Roundtable Discussion with Outside Directors

Looking Back at the Board of Directors over the Past Year

Kagami: The Company is in a phase of increased up-front investment to ensure sustainable growth under the five growth strategies outlined in the 2027 MEDPAL Medium-Term Vision. Over the past year, multiple matters have come before the Board for resolution, including the addition to the Group of TOSHICHI CO., LTD., MP Gokyo Food & Chemical Co., Ltd., and PreMedica Inc., and the establishment of MEDISKET CORPORATION that aims to build the largest healthcare distribution platform in Japan. There have also been various investments to launch innovative new drugs in the rare diseases field or for the “Enhancement of Business with and in Digital” growth strategy. The Board of Directors was also consulted during decision making on new businesses and engaged in repeated rounds of discussion on each proposal. Regardless of the ongoing business expansion, there were exchanges of opinion, particularly with the outside directors and Audit & Supervisory Board members, to ensure that compliance and governance systems were functioning effectively in light of past compliance-related impropriety. Mr. Asano also suggested that because a year has passed since the formulation of the Medium-Term Vision, it might be wise from an overall perspective for the Board to do another review of the vision and the growth strategies.

Asano: That’s right. To achieve this Medium-Term Vision, the executive team is pushing ahead with various projects with a sense of urgency, so I think it would be a good idea to have separate discussions at the midway point on the progress made toward the overall vision. Over this past year, the Board has discussed a wide range of matters, including at roundtable conferences, ranging from how to respond to Tokyo Stock Exchange demands to Group governance issues, as well as the various business proposals. Compliance and governance are continuous processes with no final endpoint. I believe we need to take a serious look at any points of concern even if they do not amount to full-scale impropriety. I think that addressing minor issues can prevent major ones, so when an issue first comes to light we should view this as an opportunity for improvement and take action. Looking ahead, I agree with the approach of increasing the discussions around governance and sharing views on long-term policies.

Progress Toward the 2027 MEDIPAL Medium-Term Vision

Asano: In terms of realizing the Medium-Term Vision, my assessment is that the Company is making steady progress in terms of digging deeper in areas surrounding the core wholesale business and working to develop more business opportunities. Of particular interest are the skillful efforts made to develop the human resources that will drive the Company forward into new fields, as outlined in the growth strategies. In the core wholesale business, the Company is working to overcome various compliance difficulties and I have a positive view on the ongoing honest efforts being made to secure earnings. The Company is also making progress with business portfolio prioritizations.

Kagami: I also have the impression that the Company has made substantial progress in its efforts to expand into new business fields. I think the organization is developing its human resources by actively providing opportunities to build up experience across the Company through projects driven by the younger members of staff, such as the PRESUS^®* support system for dispensing pharmacy operations. On the other hand, as the Company accelerates the five growth strategies, I think it needs to take more of a bird’s-eye view of the entire Group. I saw the preliminary results from the questionnaires evaluating the effectiveness of the Board of Directors the other day. I realized that there is a shared understanding of the need for discussions from a broad perspective and was reminded of how enormously beneficial it is to conduct this analysis and evaluation every year.

Asano: I think at the start of the fiscal year it would be good to schedule in discussions to monitor progress toward the Medium-Term Vision.

*PRESUS^®: An all-in-one system that functions together with ALCs to conduct automatic ordering and inventory management based on demand forecasts. This system supports the various operations of dispensing pharmacies.

Toward Enhancement of Corporate Value

Asano: The Basic Capital Policy, unveiled in May 2023, is for the business to be managed with an awareness of capital costs and return on capital, and we are also advancing discussions on capital efficiency with the executive team with a shared understanding of this topic.

Kagami: Detailed reports on dialogue with investors, such as overseas IR opportunities, are also given at the Board of Directors’ meetings, eliciting lively suggestions from outside officers and much debate. Based on my experience in various industries, I think each company is unique in terms of its history and business characteristics, so although we talk about capital policy as a general concept, there are many different options to consider. The pharmaceutical industry overall is an extremely difficult sector to operate in and I think the biggest issues are what type of capital policy to put in place and how to get all the shareholders on board.

Asano: That’s a good point. I think that the executive team has an excellent approach to its business operations in pharmaceutical distribution, as they are acutely aware of the important role the Company plays in the social infrastructure. Discussions at the Compensation Committee meetings do not focus on returns in the form of compensation if the business is profitable. Instead, business stability is the primary consideration when making decisions. Many of the issues debated might seem rather opaque for outsiders to understand, but if the executive team explained their approach, it might help to develop a mutual understanding with the shareholders. However, if the Company is to be a reliable part of the social infrastructure, one of the most pressing issues is managing cybersecurity. With rising geopolitical risk, we need to recognize the importance of running simulations on how we would respond after a cybersecurity attack, rather than being overly focused on prevention

Kagami: I recall that the department responsible for cybersecurity gave a report at a Board of Directors’ meeting and there was an interactive discussion on this very topic. What I would like to raise with regard to sustainability matters is the progress made with diversity and inclusion. The Company has set up in-house meetings to discuss the environment and issues related to diversity and inclusion, and we receive a report once a year. Female outside directors and outside Audit & Supervisory Board members are active participants in this, and last year they all took part in a panel discussion on promoting women’s activity.