual projects is not that large in scale basically and limited in time. Therefore, it will not be any good if, when the project ends, things will go back to where they were before the project. It is extremely important for us to ensure that the system is in place so that even after the project ends, the effect should be sustained. To that end, you start with identifying the local needs, put together a plan, carry out the pilot program, verify the result, make necessary improvements and go back to making plans again. It is important to run such a cycle. At the same time, as described on the slide, in order for the effect to last, development of the local talent who will be able to take that responsibility will be very important. Incorporating such efforts as part of the project, we believe, is also important. Next, Page 37. Let me now share with you 3 specific examples of the projects we are engaged in along this line. The first example is what we do in Myanmar, i.e., promotion of safe inpatient childbirth and NCD detection and treatment. We have been working with an NGO based in Okayama prefecture of Japan called AMDA-MINDS since November, 2 years ago. There are 2 projects. The first is the promotion of safe inpatient childbirth in the impoverished neighborhoods in central dry region of Myanmar. We were told that infant mortality rate was extremely high there. We launched a fund to allow pregnant women in an emergency to go to the hospital and have a safe inpatient childbirth without spending too much money. The point of this project was that it is not only us who invested in that -- in this fund. But we asked each of the local people to chip in a small amount of money and had them manage the fund as well. Of course, we provided them with our support, but they were asked to control budget and other administrative work. This allowed them to have a sense of ownership in this project and, thus, hopefully, activities to be continued on their own, even after the project was over. There is a photo showing our interactions with the local people when we visit them. We were so impressed how passionate they were in this project. The other project was about noncommunicable diseases, or NCDs, detection and treatment. In developing countries, measures against the infectious diseases such as tuberculosis and malaria have been taken quite some time with certain tangible results. However, more recently, as their standards of living improved, lifestyle diseases increased significantly, which led to an increasing number of deaths due to noncommunicable diseases, for which countermeasures have not been able to catch up with. In Meiktila Township, a rural area located further to the east from Pauk Township in Myanmar, hardly any measures against noncommunicable diseases have been taken conventionally. Therefore, what we did was to get the local health authority involved to launch what we call health camp as a pilot program, which is really a mobile diagnostic facility. If there was any abnormality found in some of the local residents, they were either referred to a hospital or provided with a simple treatment on the spot. Those activities were started in 8 locations last year. We ended up testing a total of more than 700 people, of which, surprisingly, as many as over 40% showed some sort of symptoms of diabetes, hypertension and other lifestyle diseases. People in the local authorities were quite surprised and alarmed. And the number of locations were expanded 6 times to cover the entire region, led by the local authority this year. So we believe we are able to pioneer the local efforts to combat lifestyle diseases, which proved to be meaningful, though small in scale. The next example was pediatric oncology support activities in Cambodia. The partner NGO was, again, a Japan-based one, called Japan Heart, which owns Japan Heart Children's Medical Center, specialized in pediatric cancer in the suburb of Phnom Penh, where both Japanese and local health care professionals are engaged in medical practice. And what they found was that they had a problem in communication between local and Japanese people and between different local health care professionals, such as physicians, nurses and midwives. As a solution for that, we held a workshop to facilitate the communication in February this year, on which occasion, I went over to the local site, and was told that they have never gone through training programs like this. And that it certainly improved the communication as well as human relations among the staff, thereby contributed to the enhancement of the medical practice there. This should not be ended as a onetime event either. So various follow-up activities are being carried out locally. So hopefully, the improvement effect will take root. The third example was just launched in July this year, where we were working with a global NGO called City Cancer Challenge Foundation based in Switzerland. The site is in Yangon, the largest city in Myanmar, unlike the rural area targeted in the previous examples. And the project is designed to help enhance the cancer treatment there. Cancer treatments differ depending on the type of tumors addressed, but guidelines for standards of care have not been established in the country. However, you cannot simply transfer what we, in developed nations, do to Myanmar as it is because you need a guideline tailored to the local resources and talent available. And therefore, we are helping them put together a guideline, taking them into account. At the same time, we also provide training programs to the health care staff who actually provide treatment in accordance with the guideline. In so doing, we assist with educational programs, our multidisciplinary team care that we have been advocating in Japan. In addition, we are also helping people in Yangon carry out what we did with people in Cambodia following the results achieved there. Those activities have been just started. Those were the 3 examples I wanted to share with you. I may be repeating myself, but what we do is to give first priority to the local needs. While our basic corporate philosophy of patients first is being incorporated in our efforts, then we hope that the results of whatever we have done will be sustained as we engage in various activities going forward. The last slide shows the comments shared by one of our employees. So I hope you can take a look at them at your leisure. That concludes my presentation. Thank you for your attention.

Hashiguchi from Daiwa Securities. I have a question on environment. I understand that you will be developing the next environment plan over the medium to long term. For example, for year 2030, I think it's highly likely that your product portfolio will have been changed dramatically, for example, less of Actemra and more of such products as Hemlibra in spring and crovalimab, which means that while the social value and economic value stays the same or even get larger, your environment impact is going to decline naturally. So how do you plan to account for that in your planning? And how do you plan to come up with the initiatives needed for the improvement? On a related note, for year 2050, you are to reduce the CO2 emissions by 100%. That was a new target that you mentioned today. If I remember correctly, at the meeting last year, you said that these kind of initiatives would be difficult to be taken up by a company of your size on its own. So can you explain what kind of discussions you had over the past year, which resulted in this target being set?

Thank you for your question. Yamada from sustainability department would take that question. Your first question, with the increase in sales and revenue, relative to that, the impact -- the environment impact will go down. Is that the point of your question?

No. With more products with higher unit price, the relatively lower production cost relative to the sales. When you have more products with higher intellectual property value, you are going to see lower impact on environment is the point.

Thank you for your clarification. I don't know if this answers your question. But for example, regarding the CO2 emissions reduction, we are not going to use the unit value of sales. Rather, we will be focusing on the amount of reduction volume. So the target will be set regardless of the sales breakdown or the sales amount. And regarding your second question, last year, we did say that it will be difficult for us to internally engage in energy production. But over the past year, we considered alternative. For example, purchase power based on the power purchase agreement. So we decided that there might be ways to address this by changing our approach. Although the details have yet to be discussed, we thought that the most appropriate approach is to set the ambitious target and figure out the ways to achieve that, thus the target as you see.

Maybe I was not clear in my first question. As Actemra and other products that are important to Chugai reached the end of their life cycle, the CO2 emissions would decline. And I'm hoping that would not be the only source of reduction in CO2 emissions. I'm hoping that you will clearly distinguish that from true emission reductions that will come from your efforts. So that's more of a request than a question.

Thank you for that clarification. I apologize. I didn't get your question right the first time.

Hyogo from Mitsubishi UFJ Trust and Banking. Thank you for this opportunity, especially the TCFD analysis was very clear and it was very informative. I have 3 questions. I'm looking at Pages 8 and 9, the sustainability governance. Looking at the items on the agenda of BoD meetings and items that are relative to ESGs. It appears that there are no items related to environment. Is this because it was simply a matter of course this year that there were other issues that were taken up, such as human resources? So can you comment on the sensitivity level of the outside directors regarding the environmental matters, what their thoughts are?

As you are aware, the composition of our Board of Directors is 3 inside directors, 3 outside directors and 3 from Roche. So in that sense, directors from Roche would look at the agenda from the framework of the environmental programs of the Roche Group. Chugai is part of the Roche Group. And so the overall information on environment initiatives disclosed by Roche do include Chugai's contribution. And so in that sense, when high targets are set by Roche, our contribution is a must. So within the Roche Group, what is Chugai doing, which way are we going, what progresses are we making are all monitored constantly. So in that sense, this is a 2-way communication. We report our situation. Maybe it hasn't been on the agenda this year, but the mid-term environment plan for 2016 and 2020 will be over this year. And so for the new initiative, the new targets will be set for the future, which will be on the agenda of the BoD meetings and executive committee meetings. And capital plan or facilities plan are also considered from that aspect, what is the environmental impact, how eco-friendly we are. And as was mentioned earlier, we will be developing new economic plan over the medium to long term. And so definitely, they will be on the agenda of the BoD meetings and Executive Committee meetings.

My second question is also about environment. Recently, taking initiatives on circular economy has become a hot issue in some industries, but it was not touched upon in the presentation this time. Could you share any initiatives on circular economy at Chugai, if you have any?

It is rather difficult to give you specific examples of circular economy initiatives right now. But regarding waste reduction, which is expected to become an important issue going forward, we will think about measures to recycle things as much as possible instead of producing waste.

I'm clear. My last question is about Dx. Dx is expected to become common in many industries. Its benefit is discussed in many places, but its risks, for instance, security risks or personal data protection, which have not been a hot issue for pharmaceutical companies, will be more important. Could you tell me about your current recognition on such risks?

We are aware that we have to be more vigilant about the risks related to Dx as it is making progress further. 2 years ago, we audited risks in our system, including IoT system. And we conducted the system audit again this year to identify issues, and currently, we are considering measures to address those issues. We understand these issues are not limited to individual department or system department. Rather, we should look at Dx risks and company-wide operations. We recognize them, and we will address them as company-wide risks.

I hope this ESG meeting will continue in the next fiscal year. And I expect you will follow up the development of the issues in this fiscal year as results from PDCA activities and share new issues if you find any.

I am [ Idaka ], editor of Iyaku-Keizai, You could provide a ground explanation, but please allow me to ask questions about details. I'm referring to Page 23 in the presentation of Mr. Itagaki about gap analysis against external ESG benchmarks. It seems scores and human rights and a strategy to improve access to drugs or products are low. Could you elaborate on what this means and how you're going to improve them?

Let me answer your question about human rights. We assume the reason for the low score is related to supply chain management as the human rights scores of our suppliers or business partners are low. Last year, we formulated our policy on human rights, and the issue of human right is clearly stated in our supplier code of conduct explained earlier. Going forward, we will continue to evaluate and closely watch supplier situation based on it. We expect this will improve the score in human rights. The word human right sound a little shocking to me, but what is actually not working? It doesn't mean there are specific problems behind this low score. But recently, it is required to check if forced labor or child labor is not used by suppliers for proper business operations. We believe our suppliers are not involved in such a practice. However, we did not have a system for such evaluation, and we understand this led to the low score in human rights.

I understood. Can I assume strategy to improve access to drugs or product is also related to supply chain?

Let me answer this question. When this analysis was conducted, we did not disclose things like basic policy properly, for instance, in global health. Also, 3 projects explained earlier were not disclosed yet when this analysis was conducted. But now we disclose the 3 projects on our website to show basic policies and activities based on them. We expect that score will improve by such communication to the public.

I have another question about use of single-use plastic bags for antibody production explained by Mr. Ueno. This was explained as basically eco-friendly and a better way of working. But in the eyes of a lay person, it gives an impression that this creates more waste as these bags are discarded after use. Could you explain how this can contribute to environmental improvement?

As I said, we can reduce the amount of water and energy significantly. However, as you said, we do use plastic bags and plastic materials in other parts. And we are aware that we have yet to address the issue of how to reduce such plastic waste. We believe our next challenge is to figure out how to reuse and recycle plastics. There are many different ways to look at any single environmental issues. You can strive to make sure every action taken be environmentally friendly, or alternatively, you can say certain practices, overall, environmentally friendly, if looked at from a comprehensive perspective, but not without some specific environmental issues entailed. In those cases, what we can do is to try to resolve any new issues that arise one at a time so that, ultimately, in the future, we will be able to create an environmentally friendly company.

Hello, Yamaguchi from Citigroup Global Markets Japan. I have one question on fair prices. Aside from overseas markets, the Japanese domestic market is under the NHI drug pricing regime. Of course, one way is quick approval of innovative new drugs, and yet, they will be subject to the strong pressure to reduce NHI drug prices. I happen to feel often that your company should be the one to take more lead through functions such as government affairs in creating the environment where the authority will pay more for innovation. So I'm interested to know where in the whole exercise that you're actually engaged in such activities.

Kono from External Affairs Department will answer that question. We are fully aware, as you are, that drug prices are currently under heavy criticism, not just in Japan, but around the world. Given that context, we're making our voices heard on various occasions in and outside of Japan by explaining to and seeking understanding from the governments and other stakeholders that we will need the business environment to be maintained, where innovation is appreciated and properly reflected in the prices of innovative new drugs in order to make sure we will be able to continue to invest in our innovation. I know there are some criticisms that our efforts are not enough. But we are working with our peers in the industry wherever we can, together with the industry organizations, including JPMA, or Japan Pharmaceutical Manufacturers Association; and FPMAJ, the Federation of Pharmaceutical Manufacturers Associations of Japan, to do our utmost to solicit as much understanding as possible from stakeholders going forward. Did that answer your question?

Yes. One additional question. Most recently, things seem to be getting increasingly challenging, especially in Japan, and I am fully aware that you're putting your efforts in this regard. Are there any new activities that you're going to work on?

In terms of things directly related to drug prices in Japan, with regard to the discussions on the scope of the interim year NHI drug price revisions scheduled next year, we are requesting that under the circumstances that we are in now, including the COVID-19 pandemic, since surveys conducted are susceptible to biases and errors in data collected, appropriate considerations to be given to such factors in reaching conclusions on the interim price revisions. Moreover, in the year after next, the regular NHI drug price revisions are scheduled. Ahead of that, as have been advocated by trade organizations such as JMPA, we are approaching the government and other regulatory authorities in various ways to request them to more properly reflect innovation in the prices and hope to continue this effort. From a bigger picture perspective, as part of the global health initiatives, as we said in the fourth page advertising placed in a certain newspaper yesterday, we, as the industry, have established AMR Action Fund to address multidrug-resistant microorganisms so we can show our proactive approach in this endeavor. After the subsidence of COVID-19, multidrug-resistant microorganisms could become the next major threat, possibly even more serious threat over the time to mankind. And in order for us, human beings, to defeat the threat, new drugs developed through innovation, especially by the pharmaceutical industry, would be indispensable. With that recognition, while we, as the industry itself, have demonstrated its willingness to proactively fight this because it's necessary. By launching such a fund, we are asking other stakeholders such as the government to play their parts to improve the environment. So by emphasizing the importance of continued efforts in innovation in every possible way, we are focusing our efforts in the activities to make the environment, including the drug prices, sustainable, at least from our own perspective. And we are doing so by broadening our coverage to include international collaborations.

Sakai from Credit Suisse. Roche has been given the quite high marks on its ESG activities in Europe. And on its website as part of nonfinancial reporting, numerical results of several key performance indices have been disclosed, such as the number of Roche drugs adopted as essential drugs by WHO and the number of patients on Roche drugs. Do you have any plan to disclose something similar in your own way? I'm asking this question because this type of information makes it quite easy for us to follow, the sell-side analysts. And therefore, unfortunately, it is difficult to grasp the whole picture on ESG. Therefore, if you can also come up with something like this as part of your activities, it will be very helpful. I wonder what your thoughts are on this.

At the moment, we do not have any plan to disclose such information in the same manner, but we would like to take this as one of the issues to address going forward. Thank you.