Round-table Discussion with Outside Directors

Evaluation of the New Structure

Please share your evaluation of management following the transition to the new management structure.

Okuno

In FY2024, the transition to the new management structure coincided with major M&A activities. Among these, the acquisition of Deciphera was an extremely important management decision, and the fact that there are now three Representative Directors was, I feel, very timely. Having a structure in place that allowed for appropriate division of duties during a phase when decision-making could easily become centralized was highly significant for our Company.

Nomura

Currently, as we pass the midpoint of the medium-term business plan, the most pressing issue is addressing the patent cliff for OPDIVO. I believe the system of three Representative Directors has been highly meaningful as we aim for further growth. With global experience and perspective, we have now established a management framework that can fully face the goal pursued by Ono: the “realization of a Global Specialty Pharma.”

Nagae

While each leader maintains their own unique perspective, we have developed relationships where we can tackle common challenges together. The pharmaceutical business in particular lends itself to easy consensus on direction, which also raises the quality of discussions. In diversified companies, it is not uncommon for different departments to have varying awareness of issues, leading to misalignment or conflicting opinions. I feel it is ideal that every employee at our Company is aware of the shared goal of contributing to patients and can participate in the decision-making process with this in mind.

Nomura

The structure led by three top executives has been established, and the agility of the Board of Directors has greatly improved. The reorganization of our U.S. and European bases following the addition of Deciphera to the Group is also progressing at a globally required speed. Each role is clearly defined: President and COO Takino oversees global strategy, Vice President Tsujinaka is responsible for domestic business, and Chairman Sagara supervises and supports the whole organization as CEO. Diversity of perspectives is naturally incorporated into decision-making, resulting in a well-balanced structure.

Okuno

In regard to this top management appointment, we Outside Directors, as external members, were actively involved. In this case, there was a clear theme of selecting the president, and because we had human resources suited to the changing business environment and desired direction, the process proceeded smoothly. However, I felt a more medium- to long-term perspective is needed regarding management personnel who will support the current leaders and become top candidates in the future. At present, we do monitor the executive layer to some extent, but going forward, we need a mechanism to systematically develop and identify candidates not just for the next round but also the one after that.

Evaluation of the Effectiveness of the Board of Directors

Please share your thoughts on efforts to enhance governance through the effectiveness evaluation of the Board of Directors.

Nagae

I feel that effectiveness evaluations at Ono have become firmly established at a very high standard. The process has continued for nearly ten years, but its content has evolved year by year, making it much more than just a formal exercise.

Nomura

Of note is that, in addition to external surveys, the Company’s internal administrative office conducts careful interviews. By probing deeper into areas that external evaluations cannot fully capture, I believe it has led to more effective governance improvements. Especially in recent years, we have used time after Board of Directors meetings for presentations by candidates for the next generation of leaders and for explanations of department-specific strategies. This has enabled us not only to evaluate but also to assess and get involved in the development of the next management layer, thereby linking it to succession planning.

Okuno

The method of effectiveness evaluation continues to evolve, including the introduction of external evaluation institutions. I feel these accumulated efforts are forming the very governance culture within our Company. It is noteworthy that the evaluation process does not end as a mere checklist, but functions as a real mechanism for enhancing governance. It is institutional effectiveness that is realized not just through formal arrangements, but because the organization itself has receptivity and a willingness to improve.

About the Acquisition of Deciphera

Please share your views on the course of discussions at the Board of Directors regarding the acquisition of Deciphera, and on future challenges and expectations.

Nagae

The purposes of M&A by business companies vary widely, but for us, this acquisition of Deciphera was essential for future growth.
What is important is that it was a project with clear complementary value to our existing businesses and high rationality. This was a high-value case. In particular, the acquisition filled a necessary gap toward establishing our business foundation in the U.S. and Europe, which we have been aiming for. Business development is already progressing swiftly under a very clear objective, and I believe it was a highly meaningful opportunity for us.

Nomura

I share the same evaluation. Securing a foundation for direct sales in the U.S. and Europe, strengthening our pipeline, and enhancing our drug discovery capabilities have all been of great significance as the first step toward becoming a Global Specialty Pharma. The status and challenges of integration with Deciphera are reported to the Board of Directors as they occur.

Okuno

From my perspective as a human resources expert, I am focused on PMI (Post Merger Integration) after the acquisition.
From a human resources standpoint, a major theme is how Deciphera’s diverse human resources can contribute to the entire Group going forward. The ratio of female managers at Deciphera is far higher than at our Company, reaching 60%. As personnel exchange increases, I hope the Company’s culture will inspire us, not only in promoting female participation but also in advancing global diversity.

Nagae

PMI is truly the key determinant of future success or failure. It is important to ensure that both parties can create value in an equal relationship. Especially in international human resources management, it is essential that the parent company does not take a top-down approach, but instead respects the local culture while integrating organizations.

Nomura

The Board of Directors is also continuously monitoring post-acquisition progress. We are monitoring multiple milestones on a monthly basis, including the progress of new drug development, restructuring of our U.S. and European operations, and forecasts for timing of profitability. While things are progressing smoothly at this point, the next stage will truly be the test of our capabilities.

Nagae

In fact, this acquisition has dramatically expanded our pool of global talent. If we can leverage this to appoint future management and specialized human resources, the significance of the acquisition will become even greater.

Nomura

This was an acquisition deal worth approximately 380 billion yen, and I believe it was an M&A that put our Company’s future on the line. Acquiring Deciphera, a company with both sales and R&D capabilities, is a major achievement in realizing direct sales in the U.S. and Europe. However, how we utilize this strength in our overall growth strategy, whether development is progressing smoothly, and whether overseas business expansion continues to grow are important oversight themes for the Board of Directors going forward.

On Updating Materialities

What kind of discussions took place in the Board of Directors regarding the revision of materialities?

Okuno

Previously, there were 18 materialities, which provided comprehensive coverage, but at the same time was somewhat complex and difficult for external parties to understand. We reorganized them into nine items and reconstructed into a framework integrated with our strategy, which I feel has made dialogue both inside and outside the Company significantly easier.

Nomura

Even with the 18 items, there was meaningful value, especially for our employees, as they could view which materialities they were contributing to with a sense of ownership. However, I believe this reorganization was carried out after a certain level of understanding had been achieved in order to move on to the next stage.

Nagae

The overall structure has become much easier to understand. The four pillars of the growth strategy link with the medium-term management plan, along with foundational elements such as human resources and digital, plus three items related to sustainability. This organization into nine items is visually clear and, compared to other companies, easier to understand. I believe the section on our growth strategy, in particular, really showcases what makes us unique.

Nomura

Furthermore, I think this was not merely an organizational exercise, but a declaration of our intention to shift our strategy. Having cleared the major goal of taking on the challenge of the U.S and European markets, the clear message is that we will now move to the next stage, aiming for the “expansion and acceleration of global business.” I believe this has great significance for both our internal organization and external stakeholders.

Okuno

I am paying close attention to the item on human capital. Especially regarding opportunities for women, we have set numerical targets for 2030, listed individual candidates, and created a specific development roadmap outlining how to train each person for certain positions. Because we are setting target values based on this process and tracking progress so closely, it demonstrates an effective approach.

Nomura

As our management foundation, which used to be mainly domestic, is entering a new phase of overseas expansion, I believe that developing global talent remains a significant challenge.

Expectations for Ono as it Continues to Transform

Please tell us about the challenges you believe should be addressed as we work toward realizing a “Global Specialty Pharma.”

Nomura

As we aim to become a Global Specialty Pharma, I believe the most fundamental requirement is to have a strong foundation. Only after further strengthening the earnings base of our domestic business will we be able to fully demonstrate our capabilities in overseas expansion. In that sense, I believe that further reinforcing our domestic business is vital as a foundation for our global strategy.

Nagae

Our overseas sales revenue ratio is over 30%, but in reality, almost all of it consists of royalties, and product sales themselves account for about 1%. From that perspective as well, I see significant challenges in the human resources needed to grow overseas sales. Among our domestic employees, global talent is still quite limited. If we’re going to entrust management overseas, we need leaders who understand the local culture and can lead local human resources. Currently, human resources are dispatched from Ono headquarters to foster close communication and promote mutual understanding and unity, but looking ahead a few years, we need to further increase local human resources and develop them into the kind of employees who embody our corporate philosophy, ensuring the Ono Group’s values take root globally. Ultimately, we should aim for a management system that can operate independently overseas.

Okuno

Human resources development inevitably requires time. At this phase, it is also necessary to hire immediately effective human resources from outside the Company. The approximately 400 employees at Deciphera represent a large pool of global talent, but unless we also bring in management human resources from outside the Company to further develop global talent, we will not achieve our 2031 vision in time. However, simply hiring is not enough. First and foremost, we need to be a company where outstanding human resources want to work. To achieve this, we need to make major decisions regarding recruitment and development, including offering attractive incentives.

Nomura

In realizing a Global Specialty Pharma, I believe we should also be aware that the power of open innovation that our Company possesses is once again a strength. As demonstrated by the success of OPDIVO, our ability to identify and commercialize external technologies and ideas is highly regarded in the industry. If we can apply our efforts to absorb good ideas from outside through open innovation to our global business expansion, it will become a major advantage.

Okuno

Recently, I have increasingly come to value what lies behind the word “transformation,” which our Company advocates. Our Company has a corporate culture that is sincere and honest. I believe the real appeal of this Company lies in this kind of “balance”—changing without losing those strengths. Rather than abandoning our traditions, it is desirable to evolve toward the next global expansion by utilizing our foundations.

Nagae

This is an era where not only systems and strategies, but also a company’s “stance” is being called into question. In recent years, there have been numerous scandals at various companies, and I believe that at the root of these issues lies the corporate culture. On the other hand, whenever I talk to our employees or Director Member of the Board of Directors, I am left with the impression that this is a very honest, transparent company where everyone does their jobs properly.

Nomura

The core value of a pharmaceutical company is, after all, “contributing to people’s health.” Since we are engaged in businesses directly related to patients’ lives, developing new drugs is the greatest contribution we can make to our stakeholders. I believe that by staying true to our principles and leveraging our strengths as we take on global challenges, we can enhance our corporate value.

Nagae

What stakeholders expect is a company’s future prospects. As we face the upcoming patent cliff, our ability to overcome it through the acquisition of Deciphera and to introduce new growth drivers will test our group management.

Okuno

If we look beyond shareholders to patients, healthcare professionals, and local communities—in other words, a wide range of stakeholders—it is necessary to explain not only our short-term performance, but also the essential value of our innovative medicines and our contributions to the environment and society, as part of the long-term value we provide to society. Our Company practices environmentally-conscious management, and this very stance supports our corporate trustworthiness. Even in challenging times, I am convinced that by communicating carefully and consistently, and by demonstrating the value we provide to various stakeholders, we can foster future growth.