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To become the global leader in benefiting patients by providing health care solutions
The script for our human health care logo was taken from the signature of Florence Nightingale. The human health care concept reflects our commitment to viewing health care not only from the standpoint of the health care professional, but also from that of the patient. This commitment is inspired by Florence Nightingale, who devoted her life to caring for others, yet never lost sight of the importance of listening to her patients.
Annual Report 2003
52
Eisai Annual Report 2003
Profile
We give first thought to patients and their families, and to increasing the benefits health care provides. In support of this concept, we are focusing on compliance (observing our corporate philosophy as well as regulations) and corporate governance in all of our business activities and are striving to satisfy unmet medical needs.
Aricept , a treatment for Alzheimers disease, and Aciphex /Pariet (Aciphex :

U.S. brand name), a proton pump inhibitor (PPI) for the treatment of peptic ulcers, have achieved continued growth in global pharmaceutical markets. We are now working to discover and develop new drugs in Japan, the United States and Europe, with a focus on the fields of neurology, gastroenterology and oncology.
Contents
Consolidated Financial Highlights ........... 1 Message to Shareholders ....................... 2 Eisais Mission ..................................... 4 Overview of the Fiscal Year Ended March 31, 2003 ................................ 5 Eisais Key Products ............................. 6 Global Strategies .................................. 8 Research and Development Strategy ..... 14 Role in Society .................................. 21 Improving Corporate Governance .......... 21 Social Responsibilities and Compliance ..................................... 21 Remuneration Decisions ..................... 22 Employee Issues ................................ 22 FAQs from Shareholders and Investors .. 23 Corporate History ............................... 25 Event Calendar .................................. 26 Financial Section ............................... 27 Risk Factors ...................................... 49 Japan and Overseas Operations ............ 50 Major Products .................................. 51 Board of Directors, Corporate Officers and Corporate Auditors ..................... 52 Corporate Information ......................... 53
Forward-Looking Statements Statements in this annual report, other than those of historical fact, are forward-looking statements about the future performance of Eisai that are based on managements assumptions and beliefs in light of information currently available, and involve both known and unknown risks and uncertainties. Actual events and results may differ materially from those anticipated in these statements.
Consolidated Financial Highlights
Eisai Co., Ltd. and Consolidated Subsidiaries Billions of yen Years ended March 31 2003 2002 2001 2000 1999
Net sales Operating income Net income Research and development (R&D) expenses Total shareholders equity Total assets
466.6 75.9 41.0 59.7 388.2 591.7
431.7 72.7 36.5 55.0 362.1 557.6
361.7 59.0 23.3 49.6 345.9 549.4
302.5 37.1 11.3 46.7 329.4 485.7
284.9 38.6 15.9 43.7 308.6 463.4
Ratio of R&D expenses to net sales (%) Return on equity ratio (ROE) (%) Return on assets ratio (ROA) (%) Shareholders equity ratio (%)
12.8 10.9 7.1 65.6
12.8 10.3 6.6 64.9
13.7 6.9 4.5 63.0

Yen
15.4 3.5 2.4 67.8
15.3 5.2 3.5 66.6
Net income per share Diluted net income per share Cash dividends per share
141.16 139.85 32.00
123.17 121.92 29.00
78.33 77.57 23.00
37.99 37.66 21.50
53.18 52.67 21.50
Note: Net income per share and diluted net income per share are computed based on the weighted-average number of shares of common stock outstanding. On April 1, 2002, the Company adopted a new accounting standard for net income per share of common stock issued by the Accounting Standards Board of Japan. The Company adopted the new standard retroactively.
Net Sales
(Billions of yen) 500 400 300 200 284.9 302.5 361.7 431.7 466.6 100 0 50 40 30 20 10 0
Net Income
(Billions of yen) (Yen) 150 120 90 60
Net Income per Share

(%)
Return on Equity Ratio (ROE) Return on Assets Ratio (ROA)

12.5
10.3 10.9
10.0 7.5 5.0 37.99 78.33 123.17 53.18 141.16 2.5 0

5.2 3.5 3.5 2.4 4.5
6.9 6.6 7.1
15.9
11.3
23.3
36.5
41.0
30 0
99
00
01
02
03
99
00
01
02
03
99
00
01
02
03
99 00 01 02 03
ROE ROA
Message to Shareholders
Companies in the 21st century face completely different challenges from those in the 20th century. Pharmaceutical companies have been traditionally organized with research and development, manufacturing, marketing and management functions. Companies must now also be covered by two additional nerve-like systems, namely a stakeholder system and a compliance system. Both these systems serve as conduits for the exchange of information and messages. Daily operation and decision-making should respect the governance by the two systems in reference to two criteria: Does the decision support the benefit of the shareholders? and Does the decision comply with regulations? It is vital for companies today to develop these two systems to ensure survival. Another recent important trend is the supply of pharmaceuticals to socially and economically disadvantaged people. A typical example is the access to AIDS drug treatment in Africa. This is a major issue involving compulsory licenses for patents, and has been a major focus of the World Trade Organization. In the United States, the Bush Administration has proposed a Medicare prescription drug benefit which requires funding of about $400 billion over a 10-year period. That would also be an access issue to drug treatment for the elderly, in a broad sense. At the same time, we are witnessing efforts to allow cross-border trading of drugs within the European Union and to enable the re-importation of drugs into the United States. We are acutely aware of the significance of such trends when managing our business. At Eisai, we aim to manage our Company through vision-led operations. Our vision is to give first thought to patients and their families, and to increasing the benefits health care provides. Our goal is to conduct all of our operations, from the research and development stage onwards, with this vision in mind. We believe that the effective and efficient realization of this goal will contribute to better results in sales and profits. In this sense, we consider our vision to be of equal importance to achieving operational results. Our continuous challenge is how to realize this vision by our 7,000 employees worldwide. We are working across the Company to connect directly with patients and their communities, through what we call knowledge creation projects. I am pleased to report that we have 996 such projects in process globally. Many of our employees have direct involvement with patients and their communities and are gaining valuable knowledge through their daily activities.
Currently, approximately 50% of Eisais sales are generated outside of Japan, while around 40% of operating income is derived from markets other than Japan. It is thus essential we globalize our management style. We aim to increase our business through incorporating first-class management in Japan, the United States, Europe and Asia. We are striving to support our Group companies, including local operations, with the two nerve-like systems (stakeholder and compliance) in order to establish an integrated group of companies. Our mission is underpinned by the challenge to satisfy unmet medical needs. We are planning to invest resources in frontier areas of research to investigate diseases of future importance, while fortifying our drug discovery activities in the focused areas of neurology, gastroenterology and oncology. In the clinical research field, where greater efficiency is the priority, we have separated our U.S. clinical research function into an independent companyEisai Medical Research Inc.with an objective of accelerating clinical research. This move is aimed at improving efficiency and speed, and enabling better collaboration between clinical research in Japan, the United States and Europe. We consider our shareholders, customers and employees to be stakeholders of our Company. We view our daily operations and decisions as targeted at improving stakeholder value. From this perspective, corporate governance is also of increasing importance. We have revised the role of the CEO, who heads the operational function, and that of the Chairman, who conducts the Board of Directors, to stress the independence as well as strengthen these two separate functions. By assuming a supervisory role, the Board of Directors can better focus on careful examination of, and debate over, such issues as key resource allocation and adherence to Company strategies, from the perspective of increasing stakeholder value. At Eisai, we continue to work for the benefit of patients and their families and are determined to focus our efforts on improving shareholder value with respect to the needs of all our shareholders. We would like to sincerely thank you for your ongoing understanding and support.
September 2003
Haruo Naito President and CEO
Eisais Mission
Eisai aims to become the leading company in the world in terms of making contributions to patient health care. We are putting into place a number of fundamental principles, as outlined below, and are managing our business activities in order to provide our products to more patients around the world.
>>> Satisfying unmet medical needs

A wide range of diseases can now be treated due to advances in science and technology. However, many patients still suffer from conditions for which a cure has yet to be found, such as Alzheimers disease or cancer. Eisais mission is to satisfy these medical needs through the development of innovative new drugs.
>>> Contributing to the health care of patients around the world

National borders are irrelevant when it comes to patient health care. We emphasize customer satisfaction and support global health care through the provision of health care solutions to additional patients around the world. We are developing business in new regions and are meeting social responsibilities as a global pharmaceutical company by addressing such unresolved medical problems as access to health care.
>>> Manufacturing quality pharmaceuticals

We seek to contribute to patient health care through the stable supply of high quality drugs. In addition to employing strict quality control procedures in our manufacturing and distribution systems, we aim to maintain or improve our level of quality through formulations, labeling and information that encourage appropriate product use, packaging materials that can be easily disposed of and the supply of scientific information to our target audiences.
>>> Two systems supporting our operational decisions

Eisais business is supported by stakeholder and compliance systems. Stakeholder relationships We aim to develop relationships of trust with our shareholders and patients, as well as all of our customers and employees. By establishing such relationships of trust, we aim to increase enterprise value and improve our credibility and social presence. Operating activities founded on compliance Eisai emphasizes compliance in its operations. We view compliance as the foundation on which we build our business. We share information on compliance on a global basis and are actively implementing educational programs on this issue. These two systems run through our business activities much like a nervous system and play an important role in our daily operations and decision-making.
Overview of the Fiscal Year Ended March 31, 2003
Third consecutive year of record-breaking earnings

In the fiscal year ended March 31, 2003, Eisai achieved record-breaking earnings for the third consecutive year. Compared with the fiscal year ended March 31, 2000, consolidated net sales increased 1.6-times and operating income doubled. Net income per share reached 141.2, which represents a 3.7-fold increase over the fiscal year ended March 31, 2000. We continued to pay stable dividends per share of 32 in the fiscal year ended March 31, 2003. We attribute this third consecutive year of growth to the further globalization of our operations. Eisai is steadily growing sales in the United States, Europe and various regions across Asia. Overseas sales accounted for 29.9% of consolidated net sales in the fiscal year ended March 31, 2000, and this has grown to 46.3% in the fiscal year ended March 31, 2003.
Aricept and Aciphex /Pariet underpinning Eisais business

Eisais growth is being driven by the Alzheimers drug Aricept and the proton pump inhibitor (PPI) Aciphex /Pariet . We recorded combined sales of 232.7 billion for these two drugs in the fiscal year ended March 31, 2003, with these products now accounting for around half of earnings. We continue to expand sales of both products, while actively pursuing additional indications. We are studying Aricept for such new indications as severe Alzheimers disease and dementia associated with Parkinsons disease. Aciphex /Pariet can be prescribed as a maintenance therapy for gastroesophageal reflux disease (GERD), which is also on the rise in Japan due to dietary changes and aging of the population. Thus, we hope to contribute to the health care of more patients. We aim to continue growing our business by steadily expanding sales of Aricept and
Aciphex /Pariet , actively investing in R&D, reducing costs and increasing the efficiency of
resource allocation.
Aricept
Choline Hypothesis in Alzheimers Disease

Presynaptic
Lecithin
Aricept (generic name: donepezil hydrochloride) is an acetylcholinesterase inhibitor* that is widely recognized as the gold standard in the treatment of Alzheimers disease. Aricept was first launched in 1997 and is now available in over 60 countries, achieving sales of 115.3 billion in our sales regions in the fiscal year ended March 31, 2003. Patients suffering from Alzheimers disease are estimated to number approximately four million in the United States, around three million in Europe, and 600,000700,000 in Japan. To broaden the use of Aricept , we are conducting clinical trials for the treatment of severe Alzheimers disease, dementia associated with Parkinsons disease and other conditions, with the aim of filing for additional indications. Eisai co-promotes Aricept with Pfizer in the United States, United Kingdom, Germany, France and Japan. We have licensed Aricept to Pfizer in Spain, but are involved in its co-promotion.
Synaptic cleft
Postsynaptic Acetylcholine receptor (AChR)
ChAT
AChE
Donepezil hydrochloride
: Choline : AcetylcholineACh AChE: Acetylcholine esterase ChAT: Acetylcholine synthase
* The levels of acetylcholine (ACh), a natural brain chemical involved in memory and thinking, decreases in people with Alzheimers disease. Aricept is believed to work by inhibiting the breakdown of acetylcholine, thereby, increasing the levels of this chemical in the brain. Alzheimers disease mainly occurs in patients 65 years of age and older, and is a degenerative brain disease characterized by deteriorating memory and altered behavior, before progressing to loss of language skills and motor dysfunction.
Our goal is to develop innovative new drugs through continued investment in research and development. To achieve this goal, we are focusing efforts in growth markets and steadily growing sales of our core international products, Aricept and Aciphex /Pariet .
Eisais Key Products
Aciphex /Pariet
Pariet (proton pump inhibitor, PPI)
Vagus nerve Acetylcholine
MR
Activator
H2R
K+
cAMP, Ca2+ Proton pump (H+,K+-ATPase)
Histamine secretory Histamine cell (mast cell) H2 blocker G cells
Gastric acid
H+
Gastrin
GR
MR : Muscarinic receptor H2R : Histamine receptor GR : Gastrin receptor
* Aciphex /Pariet accumulates in the acid-producing parietal cells of the stomach wall, where it is converted into an active form. The drug then inhibits the cells proton pump and suppresses gastric acid secretion. PPIs control gastric acid secretion by blocking the proton pump, which is the final stage in the gastric acid secretion process.
Aciphex /Pariet (generic name: rabeprazole sodium) is a proton pump inhibitor (PPI) used to treat acid-related gastrointestinal disorders. The drug was first launched in 1997 and is now available in over 70 countries, achieving sales of 117.4 billion in our sales regions in the fiscal year ended March 31, 2003. In the United States in 2002, Aciphex /Pariet was approved for the additional indications of symptomatic gastroesophageal reflux disease (GERD) and as part of the first 7-day course of treatment for Helicobacter pylori (H. pylori) eradication. The drug has also been approved in Japan for the additional indication of maintenance therapy in GERD. We are growing our gastroenterology business through a clinical development program to broaden the use of Aciphex /Pariet and the development of additional pipeline compounds. Eisai co-promotes Aciphex /Pariet with Janssen in the United States, United Kingdom, Germany, China and Korea. We have licensed Pariet to Janssen in Spain, but are involved in its co-promotion there. Eisai is the sole promoter of the drug in Japan.
Global Strategies
Global Strategies
United States
In addition to providing treatments to millions of patients, Eisai remains committed to its
human health care (hhc) mission: to offer benefits to patients and their families, long after
the discovery and development of important new therapies. An example of this was the creation of an annual award in partnership with the monthly trade journal U.S. Pharmacist. The Pharmacy Recognition Award recognizes pharmacists who work to provide quality care and improve the lives of Alzheimers patients and their loved ones. Looking ahead, we aim to continue growing our business and establishing a presence in the U.S. market by offering benefits to patients through a wide range of activities.
Soichi Matsuno, Chairman and CEO, and William Sheldon, President and COO of Eisai Inc.
Product overview
Aricept
Aricept is co-promoted with Pfizer in the Sales of Eisai Inc. United States, and our U.S. business recorded (100 millions of yen) sales of 74.5 billion in the fiscal year ended March 31, 2003. Aricept is the established gold standard for the treatment of Alzheimers disease and has been prescribed to over 1.7 million patients in the United States. Eisai is conducting an educational program involving symptoms associated with dementia to emphasize the importance of early diagnosis and treatment. The program uses a memory checklist which is an easy-touse questionnaire that helps people determine when they should consult their physician about potential memory problems. In July 2003, the Journal of the American Geriatrics Society (JAGS) published data showing that Cerebyx patients treated with Aricept for more than nine months In August 2002, Eisai Inc. announced a collaborative were able to delay admission to long-term care facilities agreement with Pfizer in which Eisai acquired exclusive for approximately two years. Our goal is to help patients U.S. rights to promote Cerebyx (generic name: spend more valuable time at home with their families by fosphenytoin sodium injection) for the treatment of delaying admission to these facilities. generalized convulsive status epilepticus (SE). Patients
In addition to the indication of symptomatic GERD treatment obtained in January 2002, a 7-day course of Aciphex in combination with certain antibiotics was approved by the FDA in November 2002 for H. pylori eradication. H. pylori is thought to be the most common cause of peptic ulcers, and estimates show as many as 60 million people may be infected with H. pylori in the United States, with 1 in 10 developing ulcers. Competitive products have already been approved in the United States for 10 14-day courses, but Aciphex is the first drug approved in the United States with a 7-day course of treatment for H. pylori eradication.
Aciphex
Aciphex is co-promoted with Janssen in the United States, and our U.S. business recorded sales of 103.8 billion in the fiscal year ended March 31, 2003. Generic drugs were launched in the U.S. PPI market for the first time in the fiscal year ended March 31, 2003, which subsequently sparked increased competition. We actively promoted Aciphex on the basis of its rapid onset of action and were able to grow sales 19% (yen basis) in the fiscal year ended March 31, 2003.
with SE experience a series of major convulsions, either intermittently or continuously for periods of more than 30 minutes, and do not regain consciousness in between attacks. In many cases, the attacks can be life threatening. Through this agreement, Eisai Inc. has taken a major step forward in increasing the companys presence in the field of neurology and in the acute care setting. Hospital medical representatives (MRs) who specialize in Cerebyx are actively promoting this product and have been successful in growing the business.
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Trade Relations focuses on pharmacists needs to ensure that our products are available to patients and to provide professional education and support. For example, Eisai and two other corporate sponsors have formed a partnership with the National Association of Chain Drug Stores (NACDS) and the National Alliance for Caregiving (NAC). Consumer research on caring for the elderly will be conducted to enhance the role of retail pharmacies in serving caregiver needs. DaSilva also works closely with wholesalers and the Healthcare Distribution Management Association (HDMA) as a committee member who provides guidance on industry trends and issues. Along with providing information on the latest research findings, Eisai also conducts continuing education to ensure pharmacist awareness regarding standards of care for patients with Alzheimers disease and GERD. As DaSilva notes, This
Linda DaSilva
serves to increase company and product recognition, but also helps achieve our human health care (hhc) mission, which is to contribute to improved patient
I ve been trying to build Eisai relationships with customers involved in the distribution and dispensing of Eisais Aricept and Aciphex products. These customers include pharmacy and industry associations, drug wholesalers, pharmacies (retail, hospital, clinical and government) and all pharmacists in various practice settings, says Linda DaSilva, Director, Trade Relations.
Linda DaSilva Director of Trade Relations at Eisai Inc.
care through the pharmacist and patient interaction. In conjunction with the trade journal U.S. Pharmacist, Eisai created the hhc Pharmacy Recognition Award to acknowledge pharmacists contributions in improving the quality of care for Alzheimers patients and caregivers.
Strengthened functions in the United States

Reinforced sales force
Eisai Inc. strengthened its national sales force to 400 MRs by adding 150 representatives in 2003. The expansion is part of a two-year plan to increase Eisai Inc.s sales force to 500 representatives. The move supports Eisai Inc.s plan to play a greater role in the promotion of its products.
Expansion of Eisai Research Institute of Boston

Eisai Research Institute of Boston, Inc., in Andover, Massachusetts, is devoted to comprehensive discovery research on complex synthetic and organic chemical compounds. The Institute was our second discovery research center after the Tsukuba Research Laboratories, and is involved in all aspects of research, from compound synthesis to safety and efficacy evaluation. We are now working to expand these facilities and are planning to increase staff from 180 to 250 by 2006. Over the past few years, many research-driven pharmaceutical companies have experienced difficult operating conditions in the U.S. market due to: patent expiries that have enabled the launch of generic versions of blockbuster products; the increasingly strict approach by the FDA (Food and Drug Administration) to new drug approvals; and private-sector measures to curb drug use. Despite these obstacles, the U.S. market has consistently
Expansion of manufacturing facilities in North Carolina

Eisais manufacturing facility at Research Triangle Park, North Carolina, manufactures Aricept and Aciphex

for
the U.S. market. The site is being expanded through a US$15.4 million investment in a larger packaging facility and other facilities to ensure the stable supply of Aricept and Aciphex . The expansion is expected to be completed in the fiscal year ending March 31, 2004, and should increase the current production capacity of the operation.
Aricept distribution
Eisai Inc. assumed the distribution of Aricept from Pfizer in January 2003. By building our own distribution function, we increased our independence and facilitated inventory management operations and customer data acquisition.
grown at 10% per annum, and we expect further growth over the medium to long term. Growth in the U.S. market, which accounts for over half of the worldwide pharmaceutical market, will continue to be a critical factor in the success of global pharmaceutical companies.
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Eisai Medical Research Inc.

Eisai Medical Research Inc. was established in June 2002 to focus solely on clinical research and to expedite clinical drug development of new chemical entities and of new indications for marketed products. Eisais global approach is being supported by the implementation of worldwide standard operating practices, as well as other structures or programs designed to enhance timely clinical development. We consider quality to be of the utmost importance, and this is reflected in our planning and compliance activities, as well as in the science behind our research. Results have already been realized. For example, there are significantly more drugs in development compared with a year ago. In addition, several investigational new drug applications (INDs) and supplemental new drug applications (sNDAs) have been submitted to the FDA. INDs were filed for E7389, an anticancer agent that inhibits tubulin polymerization, and E5555 for acute coronary syndrome.
Mindell Seidlin President of Eisai Medical Research Inc.
Asia
Business expansion focused on China
Asian markets are expected to achieve the highest growth in the coming years, and Eisai is focusing on Asian business expansion as a key management objective. The Chinese pharmaceutical market is currently estimated at 1 trillion and is achieving sustained double-digit growth in line with the countrys economic expansion. Eisai is tracking this market growth with plans to double its sales force to 250 MRs by the fiscal year ending March 31, 2007, and build a sales infrastructure that can cover the top 100 cities. Through these moves, we aim to expand
sales of Eisai products and boost the product portfolio through licensing and alliance activities. In 2002, we appointed a product inquiry manager at our Suzhou facilities. Currently, we receive around 60 enquiries each month, mainly from patients and physicians, on a variety of topics, including dosing methods, cost, safety as well as packaging suggestions. We plan to expand this function further to enable the immediate supply of information to satisfy the needs of a wider range of patients. We also plan to strengthen our production facilities in Suzhou and to build an integrated system that covers both manufacturing and sales promotion, as part of
Wendy Yue manages Eisai Chinas Quality Assurance (QA) unit, which is staffed by specially-trained employees who serve in various positions of responsibility. Since its establishment in 1998, Eisai China Inc. has swiftly resolved a wide range of QA issues with few staff resources, and has passed every rigorous good manufacturing practice (GMP) inspection by the State Drug Administration (SDA). This unit has set an example for all the drug manufacturers in Jiangsu Province. Eisai China is rigorous in its compliance with GMP guidelines and maintains high
Quality Assurance unit at Eisai China Inc.
quality levels in the manufacturing of each tablet, capsule or injection. According to Yue, We make great efforts to supply quality
products for the benefit of our patients. The QA unit at Eisai China Inc. has set its sights on achieving U.S. FDA manufacturing approval. To date, no pharmaceutical manufacturer in China has obtained FDA approval, with the exception of some drug substance manufacturers. To quote Yue, Eisai is the leading pharmaceutical manufacturer in China and we are confident that we supply patients with the highest quality products. We are proud to be a part of Eisai China Inc. and feel a sense of responsibility in our work for the company. We believe in applying the human
health care (hhc) corporate philosophy to every aspect of our work.
We make great efforts to supply quality products for the benefit of our patients.
Wendy Yue Senior Manager, Quality Assurance Department at Eisai China Inc.
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our efforts to provide quality products and comprehensive after-sales care. In collaboration with various government and media groups across Asia, Eisai is implementing a program to increase dementia awareness. We aim to improve diagnosis rates through screening programs and are focusing efforts on providing Aricept to dementia patients in Asia at the earliest possible stage. Asian PPI markets are extremely competitive. Eisai is actively developing scientific education and screening programs for physicians, pharmacists and patients, in order to facilitate a better understanding of GERD and to disseminate information on the rapid symptomatic relief provided by Pariet .
sales of 50 billion in the fiscal year ending March 31, 2007. We recorded 5.8 billion in Pariet sales in the fiscal year ended March 31, 2003. The additional indication of maintenance therapy for GERD was approved in July 2003, resulting in target Pariet sales of 60 billion in the fiscal year ending March 31, 2007. Eisai boasts extensive Japanese business structures that have been built up over many years and are extremely profitable in all regions. A key focus moving forward is how to maintain this success.
Europe
The European pharmaceutical market expanded in the fiscal year ended March 31, 2003, but the market became increasingly complex due to health care spending curbs and other policies. Against this backdrop, Eisais sales companies in the United Kingdom, Germany and France, as well as our sales promotion company in Spain, reported steady growth, with sales of 27.3 billion, an increase of 30% over the previous fiscal year. In the face of increasing competition for Aricept , our European businesses are undertaking various activities to promote this product and contribute to better patient health care. In France, the Eisai Foundation was established in 2002, along with an award system that recognizes nurses support for Alzheimers patients. Eisai is also investigating integrated environmental designs for nursing homes. Regarding Pariet , the European PPI market has also experienced generic launches and increasing competition. Eisai has focused promotional efforts on the rapid onset of action and good safety profile of Pariet , with sales growing 19% from the previous year, to 6.5 billion. The European Union (EU) will expand from the current 15 countries to 25 countries in 2004, becoming a major economic zone. We are actively promoting our products in this growing market, to contribute to improved health care for more patients. We are aggressively developing our business in Europe, especially in the field of neurology, which is an area of expertise for our Company. Eisai aims to establish a solid presence in the expanding European market.
Improving earnings structures in the consumer health care, diagnostic and generic businesses
Eisais pharmaceutical business includes prescription drugs, consumer health care products, diagnostics and generic drugs. The three non-prescription drug businesses do not have sufficient infrastructures to generate operating income. We are targeting an operating margin of over 10% in the medium to long term and are implementing other measures, including a review of cost structures.
Maintaining quality at manufacturing sites

Eisai adheres to rigorous standards as a pharmaceutical manufacturer. Above all, our manufacturing is focused on the rapid supply of high quality products that are manufactured according to strict quality assurance standards. We are supplying cutting-edge manufacturing and IT technologies, developed at our Japanese plants, to other plants overseas, including the North Carolina facility in the United States and the Suzhou plant in China. We are working to achieve a stable supply of high quality products on a global basis. We look to improve the quality of all our products for the benefit of our customers and are developing various new processes and products to achieve this goal. Such improvements include new container designs and improved labeling to prevent medication errors; labeling of syringe chambers for injection products; and the replacement of PVC materials with easily disposable polypropylene in push-through packaging (PTP) sheets.
Specialization in the pharmaceutical business

Eisai intends to focus on management resources in the pharmaceutical business, restructure non-pharmaceutical businesses by the fiscal year ending March 31, 2007, divest divisions into separate companies, pursue alliances with external companies, and further improve managerial efficiency and agility. In line with this strategy, in February 2003 we transferred our veterinary and livestock feed products business to Meiji Seika Kaisha, Ltd.
Japan
Health care reforms are under way in Japan and we expect unprecedented levels of change in the prescription drug market, as well as increasing competition from the major non-Japanese pharmaceutical companies. Against this backdrop, we recorded 21.8 billion in Aricept sales in the fiscal year ended March 31, 2003, and are targeting
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Katsuhiko Matsuura is an Eisai medical representative in Saitama Prefecture who has been promoting Aricept since 2000 in order to create a comfortable living environment for dementia sufferers. According to Matsuura, Only Aricept is recognized in Japan as effective in the treatment of Alzheimers disease. We want to provide Aricept to more patients at an earlier stage in the disease to delay symptom progression. I work as though I am the only MR in this district that plays a role in providing drug treatment for Alzheimers patients. Eisais role is not limited to the supply of drugs. The Company also works to support integrated health care solutions necessary in the care of dementia patients, by building regional networks of medical, health care and welfare facilities, and by supporting research groups and public lectures on dementia. Through these activities, there is better recognition of Alzheimers disease in the region and a better understanding of the importance of early diagnosis and early treatment. By linking long-term care providers, family doctors and hospitals, we are starting to build a system whereby patients can receive appropriate care and treatment regardless of where they seek help. Matsuura eagerly relates, I aim to promote greater awareness of the fact that dementia is a disease for which there is a treatment available that can delay symptom progression and ease the burden for more families of dementia patients. He still has significant opportunities to further relay his messages in the community.
I work as though I am the only MR in this district that plays a role in providing drug treatment for Alzheimers patients.
Katsuhiko Matsuura Saitama Pharmaceuticals Dept. 2, P.D.D.
Katsuhiko Matsuura
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Research and Development Strategy
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Research and Development Strategy

As a research-based pharmaceutical company, we give high priority to research and development activities. With Tsukuba Research Laboratories serving as a coordinating center, approximately 1,300 researchers globally work around the clock to develop next-generation and innovative new drugs to satisfy unmet medical needs. Our research is focused on areas of expertise in neurology and gastrointestinal diseases, as well as oncology. We are also expanding research into new frontier areas in order to establish future specialty fields. In the fiscal year ended March 31, 2003, research and development spending totaled 59.7 billion, or 12.8% of consolidated net sales.
We have defined target diseases in neurology, gastroenterology and oncology areas and are evaluating compounds that have a clear therapeutic efficacy (disease-based research). We are interested in the mechanisms of disease onset and progression and are undertaking drug discovery research to develop new therapeutic concepts for specific diseases (approach-based research). From this drug discovery research, we hope to identify therapeutic agents that will lead to new areas of expertise and novel agents to treat diseases. At our Drug Discovery Technology Research Laboratory in the Tsukuba Research facilities, we are proceeding with research for the Kentaro Yoshimatsu discovery of lead compounds. At the Laboratory of Seeds Finding Technology and the KAN Research Institute, research is being conducted involving the discovery and functional analysis of targets, which will generate ideas for new drugs, at the protein, gene and cell levels. These research labs employ cutting-edge technologies at the protein level, gene level and cell levels (technology-based research). We are pursuing drug discovery research through dynamic collaboration among our Japanese, U.S. and European research sites, with a strategic focus on such disease-based, approach-based and technology-based research. We are also strengthening our technology platform through joint In order to develop a seamless pipeline of global drugs and to research with research institutions and corporarapidly bring them to market, we are driving R&D with global tions in Japan and worldwide. In order to develop development project teams that are composed of members from global products continuously and rapidly, we are discovery, development and clinical research functions. driving R&D via global development project teams Kentaro Yoshimatsu that consist of members from the discovery, development and clinical research functions. Vice President, Discovery & Development Research Headquarters
Drug discovery research Drug discovery collaboration among Eisais laboratories in Japan, the United States and Europe
Eisai features collaborative research programs with Tsukuba Research Laboratories functioning as the coordinating center with our research operations in Europe and the United States, which have their own unique areas of expertise. Eisai Research Institute of Boston, Inc. undertakes immunology and oncology research using sophisticated organic synthesis techniques that have been developed since the Institute was first opened. Research at the Boston site is performed in collaboration with the discovery division of Tsukuba, as well as with the Laboratory of Seeds Finding Technology, which is pioneering genome research methods and discovering new drug discovery
targets. The Eisai Research Institute also works with Tsukubas Drug Discovery Technology Research Laboratory, which undertakes drug design. Moreover, in collaboration with the KAN Research Institute, the Eisai Research Institute is actively involved in new drug discovery research in the field of immunology. Under the credo Target Oriented, Chemistry Integrated, we are developing drugs based on novel natural compounds. With this accumulated knowledge, Eisai Research Institute is exploring new drug discovery targets by investigating pathogenic molecules and cells and integrating new technologies by combining sophisticated organic synthesis techniques. We are actively collaborating with venture companies and academic institutions, including Harvard University and Massachusetts General Hospital. Eisai is an early adopter of rapidly changing cutting-edge technologies in the field of drug discovery research. Eisai London Research Laboratories specialize in research on neurodegenerative diseases, such as
16
Yoshiya Oda Yoshiya Oda says, Proteome analysis is indispensable in genomics-based drug discovery that involves genome sequencing. Proteome analysis involves exhaustive investigations into the structure and functions of protein to allow the identification of changes in protein expression accompanying disease. Most drugs act on proteins such as enzymes or receptors, so proteome analysis is a vital tool for drug discovery. Oda is regarded as one of the worlds leading researchers in this field. According to Oda, International collaborative projects have allowed around 99% of the human genome to be sequenced. Our research is linking basic research data with actual diseases of patients, so we can provide extremely useful information for health care. Eisai has been pioneering proteomics from an early stage. In addition to protein identification
Our research is linking basic research data with actual diseases of patients, so we can provide extremely useful information for health care.
Yoshiya Oda Senior Researcher at Laboratory of Seeds Finding Technology
that forms the heart of proteome research, Eisai has been working diligently in two highly original research areas, namely quantitative proteomics that analyzes quantitative changes in proteins expression level, and phosphoproteomics that investigates phosphorylated proteins that trigger
functional changes in proteins*. Eisai is a frontrunner in these two areas of proteomics. Proteomics technologies are constantly changing, so it is impossible to predict how this field will develop in a few years. Odas research team is striving to turn the hard-won results of their research into pharmaceuticals, to demonstrate the importance of this technology in the drug discovery process.
* Protein phosphorylation causes changes in protein characteristics. In Alzheimers disease, the tau protein is known to be phosphorylated. Researchers may be able to learn more about the disease state by understanding the phosphorylation process.
17
Alzheimer s disease, Parkinsons disease and multiple sclerosis. The London site is also involved in research of drugs for regenerative medicine. Our goal is to develop a better understanding of the mechanisms underlying nerve cell death, in particular, apoptosis, which leads to spontaneous cell death, concentrating on neuroprotective mechanisms. Nearly all research at Eisai London Labs is conducted in collaboration with Tsukuba. The London site is responsible for research at the initial stages of the drug discovery process, such as proof of concept studies, while Tsukuba is responsible for such research as in vivo studies and structure-activity relationships. The KAN Research Institute in Kyoto is undertaking life science research using cutting-edge gene research
technologies. Through research at the cellular level to elucidate the mechanisms behind disease onset, the KAN Research Institute is identifying original mechanisms and targets for drug discovery, with the goal of applying these to drug development. The KAN Research Institute is supporting Eisais drug discovery research activities through a strong joint research infrastructure aimed at projects that are under way at Tsukuba, including the development of compound screening systems and investigations into drug action mechanisms. At our research sites in the U.S. and U.K., local management is empowered to determine their own interests regarding research activities, from the generation of research subjects to compound selection.
Clinical research
In order to develop quality pharmaceuticals in a shorter time frame, we must further integrate our global R&D structure to enable effective and efficient drug discovery activities. Our clinical research involves collaboration between the Clinical Research Center in Japan, the U.S. clinical research company Eisai Medical Research Inc. (EMR), which was established in 2002, and the clinical research division of Eisai Ltd. in the United Kingdom. In this way, we are establishing an infrastructure that allows rapid and flexible product development. EMR is staffed by experienced scientists with particular expertise in the fields of neurology, gastroenterology, oncology and sepsis/infectious diseases, and is playing a central role in global development. Eisai Ltd. in the United Kingdom is increasing staff numbers in neurology and is building a stronger collaborative research structure with colleagues in the United States. The Clinical Research Center in Japan has been under the independent management of the Research and Development Division since April 2003, to facilitate rapid decision-making and more efficient clinical trial management. We will employ additional staff with expertise in regulatory affairs in order to respond more flexibly to regulatory changes implemented by the Ministry of Health, Labour and Welfare, the FDA, and the Medicines and Healthcare products Regulatory Agency (MHRA).
Jack Milazzo, Senior Director of Clinical Operations at Eisai Medical Research (EMR), works to ensure that his department supports EMR in accomplishing drug development goals. Milazzo wants employees within EMR to constantly reexamine procedures and relationships with other departments to enhance efficiency and team spirit, without compromising quality. Clinical Operations responsibilities include the collection, review and maintenance of regulatory documentation and case report forms; the monitoring of study sites; medical writing; and the processing of study supplies. Collaboration among clinical teams in regional offices is of increasing importance as Eisai becomes more involved in global trials. Jack Milazzo To facilitate the operation on an international level, Milazzo is the EMR representative for the Corporate Clinical SOP (standard operating procedures) Working Group, which includes clinical researchers from Japan, the United States and Europe. According to Milazzo, Although many of us do not have direct contact We can have a huge impact in helping the Company to achieve its with patients and caregivers, we can human health care (hhc) mission by developing drugs that satisfy unmet have a huge impact in helping the medical needs in a more timely manner. Company to achieve its human health Jack Milazzo care (hhc) mission by developing drugs Senior Director of Clinical Operations at Eisai Medical Research Inc. that satisfy unmet medical needs in a more timely manner.
18
Clinical development update Specialty areas

<Neurology> In the field of neurology, we are managing the product life cycle for Aricept through the development of additional indications and new formulations. We are conducting clinical trials in vascular dementia, severe Alzheimer s disease, migraine prophylaxis and dementia associated with Parkinsons disease and other conditions. In terms of new formulations, in March 2003 we filed for Japanese approval of an oral rapid disintegrating tablet that was developed to improve patient compliance. We are also expanding our product pipeline, which includes the AMPA receptor antagonist*(1) E2007, targeted at Parkinsons disease, epilepsy and multiple sclerosis; the centrally acting muscle relaxant E2101; E2051 for the treatment of acute cerebral infarction; E2070 for the treatment of neuropathic pain; and the licensed compound E2014 for the treatment of cervical dystonia. <Gastroenterology> In the field of gastroenterology, we have managed the
In-house compounds
Alzheimers disease Post-Aricept Basic cure Parkinsons disease E2070 Basic cure Neuropathic Lifestyle drugs and pain agents to treat neuralgia, pain and Phase I mental disorders
Neurology pipeline
Aricept Severe Alzheimers disease Aricept Migraine prevention Aricept Vascular dementia Aricept Dementia accompanying Parkinsons disease
Phase III
Phase II
Filed
E2014 Cervical dystonia (Japan) (botulinum toxin) E2101 Spastic paralysis and other conditions accompanying multiple sclerosis E2051 Acute cerebral infarction
E2007 Parkinsons disease, epilepsy, multiple sclerosis
Aciphex /Pariet product life cycle by obtaining additional

indications for maintenance therapy for GERD, first in Europe and the United States, and now in Japan. We are also conducting Phase II trials in Japan on the gastroprokinetic E3620 and Phase I trials in Europe on E3309 for H. pylori eradication.
*(1) AMPA receptor: A type of protein that selectively binds to the neurotransmitter glutamic acid. In multiple sclerosis, inflammation occurs in the myelin sheath that surrounds the nerve fibers, which hinders the effective transmission of signals from the brain. Multiple sclerosis is thought to be a type of autoimmune disorder. Estimates show there are more multiple sclerosis patients in countries of high latitudes, such as in Europe.
Gastroenterology pipeline
Upper gastrointestinal (GI) tract Acid-related disorders H. pylori eradication Lower GI tract Irritable bowel syndrome
E3309 H. pylori eradication

Phase I Phase II
Pariet Triple therapy for H. pylori eradication (clinical trials under way in Japan)
Phase III
Filed
E3620 Gastroprokinetic (Japan)
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<Oncology> In the field of oncology, we are conducting Phase II trials in Europe and the United States for E7070, a compound that has the potential to become Eisais next global product, following Aricept and Aciphex /Pariet . E7070 has a unique mechanism of action whereby it blocks the G1 phase of the cell cycle. Research to date has confirmed that this compound has a good safety profile and exhibits antitumor effects in colorectal, breast, non-small cell lung and other cancers. The anticancer compound E7389, which Eisai is researching in collaboration with the National Cancer Institute (NCI) in the United States, acts on the tubulin of microtubules to inhibit cell division (see figure). Eisai is also preparing for Phase I trials with E7820, which inhibits angiogenesis by blocking integrin-alpha2* (2). <Other areas> E5564, an endotoxin antagonist for the treatment of sepsis, has the potential to become a global product. E5555, a potent antagonist to the PAR-1 receptor for thrombin* (3), which is involved in blood coagulation, is the first such product to enter clinical development. E5555 inhibits thrombosis and is being developed to treat the acute phase of coronary artery disease (acute coronary syndrome). In Japan, our development teams are working on global projects as well as Japan-specific projects, and are also actively pursuing the development of in-licensed compounds. The obesity management drug KES524 (sibutramine) and the anti-rheumatic D2E7 (adalimumab), both licensed from and jointly developed with Abbott Laboratories, are already available in the United States and other countries, and hold excellent promise in the Japanese market. (As of July 31, 2003)
* (2) Integrin-alpha: a type of membrane protein thought to be involved in cell adhesion, cancer metastasis and angiogenesis. * (3) Thrombin is a protease that acts in the blood coagulation process. PAR-1 is a typical receptor that is activated by thrombin binding.
Therefore, the drug may be given orally over long periods of time and the development of drugresistant cancers may be minimized. Discovery of molecular target drugs KDR kinase inhibitors inhibit the transmission of vascular endothelial cell growth signals, thereby blocking the generation of blood vessels that carry nutrients to cancer cells (conventional anticancers inhibit the division and proliferation of normal cells). Angiogenesis inhibitor (KDR kinase inhibitor) E7820 Angiogenesis inhibitor (integrin-alpha2 inhibitor) E7070 Cell growth cycle G1 phase inhibitor
Preclinical Phase I Phase II
Oncology pipeline
E7389 Tubulin polymerase inhibitor
Multiple drugresistant cancers, efficacious anticancers
Mechanism of action of E7389
Spindle
E7389
E7389
E7389 prevents cancer cell division by inhibiting tubulin polymerization, thereby blocking the formation of the spindle fiber that plays an important role in cell division.
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Actively developing alliances

Eisai is actively developing alliances in its areas of specialization and in targeted therapeutic areas. In the field of neurology, we announced a research contract with Neurogenetics, Inc. (California), in October 2002, for the discovery of genes that cause late-onset Alzheimers disease. Eisai is marketing Maxalt (generic name: rizatriptan benzoate), a selective 5-HT (serotonin) 1B/1D receptor agonist for the treatment of migraine. The drug is thought to contract blood vessels that become dilated during a migraine attack and suppress vascular inflammation. The drug has been licensed by Kyorin Pharmaceutical Co., Ltd., from Merck Inc. of the U.S., and was launched in September 2003.
We also formed a strategic partnership with Teva Pharmaceutical Industries Ltd. (Israel), in May 2003, covering the U.S. co-promotion of rasagiline, a monoamine oxidase type B (MAO-B) inhibitor*, for Parkinsons disease and its joint development for Alzheimers disease. In September 2003, Teva submitted a New Drug Application to the FDA for rasagiline for the treatment of Parkinsons disease.
*MAO-B is an enzyme that metabolizes dopamine in the brain. Parkinsons disease is characterized by a decline in dopamine levels. Rasagiline is thought to reduce Parkinsons disease symptoms by inhibiting MAO-B and thereby preventing the decline in dopamine levels.
Major R&D Pipeline Candidates

Product Name (Research Code) Area U.S. E.U. U.S. E.U. U.S. E.U. Japan Japan Japan Japan U.S. U.S. U.S. E.U. Stage Filed for approval Filed for approval Phase III Phase III Phase II Phase II Filed for approval Filed for approval Phase II Filed for approval Phase II Phase II Phase II Phase II Description Vascular dementia (additional indication) Vascular dementia (additional indication) Severe dementia due to Alzheimers disease (additional indication) Dementia associated with Parkinsons disease (additional indication) Migraine prophylaxis (additional indication) Migraine prophylaxis (additional indication) Muscle relaxant (additional form) Treatment of pulmonary embolism (additional indication) Cerebral embolism treatment (additional indication) Anti-rheumatic agent Septic shock/endotoxin antagonist Prevention of endotoxin-related complications after coronary artery bypass graft surgery Anti-cancer/cell cycle G1 phase arresting agent
Aricept (E2020)
Myonal (E2000)
Cleactor (E6010)
T-614
E5564
E7070
E2007
E.U.
Phase II
Multiple sclerosis, epilepsy and Parkinsons disease/AMPA receptor antagonist Gastroprokinetic agent/5-HT3 receptor antagonist/5-HT4 receptor agonist Obesity management/central acting serotonin and noradrenaline reuptake inhibitor Sporadic atrial fibrillation/flutter (additional indication) (from Phase II)
E3620
Japan
Phase II
KES524
Japan Japan
Phase II Phase II
Tambocor (E0735)
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Role in Society
Eisai recognizes the importance of fulfilling its corporate social responsibilities as a good corporate citizen and of being recognized by society as a reliable organization. We produced our latest Environmental and Social Report in 2003. We provide below a summary of this report. Please refer to http://www.eisai.co.jp/e_esreport/index.html for more details.
Environmental and safety measures

Eisai is striving to grow its business, manufacture products and provide services in compliance with the environmental laws and regulations of each country and with a view towards preserving the global environment. We respect international agreements on the prevention of global warming and are actively implementing energy-saving and other measures. We are working to establish our own environmental management systems through ISO 14001 certification, the international standards for environmental management systems that are defined by the International Organization for Standardization (ISO). As well as complying with occupational health and safety regulations, we make every effort to provide an ideal working environment for our employees safety and physical and mental health.
Access to medical care

We are involved in activities in the United States to support the provision of Eisai drugs to more patients in needfor example, through programs to supply drugs at lower cost to elderly patients. On an international level, through such aid organizations as the United Nations Population Fund (UNFPA) and Japan International Cooperation Agency (JICA), we are supplying the contraceptive Neo Sampoon loop tablets to Africa, Asia, Central America and other regions, and are collaborating on educational programs that address family planning and contraception issues.
Use of animals in research

We respect all forms of life and believe in the ethical treatment of laboratory animals. In order to minimize use, we employ alternative methods wherever possible, including computer modeling and cell culture techniques. Where such methods are not available, we follow national guidelines on the use of animals in research. Eisai conducts all research based on the 4R Principles, which include responsibilities of individual researchers, in addition to the original 3R Principles*. *3R Principles
Reduction Replacement Refinement (Reduction in number of animals used) (Pursuing the possibility of experiments where animals are not used) (Maximizing animal care)
Improving Corporate Governance

Eisai is continuously working to improve and strengthen corporate governance, to accelerate decision-making and improve management transparency. In June 2000, we appointed our first Non-Executive Director and, as of June 2002, three out of seven Board Members are Non-Executive Directors. Since June 2001, three of our five Corporate Auditors are External Auditors. In June 2000, we established a Corporate Governance Committee within the Board of Directors to review the appointment and remuneration of Directors, Auditors and Corporate Officers. Currently, all three members on this Committee are Non-Executive Directors, thereby increasing the independence of this body. In June 2003, we separated the roles of President (who also serves as the CEO) and the Chairman of the Board to strengthen our corporate administrative and Board auditing functions and to further improve our system of corporate governance. We are constantly striving to establish systems for better management transparency and accountability.
Social Responsibilities and Compliance

In November 1999, Eisai formed a Compliance Committee that mainly consists of outside attorneys from Japan, the United States and Europe, and established a Corporate Ethics Compliance Department. The creation of this department resulted in a structure for advice and guidance on compliance of corporate activities across the entire Company. Under the guidance of the Compliance Committee, we issued the first edition of the ENW (Eisai Network Companies) Compliance Handbook in April 2000, which is revised every year in an effort to improve the level of compliance across the Company and to provide training for all staff members, including Directors. We have also established a Compliance Counter
22
where staff members can obtain advice on their daily work procedures, which serves as a practical step aimed at promoting compliance. In the fiscal year ended March 2003, the Compliance Counter received over 500 inquiries. In January 2003, we made it even easier for employees to seek advice by establishing Compliance Counters at nine of our consolidated subsidiaries in Japan. In order to address compliance issues on a global basis, we hold regional conferences every six months for employees responsible for compliance matters, in order to share information on current activities and promote staff development. The Compliance Handbook, which contains information on our corporate charter and policy guidelines, is translated into ten languages and is used to promote compliance in all of our operations around the world.
Remuneration Decisions
Annual compensation for Corporate Officers is comprised of a salary paid during the fiscal year and a bonus paid this fiscal year in line with a performance assessment for the previous fiscal year. Salaries are fixed according to position, while bonuses are performance related and vary according to Company earnings and individual performance. Company performance is defined by financial targets and management objectives for each fiscal year and is assessed by the degree to which these targets were achieved. In terms of individual objectives, Corporate Officers are judged according to their degree of success in meeting targets agreed with the President at the beginning of the fiscal year. Compensation for Directors is comprised of a fixed annual amount and does not include a bonus. Matters relating to remuneration of the Directors, Corporate Auditors and Corporate Officers are debated by the Corporate Governance Committee before submission to the Board of Directors or Corporate Auditors for final determination. As well as salaries and bonuses, Operating Officers and Directors are also awarded stock options in the Company to motivate them to increase Eisais enterprise value.
Employee Issues
Special R&D incentive system
In 2001, Eisai introduced special incentive systems for research and development, with the goal of motivating research staff to undertake R&D that would continuously increase the Companys value and accelerate global drug discovery activities. The systems involve three types of incentives related to development decisions, new drug approvals and sales. With the incentives for development decisions and new drug approvals, stock options are awarded to staff for activities which could contribute to increased enterprise value in the future, including services in the development of new drug discovery themes or new drug filings and approvals. Employees who provide services at every stage of the drug development process, from concept generation to drug approval, are remunerated with a total of 0.05% of the cumulative sales for the first five years after launch. To date, Eisai has rewarded approximately 80 employees involved in the development of Aricept with the sum of 200 million. In Japan, there is a System for Remuneration for an Employees Invention in conjunction with the applicable patent law, whereby up to 50 million can be paid as a cash bonus for each patent in line with sales values after launch. This functions in parallel with our special incentive systems.
Employee study schemes

At Eisai, the most important company assets are our employees. Our business has benefited from the development of core staff skills through assignments to various divisions of educational and research institutions in Japan and overseas. We began our employee study scheme in 1970, including training at business schools in Japan and overseas, and 85 staff members have completed courses under this program as of the fiscal year ended March 31, 2003. In addition, we are identifying Ph.D. researchers who want to study elsewhere and are sending them to overseas universities and other institutions. Our goals are to gain a better understanding of the latest research trends, to master cuttingedge technologies and to build a global research network.
Staff development
Eisai works to develop employees interest in self-improvement and to facilitate their ability to show leadership skills, uncover potential needs for patients and other stakeholders, solve difficult issues and improve customer satisfaction. In order to achieve this, we are creating a voluntary training system and are offering various programs, including courses for specifically designated or selected members, and training by rank, division and organization.
23
FAQs from Shareholders and Investors

are your views on the earnings outlook for the fiscal year ending Q What March 31, 2004? A
Our goal is to expand sales of Aricept and Aciphex /Pariet by strengthening our promotional capabilities, for example, by increasing MR numbers in growth markets in the United States, Europe and Asia. We expect sales growth in Japan through increased Aricept prescriptions
and GERD maintenance therapy for Pariet . With respect to profits, we will make every effort to reduce costs and pursue the efficient use of resources to realize growth, while actively investing in R&D.
Q What do you think about Merger & Acquisition activities? A
The market is currently characterized by significant change and increasing complexity. In such an environment, I do not think the pursuit of size can solve various issues that surround us. We should rather think about the best measures to realize our vision. We emphasize quality over quantity of MRs and productivity per MR is high on a global standard. And Eisai is one of the top-ranking pharmaceutical firms in the world in terms of R&D spending per research employee. Our management team will consider alliances that will increase enterprise value and maximize stakeholder benefits over the long term, while maintaining the current level of efficiency and mobility.
Q What is your strategy on returning profits to shareholders? A
We emphasize an equity-based dividend on consolidated earnings and strive to achieve our target of 3%. We focus on stable and continuous distribution of profits to all of our shareholders through measures including acquisition of shares. While returning profits to our shareholders, we will invest to improve R&D capabilities, which will enhance profits in the future, and to increase our competitive edge. In order to meet the expectations of our shareholders, we increased dividends per share by 3 to 32 in the fiscal year ended March 31, 2003.
Q A
What is your view on off-patent products for which generic versions are already available?
Pharmaceuticals are not merely chemical formulations. Pharmaceuticals coupled with significant clinical and usage evidence have added value to patients, families and to society as a whole. In addition, in Japan the original manufacturer/marketer of a drug must also embrace the functions of gathering side effect information, regulatory reporting and response, as well as amending package inserts.
24
Q A
What is your outlook on future spending in research and development?

Our strategy is to aggressively invest resources in R&D in focus areas such as neurology, gastroenterology and oncology as well as in projects that can bring breakthrough therapies for important diseases in order to support the efficient and rapid development of quality pharmaceuticals. We plan to invest 100 billion in research and development in the future.
Q A
What are the future prospects for the Aricept business?

In the U.S. market, estimates show there are around 3.4 million patients with mild to moderate Alzheimer s disease, of which less than half, or only 1.6 million, are receiving drug therapy. We are continuing educational activities to facilitate the early diagnosis and treatment for patients. Our increased sales force means we can now expand promotional activities to all of the major medical facilities, therefore we expect Aricept sales to continue to grow. In the Asian market, especially China, we aim to grow sales by strengthening promotional capabilities, for example, by increasing MR numbers. In Japan, we are seeing results from an educational campaign on early diagnosis. Aricept is the global gold standard for the treatment of Alzheimers disease, and we will work to maintain our market leadership position and bring Aricept to many patients through its life cycle management.
Q A
What are the future prospects for Aciphex /Pariet ?

The U.S. PPI market is continuing to expand. Generic versions have been launched, but physicians still hold Aciphex in high regard and we seek to achieve sales growth by expanding our sales force to actively promote the rapid, potent effect of the drug in suppressing gastric acid secretion. In Japan, the number of patients with GERD is increasing due to dietary changes and the aging of the population. We expect to see significant Pariet sales growth from the additional indication for maintenance therapy in the treatment of GERD. We hope to contribute to the treatment of gastric acid diseases, fully utilizing our experiences in the gastrointestinal area.
25
Corporate History
Europe United States
2003
Japan
Eisai transfers veterinary and
livestock feed products business to Meiji Seika.
Asia
2002 Eisai S.A. in France acquires all

shares of BIODIM S.A.S.
2002
Eisai Inc., a U.S. subsidiary of Eisai

Co., Ltd., promotes Pfizers antiseizure product, Cerebyx . Eisai separates the clinical development functions of Eisai Inc. in the U.S. into a separate subsidiary company, Eisai Medical Research Inc.
2002
The number of shares

constituting one unit is reduced from 1,000 to 100 shares.
2001 Subsidiary Eisai Farmaceutica

S.A., established in Spain.
2001
Special R&D incentive system

introduced.
Sunplanet Co., Ltd., established. Environmental and Social Report

2001 released.
2000 European operations achieve

profitability.
2000
Caring to Help Others

(caregiver training manual) published/distributed.
2000
Managerial structure reform

implemented.
1999
Aciphex , a proton pump inhibitor,

launched.
1999
Kawashima Plant receives ISO

14001 certification.
Alzheimers treatment Aricept

launched.
1998 Alzheimers treatment Aricept

launched in France. Pariet , a proton pump inhibitor, launched in the United Kingdom and Germany.
1998

launched in Hong Kong and Thailand.
1997 Alzheimers treatment Aricept

launched in the United Kingdom and Germany.
1997

launched. Construction of process research facility completed. Construction of facilities for drug formulation research and pharmaceuticals production completed.
1997
Pariet proton pump inhibitor

launched.
1997
Prescription pharmaceutical clinical

research company established in the Republic of Korea.
1996 Prescription pharmaceutical

sales companies established in Germany and France.
1996
Internet Home Page established

(http://www.eisai.co.jp).
1996
Prescription pharmaceutical manufacturing and sales company established in China.
1995 Prescription pharmaceutical 1992

sales company established in the United Kingdom. Eisai London Research Laboratories completed.
1995 1992
Prescription pharmaceutical sales

company established.
1995 1993 1991 1990
Prescription sales support company

established in Taiwan.
human health care (hhc)

corporate message enunciated.
Administrative company
established.
First consolidated accounting

statement results announced.
1991
Prescription pharmaceutical sales support

company established in Hong Kong.
Sanko Junyaku Co., Ltd.,

becomes a subsidiary.
Prescription pharmaceutical manufacturing

and sales company established in China.
1989 Subsidiaries established in the

United Kingdom and Germany.
1989 1988
Eisai Research Institute of Boston,

Inc., completed.
1989 1988

support company set up in Thailand.
Clinical research company

established.
Yuji Naito becomes Eisais

chairman, and Haruo Naito assumes the post of president.
1987

support company established in Taiwan.
1982
Construction of the Tsukuba

Research Laboratories completed (Ibaraki Prefecture).
1981
Chemical and pharmaceutical

machinery sales company established.
1981
Operations commence at the

Misato Plant (Saitama Prefecture).
1979

support and management services company established in Singapore.
1974
Prescription pharmaceutical manufacturing and sales companies set up in Malaysia and the Philippines.
1970 1966
Prescription pharmaceutical manufacturing and sales company established in Indonesia.
Operations commence at the

Kawashima Plant (Gifu Prefecture). Founder Toyoji Naito becomes Eisais chairman, and Yuji Naito succeeds as president.
1961
Eisai lists on the First Section of

the Tokyo Stock Exchange and the Osaka Securities Exchange.
1955 1944
The Companys name changed to

Eisai Co., Ltd.
Sakuragaoka Research Laboratory

and Nihon Eisai Co., Ltd., merge under the name of the latter.
1941 1936
Nihon Eisai Co., Ltd., established in

Honjo-machi, Saitama Prefecture.
Toyoji Naito establishes a limited

partnership called Sakuragaoka Research Laboratory, Eisais predecessor.
26
Event Calendar
August 2002 Eisai Inc., promotes Pfizer Inc.s anti-seizure product, April 2003 Chocola CC White, to discourage the formation of excess melanin while activating skin metabolism, is launched. May Teva Pharmaceutical Industries Ltd. and Eisai sign October Breathe Right Kids Type nasal strips for children aged 512 is launched. agreement for co-development of rasagiline for Alzheimers disease, and co-promotion for Parkinsons disease, in the U.S. Eisai submits sNDA (supplemental New Drug Application) for Cleactor for acute pulmonary embolism. June ChocolaBB Plus, an activated vitamin B2 tablet, is launched. November Eisai submits vascular dementia marketing authorization application for July Non-approvable letter is received from FDA for Aricept for vascular dementia treatment indication. Pariet 10 mg receives approval for maintenance therapy for GERD in Japan. December Skainar Cool for Rhinitis and Skainar Spray for August Nabolin S, a mecobalamin (activated vitamin B12) tablet, is launched. September January 2003 Eisai Inc. assumes all distribution responsibilities for Teva Pharmaceutical Industries Ltd. announces NDA submission for Parkinsons disease treatment. Maxalt 10 mg tablet, MAXALT RPD 10 mg tablet and 5-HT1B/1D receptor agonist-type migraine treatment agents are launched. Eisai submits application for Pariet for the on-demand therapy of symptomatic GORD (GERD) in the EU. February Eisai transfers veterinary and livestock feed products business to Meiji Seika Kaisha, Ltd. E7155, an MRI contrast agent application, is withdrawn in Japan. Chocola FE Care, an iron and medicinal herb extract drink (50-ml bottle), is launched. Sanko Junyaku Co., Ltd., Eisai and FUJIREBIO INC. conclude joint research agreement for DCP Test Kit for Hepatocellular Carcinoma (HCC). Kyorin Pharmaceutical Co., Ltd. and Eisai form an alliance for marketing of Maxalt . Skainar S Tablets for Rhinitis, containing pseudoephedrine hydrochloride for nasal congestion, is launched. Toyama Chemical Co., Ltd. and Eisai announce NDA submission to the Ministry of Health, Labour and Welfare.
Cerebyx .
Juvelux L for relief of hot and cold flashes associated with menopause is launched.
Saclon
Fresh drink for relief of upset stomach is
launched. Dentake Dental Rinse and Dentake Medicated Tooth
Paste for prevention against periodontal diseases are launched.

Neurogenetics, Inc., extends its agreement with Eisai.
Aricept
in the U.K.
Aciphex , a proton pump inhibitor and first seven-day treatment of H. pylori infection, is approved by FDA.
Rhinitis for allergic and acute rhinitis are launched.

The Board of Directors of Eisai Co., Ltd. resolves the dissolution of Dymec Co., Ltd.
Aricept .
Eisai and Mitsui Knowledge Industry Co., Ltd. conclude comprehensive mutual cooperation agreement in the field of bioinformatics.
27
Financial Section
Contents
Financial Review ...................................................... 28 Consolidated Balance Sheets .................................... 32 Consolidated Statements of Income ........................... 34 Consolidated Statements of Shareholders Equity ....... 35 Consolidated Statements of Cash Flows ..................... 36 Notes to Consolidated Financial Statements ............... 37 Independent Auditors Report ................................... 48
28
Financial Review
Financial Highlights
In the fiscal year ended March 31, 2003, Eisai Co., Ltd., and its consolidated subsidiaries (Eisai) reported consolidated net sales of 466,614 million, an 8.1% increase over the previous fiscal period. Operating income rose 4.4%, to 75,863 million, and net income climbed 12.4%, to 41,027 million. At the end of the period, Eisais total assets amounted to 591,722 million, up 6.1% from the previous year. Total shareholders equity rose 7.2%, to 388,248 million. Net income per share amounted to 141.16, an increase of 17.99. Return on equity ratio (ROE) edged up 0.6 percentage point, to 10.9%, and return on assets ratio (ROA) rose 0.5 percentage point, to 7.1%.
Performance Review
Sales of Main Products
For the first time, consolidated net sales of Aricept , an Alzheimers disease treatment, and Aciphex /Pariet (Aciphex : U.S. trade name; Pariet : in Japan and other countries), a proton pump inhibitor, exceeded 100 billion. Aricept sales increased 19,550 million, to 115,310 million, and Aciphex /Pariet sales increased 18,638 million, to 117,403 million. These two products represent approximately half of total consolidated net sales.
Performance by Operating Segment Pharmaceuticals segment: The prescription pharmaceuticals business recorded
growth based on the strength in sales of Aricept and Aciphex /Pariet in the United States, Europe and Asia, and Aricept , Methycobal , a peripheral neuropathy therapy, and other products in Japan. In the Consumer Health
Net Sales Net Income

(Billions of yen) 500 361.7 400 284.9 300 200 100 0 (Billions of yen) 466.6 41.0 431.7 50 40 30 20 10 0 125 100 75 50 25 0
Sales of Main Products

115.3 117.4 (Billions of yen)
Operating Income and Ratio of Operating Income to Net Sales

(Billions of yen)
13.6 12.3 16.3 16.8 16.3
(%) 20 16 12 8
75 60 45 30 38.6 37.1 59.0 72.7
302.5
36.5
23.3
57.7
15.9
11.3
46.5
54.7
71.1
95.8 98.8
18.4
75.9 03
15 0
4 0
99
00 01 02 Net Sales Net Income
03
99
6.6 00 01
02 03
99
00
01
02
Aricept Aciphex /Pariet
29
Products business, sales of the Chocola BB drink seriesa vitamin B2 supplement that also treats stomatitis and dermatitisincreased. As a result, sales in the
Pharmaceuticals segment amounted to 441,664 million, up 8.9%, while segment

operating income totaled 77,724 million, down 3.6% compared with the previous period.
Other segment: Sales of chemicals and food additives, animal health products,
pharmaceutical production systems and machines and other products declined over the previous year by 4.9%, to 24,950 million, but segment operating income increased 1,030 million over the previous fiscal period, to 652 million. The animal health operations were transferred to another company in February 2003.
Performance by Geographic Area

Japan: Sales amounted to 250,618 million, which represents an increase of 1.6% over the previous period, and operating income totaled 70,173 million, which was a 3.7% decrease from the previous period. Sales of Aricept grew 59.9% over the previous fiscal period, to 21,864 million, and sales of
Methycobal rose 4.7%, to 31,074 million.

North America: Sales amounted to 179,538 million, up 14.3%, and operating income totaled 5,694 million, which was a decrease of 13.8%. Although sales of Aricept increased 11.8%, to 74,538 million, and sales of Aciphex rose 19.3%, to 103,762 million, operating income declined due to increased royalty payments to the parent company and an increase in personnel due to
Sales by Geographic Area

Billions of yen Years ended March 31 2003 2002 2001 2000 1999
Japan
250.6 53.7%
246.6 57.1% 157.0 36.4% 21.1 4.9% 7.0 1.6% 185.1 42.9% 431.7
241.0 66.6% 101.8 28.1% 14.3 4.0% 4.6 1.3% 120.7 33.4% 361.7
223.5 73.9% 64.6 21.4% 11.6 3.8% 2.8 0.9% 79.0 26.1% 302.5
226.6 79.6% 48.4 17.0% 8.4 2.9% 1.5 0.5% 58.3 20.4% 284.9
Overseas
North America Europe
179.6 38.5% 27.3 5.9%
Asia and Others Total of Overseas Consolidated
9.1 1.9% 216.0 46.3% 466.6
30
the establishment of in-house distribution capabilities and other measures to strengthen long-term business operations. Europe: Sales jumped 29.8%, to 27,319 million, and operating income soared 50.8%, to 2,423 million. Aricept sales climbed 22.2%, to 16,622 million, while Pariet sales rose 19.0%, to 6,494 million. Asia and other regions: Sales increased 30.0%, to 9,139 million, and operating income skyrocketed 108.6%, to 1,706 million. These regions recorded steady sales growth for Aricept , up 27.4%, to 2,286 million, and sales of Pariet soared 49.7%, to 1,331 million. Total Overseas Performance: Combined overseas sales rose 16.7%, to 215,996 million, accounting for 46.3% of Eisais total sales.
Performance of Eisai Inc. in the United States Aricept sales increased $78 million over the previous fiscal period, achieving a
total of $611 million, and Aciphex sales rose $156 million, to $851 million. As a result, Eisai Inc. reported net sales of $1,490 million (including revenues from consignment research), which was an increase of $212 million over the preceding fiscal period. An agreement with Pfizer for the promotion of the anti-convulsive product
Cerebyx has been reached, and Eisai Inc. began information dissemination
activities through specialist medical representatives in August 2002. In January 2003, Eisai established its own distribution capability for Aricept .
Major Expenses
The cost of sales ratio improved 1.5 percentage points, to 22.0%. This was attributable mainly to efforts to reduce sales costs, as well as increased sales of Aricept , Aciphex /Pariet and other products with a lower cost of sales ratio. Active investment according to the original plan in R&D, resulted in a total of 59,705 million, which was an increase of 8.5% compared with the previous
Gross Profit and Ratio of Cost of Sales to Net Sales

(Billions of yen) 400 320 240 160 197.8 210.9 263.2 330.2 364.0 80 0
30.6 30.3 27.2 23.5 22.0
R&D Expenses and Ratio of R&D Expenses to Net Sales

(%) 35 28 21 14 7 0 (Billions of yen) 60 48 36 24 43.7 46.7 49.6 55.0 59.7 12 0
15.3 15.4 13.7 12.8 12.8
SG&A Expenses and Ratio of SG&A Expenses to Net Sales

(%) 20 16 12 8 4 0 (Billions of yen) 250 200 150 100 115.4 127.1 154.7 202.5 50 0 228.4 03
40.5 42.0 42.8 46.9 49.0
(%) 50 40 30 20 10 0
99
00
01
02
03
99
00
01
02
03
99 00
01 02
31
fiscal period, accounting for 12.8% of consolidated net sales. Selling, general and administrative expenses climbed 25,984 million, to 228,444 million, a result of active investment in sales-related activities associated with Eisais pharmaceutical businesses in the United States and Japan, as well as an increase in provision for liability for retirement benefits at the parent company. Accordingly, operating income climbed 4.4%, to 75,863 million, representing 16.3% of net sales. With respect to other expenses, Eisai reported a 1,655 million foreign exchange loss as a result of further appreciation of the yen against the dollar during the fiscal period, as well as a 4,267 million loss on impairment of securities, resulting from depressed stock market prices in Japan. Net income, however, amounted to 41,027 million, an increase of 12.4% compared with the previous fiscal period.
Financial Position
Total assets amounted to 591,722 million due to business growth. Trade accounts receivable increased 20,894 million over the previous fiscal period on the back of growth in the U.S. pharmaceutical business. Net property, plant and equipment, however, declined 428 million as a consequence of the yens appreciation against the dollar when overseas subsidiary assets calculated in dollars were converted to yen. Capital expenditure and depreciation totaled 17,450 million and 17,966 million, respectively. Total liabilities increased 7,778 million, mainly due to increased liability for retirement benefits. Current liabilities were in line with the previous fiscal period, as increased accrued income taxes were offset by reduced accounts payable and accrued expenses. Total shareholders equity amounted to 388,248 million, and the shareholders equity ratio was 65.6%.
Cash Flows
Net cash provided by operating activities amounted to 57,606 million, up 742 million over the preceding fiscal period. Income before income taxes and minority interests increased 7,071 million over the previous period, to 69,825 million. Depreciation and amortization totaled 17,966 million and income taxespaid amounted to 17,794 million. Net cash used in investing activities totaled 27,721 million, an increase of 20,555 million over the previous fiscal year. Of this total, 21,668 million represented purchases of property, plant and equipment. Net cash used in financing activities amounted to 19,830 million, down 19,252 million over the previous period, due primarily to a treasury stock purchase, as well as dividends paid. Accordingly, cash and cash equivalents at March 31, 2003, totaled 127,272 million, an increase of 5,509 million compared with a year earlier.
32
Consolidated Financial Statements

Consolidated Balance Sheets
Eisai Co., Ltd. and Subsidiaries Millions of yen March 31, 2003 and 2002 2003 2002 Thousands of U.S. dollars (Note 1) 2003
ASSETS Current Assets: Cash and cash equivalents Short-term investments (Note 3) Receivables: Trade notes Trade accounts Due from associated companies Other Allowance for doubtful receivables Inventories (Note 4) Deferred tax assets (Note 6) Other current assets (Note 3) Total current assets 13,075 135,960 74 3,288 (201) 35,061 19,285 5,840 348,982 14,700 115,066 82 2,476 (234) 33,624 16,421 6,805 320,432 108,958 1,133,000 617 27,400 (1,675) 292,175 160,708 48,667 2,908,183 127,272 9,328 121,763 9,729 $1,060,600 77,733
Property, Plant and Equipment: Land (Note 5) Buildings and structures (Note 5) Machinery, equipment and others Construction in progress Total Accumulated depreciation Net property, plant and equipment 19,098 129,598 124,350 4,465 277,511 (165,826) 111,685 18,773 127,866 119,444 4,113 270,196 (158,083) 112,113 159,150 1,079,983 1,036,250 37,209 2,312,592 (1,381,883) 930,709
Investments and Other Assets: Investment securities (Note 3) Investments in and advances to associated companies Insurance reserve Software Deferred tax assets (Note 6) Other assets Total investments and other assets Total
See Notes to Consolidated Financial Statements.
66,651 345 23,308 13,012 18,779 8,960 131,055 591,722
65,145 329 22,776 11,461 16,851 8,502 125,064 557,609
555,425 2,875 194,233 108,433 156,492 74,667 1,092,125 $4,931,017
33
Millions of yen 2003 2002
Thousands of U.S. dollars (Note 1) 2003
LIABILITIES AND SHAREHOLDERS EQUITY Current Liabilities: Bank borrowings (Note 5) Current portion of long-term debt (Note 5) Payables: Trade notes Trade accounts Due to associated companies Other Accrued expenses Accrued income taxes Deferred tax liabilities (Note 6) Other current liabilities Total current liabilities 4,584 145,992 1,843 13,808 484 41,145 60,967 23,026 1,664 14,682 238 58,816 54,237 5,607 23 4,444 146,249 38,200 1,216,600 15,358 115,067 4,033 342,875 508,059 191,883 35 100 1,055 5,483 $ 292 833
Long-Term Liabilities: Long-term debt (Note 5) Liability for retirement benefits (Note 7) Deferred tax liabilities (Note 6) Other long-term liabilities Total long-term liabilities 47,182 344 623 48,149 100 38,447 866 701 40,114 393,183 2,867 5,192 401,242
Minority Interests Contingencies (Notes 10, 11 and 13) Shareholders Equity (Notes 5, 8 and 15): Common stock, authorized, 700,000,000 shares; issued 296,566,949 shares in 2003 issued 296,454,145 shares in 2002 Capital surplus Retained earnings Net unrealized gain (loss) on available-for-sale securities Foreign currency translation adjustments Treasury stockat cost 4,776,395 shares in 2003 4,732,269 shares in 2002 Total shareholders equity Total
9,333
9,184
77,775
44,985 44,888 55,223 302,670 1,425 (1,503) (14,552) (14,353) 388,248 591,722 362,062 557,609 55,125 275,052 (115) 1,465
374,875 460,192 2,522,250 11,875 (12,525) (121,267) 3,235,400 $4,931,017
34
Consolidated Statements of Income

Eisai Co., Ltd. and Subsidiaries Millions of yen Years ended March 31, 2003 and 2002 2003 2002 Thousands of U.S. dollars (Note 1) 2003
Net Sales (Note 9) Cost of Sales (Note 9) Gross profit Selling, General and Administrative Expenses Research and Development Expenses Operating income Other Income (Expenses): Interest and dividend income Interest expense Foreign exchange gains (losses) Loss on impairment of securities Loss associated with U.S. vitamin E factory closure (Note 2 (e)) Loss on vitamin E litigation settlements (Note 12) Gain on sale of animal health business Othernet Other expensesnet
466,614 102,602 364,012 228,444 59,705 75,863
431,674 101,492 330,182 202,460 55,036 72,686
$3,888,450 855,017 3,033,433 1,903,700 497,541 632,192
1,822 (57) (1,655) (4,267) (1,091) 495 (1,285) (6,038)
2,784 (297) 805 (5,413) (2,482) (4,647) (682) (9,932)
15,183 (475) (13,792) (35,558) (9,092) 4,125 (10,708) (50,317)
Income before Income Taxes and Minority Interests Income Taxes (Note 6) : Current Deferred Total
69,825
62,754
581,875
35,349 (6,742) 28,607
23,870 2,228 26,098
294,575 (56,184) 238,391
Minority Interests in Net Income Net Income
(191) 41,027
Yen
(144) 36,512
(1,592) $ 341,892
U.S. dollars (Note 1)
Per Share: Net income Diluted net income Cash dividends, applicable to earnings of the year
141.16 139.85 32.00
123.17 121.92 29.00
$1.18 1.17 0.27
35
Consolidated Statements of Shareholders Equity

Eisai Co., Ltd. and Subsidiaries Thousands of shares Years ended March 31, 2003 and 2002 2003 Millions of yen 2003 2002 Thousands of U.S. dollars (Note 1) 2003
Common Stock (Note 8) : Balance, beginning of year Shares issued upon conversion of bonds Balance, end of year
Issued number of shares of Common Stock
296,454 113 296,567
44,888 97 44,985
44,887 1 44,888
$ 374,067 808 $ 374,875
Capital Surplus (Note 8): Balance, beginning of year Increase due to conversion of bonds Balance, end of year 55,125 98 55,223 55,124 1 55,125 $ 459,375 817 $ 460,192
Retained Earnings (Notes 8 and 15) : Balance, beginning of year Net income Cash dividends paid Loss on treasury stock Bonuses to directors Balance, end of year 275,052 41,027 (9,288) (4,023) (98) 302,670 (103) 275,052 246,351 36,512 (7,708) $2,292,100 341,892 (77,400) (33,525) (817) $2,522,250
Net unrealized gain (loss) on available-for-sale securities: Balance, beginning of year Net increase (decrease) Balance, end of year Foreign currency translation adjustments: Balance, beginning of year Net increase (decrease) Balance, end of year 1,465 (2,968) (1,503) (1,456) 2,921 1,465 $ $ 12,208 (24,733) (12,525) (115) 1,540 1,425 1,005 (1,120) (115) $ $ (958) 12,833 11,875
Treasury Stock: Balance, beginning of year Net increase Balance, end of year
(14,353) (199) (14,552)
(15) (14,338)
$ (119,608) (1,659) $ (121,267)
(14,353)
36
Consolidated Statements of Cash Flows

Eisai Co., Ltd. and Subsidiaries Millions of yen Years ended March 31, 2003 and 2002 2003 2002 Thousands of U.S. dollars (Note 1) 2003
Operating Activities: Income before income taxes and minority interests Adjustments for: Income taxespaid Depreciation and amortization Provision for liability for retirement benefits Loss on impairment of securities Loss on vitamin E litigation settlements Loss associated with U.S. vitamin E factory closure Changes in assets and liabilities: Increase in trade receivables (Increase) decrease in inventories (Increase) decrease in interest and dividends receivable Decrease in interest payable Increase (decrease) in trade payables Increase in accrued expenses Other Net cash provided by operating activities Investing Activities: Purchases of short-term investments Proceeds from sales and maturities of short-term investments Purchases of property, plant and equipment Proceeds from sales of property, plant and equipment Purchases of intangible assets Purchases of investment securities Proceeds from sales and maturities of investment securities (Increase) decrease in time deposits (exceeding 3 months) Other Net cash used in investing activities Financing Activities: Decrease in short-term bank borrowings Repayment of long-term debt Corporate bond repayment Dividends paid Repurchase of common stock Other Net cash used in financing activities Foreign currency translation adjustments on cash and cash equivalents Net increase in cash and cash equivalents Cash and cash equivalents of newly consolidated subsidiaries at beginning of year Cash and cash equivalents at beginning of year Cash and cash equivalents at end of year Non-Cash Investing and Financing Activities: Conversion of convertible bonds to common stock Assets increased by consolidation of subsidiaries previously unconsolidated Liabilities increased by consolidation of subsidiaries previously unconsolidated
69,825 (17,794) 17,966 12,068 4,267 1,091
62,754 (41,356) 15,332 7,477 5,413 4,647 2,482 (9,853) 985 272 (81) 348 7,498 946 56,864 (2,802) 13,817 (16,260) 119 (6,540) (17,195) 13,555 7,705 435 (7,166) (6,588) (417) (10,000) (7,708) (13,911) (458) (39,082) 4,299 14,915 510 106,338 121,763
$ 581,875 (148,283) 149,717 100,567 35,558 9,092
(22,294) (2,394) (187) (61) (108) 10,961 (15,734) 57,606 (24,394) 32,631 (21,668) 17 (4,493) (17,519) 6,575 (61) 1,191 (27,721) (1,003) (12) (9,288) (9,225) (302) (19,830) (4,546) 5,509
(185,784) (19,950) (1,558) (508) (900) 91,342 (131,119) 480,049 (203,283) 271,925 (180,567) 142 (37,442) (145,992) 54,792 (508) 9,925 (231,008) (8,358) (100) (77,400) (76,875) (2,517) (165,250) (37,883) 45,908
121,763 127,272
1,014,692 $1,060,600
5,471
2 2,243 1,737
45,592
37
Notes to Consolidated Financial Statements

Eisai Co., Ltd. and Consolidated Subsidiaries Years ended March 31, 2003 and 2002
Note 1. Basis of Presenting Consolidated Financial Statements

The accompanying consolidated financial statements of Eisai Co., Ltd. (the Company) and its subsidiaries have been prepared in accordance with the provisions set forth in the Japanese Securities and Exchange Law and its related accounting regulations, and in conformity with accounting principles and practices generally accepted in Japan, which are different in certain respects as to application and disclosure requirements of International Financial Reporting Standards. The consolidated financial statements are not intended to present the financial position, results of operations and cash flows in accordance with accounting principles and practices generally accepted in countries and jurisdictions other than Japan. In preparing these consolidated financial statements, certain reclassifications and rearrangements have been made to the consolidated financial statements issued domestically in order to present them in a form which is more familiar to readers outside Japan. In addition, certain reclassifications have been made in the 2002 consolidated financial statements to conform to the classifications used in 2003. These reclassifications had no effect on previously reported net income or retained earnings. The consolidated financial statements are stated in Japanese yen, the currency of the country in which the Company is incorporated and principally operates. The translations of Japanese yen amounts into U.S. dollar amounts are included solely for the convenience of readers outside Japan and have been made at the rate of 120 to $1, the approximate rate of exchange at March 31, 2003. Such translations should not be construed as representations that the Japanese yen amounts could be converted into U.S. dollars at that or any other rate.
Note 2. Significant Accounting Policies

(a) Consolidation The consolidated financial statements as of March 31, 2003 include the accounts of the Company and all its subsidiaries ( together, the Group). Under the control or influence concept, those companies in which the Company, directly or indirectly, is able to exercise control over operations are fully consolidated, and those companies over which the Group has the ability to exercise significant influence are accounted for by the equity method. In the 2003 and 2002 consolidated financial statements, investments in 3 associated companies are accounted for by the equity method. Prior to April 1, 1999, the excess of cost of the Companys investments in consolidated subsidiaries and associated companies accounted for by the equity method over its equity in the net assets at the respective dates of acquisition, is being amortized over a period of 5 years. Effective April 1, 1999, the excess of the cost of an acquisition over the fair value of the net assets of the acquired subsidiary at the date of acquisition is being amortized over a period of 5 years. All significant intercompany balances and transactions have been eliminated in consolidation. All material unrealized profit included in assets resulting from transactions within the Group is eliminated. (b) Cash equivalents Cash equivalents are short-term investments that are readily convertible into cash and that are exposed to insignificant risk of changes in value. Cash equivalents include time deposits, certificates of deposit, commercial paper and bond funds, all of which mature or become due within three months of the date of acquisition. (c) Short-term investments and investment securities Short-term investments consist of time deposits and marketable securities, and investment securities consist of marketable securities and non-marketable securities. Marketable securities included in short-term investments and investment securities are classified and accounted for, depending on managements intent, as follows: i) trading securities, which are held for the purpose of earning capital gains in the near term are reported at fair value, and the related unrealized gains and losses are included in earnings; ii) held-to-maturity debt securities, which are expected to be held to maturity with the positive intent and ability to hold to maturity are reported at amortized cost; and iii) available-for-sale securities, which are not classified as either of the aforementioned securities, are reported at fair value, with unrealized gains and losses, net of applicable taxes, reported in a separate component of shareholders equity. Non-marketable available-for-sale securities are stated at cost determined by the moving-average method. For other than temporary declines in fair value, investment securities are reduced to net realizable value by a charge to income. (d) Inventories Inventories of the Company and its domestic subsidiaries are primarily stated at cost, determined by the average method, and inventories of foreign subsidiaries are primarily stated at lower of cost, determined by the first-in first-out method, or market. (e) Property, plant and equipment Property, plant and equipment are stated at cost. Depreciation of property, plant and equipment of the Company and its domestic subsidiaries is computed substantially by the declining-balance method at rates based on the estimated useful lives of the assets, while the straight-line method is principally applied to the property, plant and equipment of foreign subsidiaries. The range of useful lives of
38
the Company and its domestic subsidiaries is principally from 15 to 65 years for buildings and structures and from 5 to 7 years for machinery, equipment and others. During the year ended March 31, 2002, the Group recorded an impairment loss of 1,995 million related to the closure of a synthetic vitamin E factory, which was included in Loss associated with U.S. vitamin E factory closure in other expenses. (f) Software Software is stated at cost less accumulated amortization, which is mainly computed by the straight-line method over 5 years. (g) Leases Leases related to the Company and its domestic subsidiaries are accounted for as operating leases. Under Japanese accounting standards for leases, finance leases that deem to transfer ownership of the leased property to the lessee are to be capitalized, while other finance leases are permitted to be accounted for as operating lease transactions if certain as if capitalized information is disclosed in the notes to the lessees financial statements. (h) Income taxes The provision for income taxes is computed based on the pretax income included in the consolidated statements of income. The asset and liability approach is used to recognize deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. Deferred taxes are measured by applying currently enacted tax laws to the temporary differences. (i) Retirement and Pension Plans The Company has a contributory funded defined benefit pension plan and an unfunded retirement benefit plan for employees which covers approximately 45% and 55%, respectively, of their benefits. Most of the domestic subsidiaries have non-contributory funded pension plans and unfunded retirement benefit plans. Effective April 1, 2000, the Company and its domestic subsidiaries account for the liability for retirement benefits based on the projected benefit obligations and plan assets at the balance sheet date. The transitional obligation in the amount of 32,358 million, determined as of April 1, 2000, was offset by the contribution of certain available-for-sale securities with a fair value of 15,128 million to the employee retirement benefit trusts for the Companys contributory pension plans in April 2000, and a related non-cash gain of 1,383 million was recorded as Gain on securities contributed to the retirement benefit trust. The securities held in this trust are qualified as plan assets. The remaining unfunded balance of 17,230 million as well as 772 million of the transitional obligation in the subsidiaries is being amortized over 5 years and is presented as operating expenses in the statements of income. Retirement benefits to directors and corporate auditors are provided at the amount which would be required if all directors and corporate auditors retired at the balance sheet date. (j) Appropriations of retained earnings Appropriations of retained earnings are reflected in the financial statements for the following year upon shareholders approval. (k) Research and development expenses Research and development expenses are charged to income as incurred. (l) Deferred charges Stock issuance costs are charged to income as incurred. (m) Foreign currency transactions All short-term and long-term monetary receivables and payables denominated in foreign currencies are translated into Japanese yen at the exchange rates at the balance sheet date. The foreign exchange gains and losses from translation are recognized in the income statement to the extent that they are not hedged by forward exchange contracts. (n) Foreign currency financial statements The balance sheet accounts of the foreign subsidiaries are translated into Japanese yen at the current exchange rates as of the balance sheet date except for shareholders equity, which is translated at the historical rate. Differences arising from such translation are shown as Foreign currency translation adjustments in a separate component of shareholders equity. Revenue and expense accounts of the foreign subsidiaries are translated into yen at the average exchange rates. (o) Derivatives and Hedging Activities The Group uses derivative financial instruments to manage its exposures to fluctuations in foreign exchange. Foreign exchange forward contracts are utilized by the Group to reduce foreign currency exchange risks. The Group does not enter into derivatives for trading or speculative purposes. Derivative financial instruments and foreign currency transactions are classified and accounted for as follows: a) all derivatives, recognized as either assets or liabilities and measured at fair value, and gains or losses on derivative transactions are recognized in the income statement. b) for derivatives used for hedging purposes, if derivatives qualify for hedge accounting because of high correlation and effectiveness between the hedging instruments and the hedged items, gains or losses on derivatives are deferred until maturity of the hedged transactions. The foreign exchange forward contracts employed to hedge foreign exchange exposures for export sales and contract research are measured at the fair value and the unrealized gains/losses are recognized in income. Forward contracts applied for forecasted (or committed) transactions are also measured at the fair value but the unrealized gains/losses are deferred until the underlying transactions are completed.
39
(p) Per share information Effective April 1, 2002, the Company adopted a new accounting standard for earnings per share of common stock issued by the Accounting Standards Board of Japan. Under the new standard, basic net income per share is computed by dividing net income available to common shareholders, which is more precisely computed than under previous practices, by the weighted average number of common shares outstanding for the period, retroactively adjusted for stock splits. Diluted net income per share reflects the potential dilution that could occur if securities were exercised or converted into common stock. Diluted net income per share of common stock assumes full conversion of the outstanding convertible notes and bonds at the beginning of the year (or at the time of issuance) with an applicable adjustment for related interest expense, net of tax, and full exercise of outstanding warrants. Basic net income and diluted net income per share for the years ended March 31, 2003 and 2002 are computed in accordance with the new standard. Cash dividends per share presented in the accompanying consolidated statements of income are dividends applicable to the respective years including dividends to be paid after the end of year. (q) Accounting change Effective April 1, 2002, the Company adopted a new accounting standard for treasury stock and reversal of statutory reserves issued by the Accounting Standards Board of Japan. Consequently, a loss on treasury stock of 4,023 million ($33,525 thousand) in the statements of income was deducted from unappropriated retained earnings.
Note 3. Short-term Investments and Investment Securities

Short-term investments and investment securities as of March 31, 2003 and 2002 are summarized as follows:
Millions of yen 2003 2002 Thousands of U.S. dollars 2003
Current (short-term investments): Time deposits exceeding 3 months Marketable securities Government and corporate bonds Trust fund investments and other Total Non-current (investment securities): Marketable securities Marketable equity securities Government and corporate bonds Trust fund investments and other Non-marketable securities Equity securities Trust fund investments and other Total
539 8,673 116
492 9,089 148
4,492 72,275 966
9,328
9,729
$ 77,733
16,465 32,122 8,700 4,364 5,000 66,651
18,269 34,839 8,981 1,056 2,000 65,145
$137,208 267,684 72,500 36,367 41,666 $555,425
The carrying amounts and aggregate fair values of marketable and investment securities at March 31, 2003 and 2002 were as follows:
Millions of yen 2003 Cost Unrealized Unrealized Gains Losses Fair Value Cost Thousands of U.S. dollars 2003 Unrealized Unrealized Gains Losses Fair Value
Securities classified as: Available-for-sale: Equity securities Debt securities Trust fund investments and other Held-to-maturity
14,028 1,841 8,813 38,953
3,734
(1,297)
16,465 1,841 8,817 37,200
$116,900 15,342 73,442 324,608
$31,116
$(10,808) $137,208 15,342 (775) (19,409) 73,475 310,000
97 576
2002
(93) (2,329)
808 4,801
Millions of yen
Cost
Unrealized Unrealized Gains Losses
Fair Value
Securities classified as: Available-for-sale: Equity securities Debt securities Trust fund investments and other Held-to-maturity
18,397 11 9,189 43,917
2,698
(2,826)
18,269 11 9,129 40,228
42 75
(102) (3,764)
40
Available-for-sale securities whose fair value is not readily determinable as of March 31, 2003 and 2002 were as follows:
Carrying amount Millions of yen 2003 2002 Thousands of U.S. dollars 2003
Available-for-sale: Equity securities Preferred securities Total
4,364 5,000 9,364
1,056 2,000 3,056
$36,367 41,666 $78,033
Proceeds from sales of available-for-sale securities and gross realized gains and losses on these sales, computed on the moving average cost basis, for the years ended March 31, 2003 and 2002 were as follows:
Proceeds from sales Gross realized gains Gross realized losses
229 37 1
152 8
$1,908 308 8
The carrying values of debt securities by contractual maturities for securities classified as available-for-sale and held-to-maturity at March 31, 2003 are as follows:
Millions of yen Availablefor-Sale Held-toMaturity Thousands of U.S. dollars Availablefor-Sale Held-toMaturity
Due in one year or less Due after one year through five years Due after five years through ten years Total
1,958 4,063 82 6,103
6,831 17,105 15,017 38,953
$16,317 33,858 683 $50,858
$ 56,925 142,542 125,141 $324,608
Mortgage-back securities bonds were included in other current assets. The amounts of mortgage-back securities at March 31, 2003 and 2002 are 1,000 million ($8,333 thousand) and 2,000 million, respectively.
Note 4. Inventories
Inventories at March 31, 2003 and 2002, consisted of the following:
Merchandise and finished goods Work in process and semi-finished goods Raw materials and supplies Total
20,154 8,100 6,807 35,061
17,703 9,160 6,761 33,624
$167,950 67,500 56,725 $292,175
Note 5. Bank Borrowings and Long-Term Debt

Bank borrowings are represented by principally unsecured bank loans with a weighted-average interest rate of 2.38% and 0.65% at March 31, 2003 and 2002, respectively. Long-term debt at March 31, 2003 and 2002, consisted of the following:
1.50% secured Japanese yen straight bonds, due 2004 0.60% unsecured Japanese yen convertible bonds, due 2003 Total Less current portion of long-term debt Total Maturities of long-term debt are as follows:
Years ending March 31
100 100 100
100 5,483 5,583 5,483 100
$833 833 833
Millions of yen
Thousands of U.S. dollars
2004 Total
100 100
$833 $833
41
The carrying amounts of assets pledged as collateral for the 1.50% secured Japanese yen straight bonds of 100 million ($833 thousand) at March 31, 2003, were as follows:
Land Buildingsnet of accumulated depreciation Total
83 83
242 341 583
$692 $692
Note 6. Income Taxes

On March 31, 2003, a tax reform law concerning enterprise tax was enacted in Japan which changed the normal effective statutory tax rate from 41.6% to 41.0%, effective for years beginning on or after April 1, 2004. The effect of this change was to decrease deferred tax assetsnon-current by 299 million, increase income taxesdeferred by 316 million, and increase unrealized gain on availablefor-sale securities by 17 million in the consolidated financial statements for the year ended March 31, 2003. The tax effect of significant temporary differences and tax loss carryforwards which resulted in deferred tax assets and liabilities at March 31, 2003 and 2002, is as follows:
Deferred tax assets: Liability for retirement benefits Clinical research expenses Unrealized gain on intercompany sales of inventory Tax loss carryforwards Accrued bonuses Losses on valuation of fixed assets Sales return reserve Unpaid enterprise taxes Depreciation Deferred assets Loss on contribution of investment securities to trust for retirement benefit Tax credits Other Less valuation allowance Total Deferred tax liabilities: Depreciation Net unrealized gains on available-for-sale securities Land Retained earnings for reduction of fixed assets costs Cost of goods differential Other Total Net deferred tax assets
15,655 5,180 4,606 3,728 2,701 2,518 2,238 1,904 1,549 1,321 914 731 4,462 (4,171) 43,336
10,000 4,723 4,084 4,132 2,174 2,628 1,468 534 1,774 1,186 1,489 906 6,099 (4,142) 37,055
$130,458 43,167 38,383 31,067 22,508 20,983 18,650 15,867 12,908 11,008 7,617 6,092 37,183 (34,758) 361,133
2,806 1,002 896 633 265 14 5,616 37,720
2,971 896 659 110 36 4,672 32,383
23,383 8,350 7,467 5,275 2,208 117 46,800 $314,333
Since the actual effective income tax rate of the Company at March 31, 2003 and 2002, differed from the normal effective statutory tax rate by less than 5%, disclosure of details is omitted.
42
At March 31, 2003, certain subsidiaries have tax loss carryforwards aggregating approximately 9,848 million ($82,067 thousand) which are available to be offset against taxable income of such subsidiaries in future years. These tax loss carryforwards, if not utilized, will expire as follows:
Years ending March 31 Millions of yen Thousands of U.S. dollars
2004 2005 2006 2007 2008 2009 and thereafter Total
744 681 1,336 210 91 6,786 9,848
$ 6,200 5,675 11,134 1,750 758 56,550 $82,067
Note 7. Retirement and Pension Plans

The Company and its certain subsidiaries have severance payment plans for employees, directors and statutory auditors. Under most circumstances, employees terminating their employment are entitled to retirement benefits determined based on the rate of pay at the time of termination, years of service and certain other factors. Such retirement benefits are made in the form of a lump-sum severance payment from the Company or from certain subsidiaries and/or annuity payments from a trustee. Employees are entitled to larger payments if the termination is involuntary, by retirement at the mandatory retirement age, by death, or by voluntary retirement at certain specific ages prior to the mandatory retirement age. The liability for retirement benefits at March 31, 2003 and 2002, for directors and statutory auditors is 1,765 million ($14,708 thousand) and 1,777 million, respectively. The retirement benefits for directors and statutory auditors are paid subject to the approval of the shareholders. The liability for employees retirement benefits at March 31, 2003 and 2002 consisted of the followings:
Projected benefit obligation Fair value of plan assets Unrecognized transitional obligation Unrecognized actuarial loss Unrecognized prior service cost Net liability
157,562 (64,269) (7,187) (49,996) 9,307 45,417
146,663 (73,510) (10,781) (38,550) 12,848 36,670
$1,313,017 (535,575) (59,892) (416,633) 77,558 $ 378,475

The components of net periodic retirement benefit costs for the years ended March 31, 2003 and 2002 are as follows:
2003
Service cost Interest cost Expected return on plan assets Amortization of transitional obligation Recognized actuarial loss Amortization of prior service cost Contribution and others Net periodic retirement benefit costs
5,469 4,287 (2,505) 3,600 8,429 (3,541) 532 16,271
5,282 4,423 (3,196) 3,600 3,593 (3,313) 619 11,008

2003
$ 45,575 35,725 (20,875) 30,000 70,242 (29,508) 4,433 $135,592

2002
Assumptions used for the years ended March 31, 2003 and 2002 are set forth as follows: Discount rate Expected rate of return on plan assets Amortization period of transitional obligation Recognition period of actuarial gain / loss Amortization period of prior service cost 2.5% Mainly 3.5% 5 years 5 years 5 years 3.0% 4.0% 5 years 5 years 5 years
Note 8. Shareholders Equity

Common Stock and Capital Surplus The changes in the number of issued shares of common stock during the years ended March 31, 2003 and 2002, were as follows:
2003 2002
Balance, beginning of year Shares issued upon conversion of bonds Balance, end of year
296,454,145 112,804 296,566,949
296,452,988 1,157 296,454,145
43
Japanese companies are subject to the Japanese Commercial Code (the Code) to which certain amendments became effective from October 1, 2001. The Code was revised whereby common stock par value was eliminated resulting in all shares being recorded with no par value and at least 50% of the issue price of new shares is required to be recorded as common stock and the remaining net proceeds as additional paid-in capital, which is included in capital surplus. The Code permits Japanese companies, upon approval of the Board of Directors, to issue shares to existing shareholders without consideration as a stock split. Such issuance of shares generally does not give rise to changes within the shareholders accounts. The revised Code also provides that an amount at least equal to 10% of the aggregate amount of cash dividends and certain other appropriation of retained earnings associated with cash outlays applicable to each period shall be appropriated as a legal reserve (a component of retained earnings) until such reserve and additional paid-in capital equals 25% of common stock. The amount of total additional paid-in capital and legal reserve that exceeds 25% of common stock may be available for dividends by resolution of the shareholders. In addition, the Code permits the transfer of a portion of additional paid-in capital and legal reserve to the common stock by resolution of the Board of Directors. The revised Code eliminated restrictions on the repurchase and use of treasury stock allowing Japanese companies to repurchase treasury stock by a resolution of the shareholders at the general shareholders meeting and dispose of such treasury stock by resolution of the Board of Directors beginning April 1, 2002. The repurchased amount of treasury stock cannot exceed the amount available for future dividend plus amount of common stock, additional paid-in capital or legal reserve to be reduced in the case where such reduction was resolved at the general shareholders meeting. The amount available for dividends under the Code was 373,556 million ($3,112,967 thousand) as of March 31, 2003, based on the amount recorded in the parent companys general books of account. In addition to the provision that requires an appropriation for a legal reserve in connection with the cash payment, the Code imposes certain limitations on the amount of retained earnings available for dividends. Dividends are approved by the shareholders at a meeting held subsequent to the fiscal year to which the dividends are applicable. Semiannual interim dividends may also be paid upon resolution of the Board of Directors, subject to certain limitations imposed by the Code. Stock option plan for the Companys directors and applicable persons The Companys Board of Directors members and other applicable persons in the Company were allocated options for new common stocks. After the date of the option grant, in the event that a stock split or a consolidation of stocks occurs, an adjustment in stock options granted will be made in accordance with the rate of stock split or stock consolidation. In addition, after the date of the stock option grant, in the event the Company carries out a merger or spin-off, the number of options granted will be adjusted as deemed necessary. After the date of the option grant, in the event of a stock split or stock consolidation, the stock option exercise price will be adjusted according to the percentage change with amounts less than one yen being rounded up. In addition, after the stock option grant, if the Company issues new shares or disposes of treasury stock shares at the price less than the current price on the market (excluding the exercise of reservation rights for new shares issued as stock options and the exercise of subscriptions as per Article 280-19 of Commercial Code prior to the Partial Revision of the Commercial Code [2001 Law No. 128]), the exercise price will be adjusted with amounts less than one yen being rounded up. Exercise period From September 1, 2000 to June 29, 2010 Exercise price The number of shares issued Directors (9 people) Applicable persons (16 people) Exercise period From September 3, 2001 to June 28, 2011 Exercise price The numbers of shares issued Directors (7 people) Applicable persons (35 people) Exercise period From July 1, 2002 to June 27, 2012 Exercise price The numbers of shares issued Directors (4 people) Applicable persons (37 people)
3,090 69,000 shares 73,000 shares
$25.75
2,668 62,000 shares 118,000 shares
$22.23
3,165 47,000 shares 128,000 shares
$26.38
44
Note 9. Transactions with Associated Companies

Transactions of the Group with associated companies which are mainly engaged in the sales and purchases of pharmaceuticals for the years ended March 31, 2003 and 2002, are summarized as follows:
Sales Purchases
92 5,667
79 5,411
767 47,225
Note 10. Leases

The Group leases certain equipment, computers, office space and other assets. (a) Pro forma information concerning leased property of financial leases that do not transfer ownership of the leased property to the lessee on an as if capitalized basis for the years ended March 31, 2003 and 2002, was as follows: I. Acquisition cost, accumulated depreciation and net leased property
Millions of yen 2003 Buildings and structures Machinery and equipment Total Buildings and structures Thousands of U.S. dollars 2003 Machinery and equipment Total
Acquisition cost Accumulated depreciation Net leased property
19 6 13
4,210 2,078 2,132

Millions of yen 2002
4,229 2,084 2,145
$158 50 $108
$35,084 17,317 $17,767
$35,242 17,367 $17,875
Buildings and structures
Machinery and equipment
Total
Acquisition cost Accumulated depreciation Net leased property II. Obligations under finance leases
3 2 1
4,207 1,583 2,624
4,210 1,585 2,625

Thousands of U.S. dollars 2002 2003
Due within one year Due after one year Total
1,055 1,134 2,189
1,002 1,700 2,702
$ 8,792 9,450 $18,242

III. Actual lease payments, depreciation expense and interest expense under finance leases
2003
Actual lease payments Depreciation expense Interest expense
1,144 1,073 80
1,215 1,129 80
$9,533 8,942 667
Depreciation expense for leased assets, which is not reflected in the accompanying statements of income, is computed using the straight-line method over the estimated useful lives of the leased assets. Interest expense for leased assets, which is not reflected in the accompanying statements of income, is computed using the interest method based on the differences between the lease fees and the respective acquisition cost of the assets which are considered to be interest-bearing. (b) The minimum rental payments under noncancelable operating leases at March 31, 2003 and 2002, were as follows:
Due within one year Due after one year Total
1,085 2,557 3,642
845 1,840 2,685
$ 9,042 21,308 $30,350
Note 11. Derivatives

The Group enters into foreign currency forward contracts to hedge foreign exchange risk associated with certain assets and liabilities for export sales and contract research denominated in foreign currencies.
45
All derivative transactions are entered into hedge foreign currency exposures incorporated within its business. Accordingly, market risk in these derivatives is basically offset by opposite movements in the value of hedge assets or liabilities. The Group does not hold or issue derivatives for trading purposes. Because the counterparties to these derivatives are limited to major international financial institutions, the Group does not anticipate any losses arising from credit risk. Derivative transactions entered into by the Group have been made in accordance with internal policies which regulate the authorization and credit limit amount. The Group had the following derivatives contracts outstanding at March 31, 2003 and 2002.
Millions of yen 2003 Contract amount Fair value Unrealized gain (loss) Contract amount Thousands of U.S. dollars 2003 Fair value Unrealized gain (loss)
Foreign currency forward contracts: Buying Japanese yen Selling U.S. dollar
543 6,308
531 6,332
(12) (24)
$ 4,525 52,567
$ 4,425 52,767
$(100) (200)
Contract amount
Fair value
Unrealized gain (loss)
Foreign currency forward contracts: Buying Japanese yen
603
530
(73)
The contract amounts of derivatives which are shown in the above table do not represent the amounts exchanged by the parties and do not measure the Groups exposure to credit risk.
Note 12. Loss on Vitamin E Litigation Settlements

Loss on vitamin E litigation settlements recorded in other expenses for the year ended March 31, 2003 and 2002 amounted to 1,091 million ($9,092 thousand) and 4,647 million, respectively. These losses were associated with civil settlements reached with direct and indirect purchasers of synthetic vitamin E in the United States.
Note 13. Contingencies

At March 31, 2003, the Group had the following contingent liabilities:
Millions of yen Thousands of U.S. dollars
Guarantees for employees housing loans Total
138 138
$1,150 $1,150
Note 14. Segment Information

The Group operates in the following industries: Pharmaceuticals, including prescription pharmaceuticals, consumer health care products and diagnostics; and Other, which encompasses other operations, such as chemicals, food additives, veterinary and livestock feed products and pharmaceutical production systems and equipment. (a) Information about industry segments for the years ended March 31, 2003 and 2002, is as follows:
Millions of yen 2003 Pharmaceuticals Other Eliminations (corporate) Consolidated Pharmaceuticals Other Thousands of U.S. dollars 2003 Eliminations (corporate) Consolidated
I. Sales and operating income Net sales to customers Intersegment sales Total net sales All operating expenses Operating income (loss)
441,664 235 441,899 364,175 77,724
24,950 15,782 40,732 40,080 652
466,614 (16,017) (16,017) (13,504) (2,513) 148,382 172 427 466,614 390,751 75,863 591,722 17,966 21,943
$3,680,534 1,958 3,682,492 3,034,792 $ 647,700 $3,465,025 142,917 171,483
$207,916 131,517 339,433 334,000 $ 5,433
$3,888,450 $ (133,475) (133,475) (112,534) $ 3,888,450 3,256,258
(20,941) $ 632,192 $4,931,017 149,717 182,858
II. Assets, depreciation and amortization and capital expenditures Assets 415,803 27,537 Depreciation and amortization 17,150 644 Capital expenditures 20,578 938
$229,475 5,367 7,817
$1,236,517 1,433 3,558
46
Millions of yen 2002 Pharmaceuticals Other Eliminations (corporate) Consolidated
I. Sales and operating income Net sales to customers Intersegment sales Total net sales All operating expenses Operating income (loss)
405,434 97 405,531 324,912 80,619
26,240 14,411 40,651 41,029 (378)
431,674 (14,508) (14,508) (6,953) (7,555) 118,331 344 160 431,674 358,988 72,686 557,609 15,332 27,249
II. Assets, depreciation and amortization and capital expenditures Assets 408,656 30,622 Depreciation and amortization 14,182 806 Capital expenditures 26,011 1,078
(b) Segment information by geographic area for the years ended March 31, 2003 and 2002, is as follows:
Millions of yen 2003 Japan North America Europe Asia and Others Eliminations (corporate) Consolidated
Net sales to customers Intersegment sales Total net sales All operating expenses Operating income Assets
250,618 58,295 308,913 238,740 70,173 360,905
179,538 14,143 193,681 187,987 5,694
27,319 3,295 30,614 28,191 2,423 22,625

2003
9,139 67 9,206 7,500 1,706 8,503
466,614 (75,800) (75,800) (71,667) (4,133) 84,684 466,614 390,751 75,863 591,722
115,005
Thousands of U.S. dollars North America Asia and Others Eliminations (corporate)
Japan
Europe
Consolidated
$2,088,483 485,792 2,574,275 1,989,500 $ 584,775 $3,007,542
$1,496,150 117,858 1,614,008 1,566,558 $ 47,450
$227,659 27,458 255,117 234,925 $ 20,192 $188,542

2002
$76,158 559 76,717 62,500 $14,217 $70,858
$3,888,450 $(631,667) (631,667) (597,225) $ (34,442) $ 705,700 3,888,450 3,256,258 $ 632,192 $4,931,017
$ 958,375
Millions of yen North America Asia and Others Eliminations (corporate)
Japan
Europe
Consolidated
246,570 46,796 293,366 220,475 72,891 352,443
157,017 11,978 168,995 162,388 6,607
21,055 2,850 23,905 22,298 1,607 20,758
7,032 74 7,106 6,288 818 7,865
431,674 (61,698) (61,698) (52,461) (9,237) 60,758 431,674 358,988 72,686 557,609
115,785
(c) Overseas sales for the years ended March 31, 2003 and 2002 were as follows:
Millions of yen 2003 North America Europe Asia and Others Total North America Europe Thousands of U.S. dollars 2003 Asia and Others Total
Overseas sales Consolidated sales Share of overseas sales
185,870 39.8%
36,027 7.7%
11,562 2.5%
233,459 466,614 50.0%
$1,548,917
$300,225
$96,350
$1,945,492 3,888,450
47
Millions of yen 2002 North America Europe Asia and Others Total
Overseas sales Consolidated sales Share of overseas sales
162,720 37.7%
27,134 6.3%
9,729 2.2%
199,583 431,674 46.2%
Note 15. Net Income per Share

Reconciliation of the differences between basic and diluted net income per share (EPS) for the years ended March 31, 2003 and 2002 is as follows:
Millions of yen Net income Thousands of shares Weighted average shares Yen U.S. dollars EPS
For the year ended March 31, 2003: Basic EPS Net income available to common shareholders Effect of Dilutive Securities Warrants Convertible bonds Diluted EPS Net income for computation For the year ended March 31, 2002: Basic EPS Net income available to common shareholders Effect of Dilutive Securities Warrants Convertible bonds Diluted EPS Net income for computation
40,961
290,164 14 2,805 292,983
141.16
$1.18
11 40,972
139.85
$1.17
36,414
295,652 14 3,173 298,839
123.17
22 36,436
121.92
Note 16. Subsequent Events

At the General Shareholders Meeting held on June 24, 2003, the shareholders of the Company approved appropriations of retained earnings, the stock option plan for the Companys directors and key employees, and the purchase of treasury stock: (a) Appropriations of retained earnings The Company was authorized the following appropriations of retained earnings at March 31, 2003.
Years ending March 31 Millions of yen Thousands of U.S. dollars
Year-end cash dividends 16.00 ($0.13) per share Bonuses to directors
4,669 61
$38,908 508
(b) Stock option plan The Companys seven Board of Directors members and 43 other applicable persons will be allocated options for a maximum of 2,100 new subscription rights. These subscription rights can be exercised from July 1, 2003 to June 24, 2013. The numbers of shares to be issued by the exercise of each subscription right shall be 100 shares. (c) Purchase of treasury stock The Company was authorized to repurchase up to 7 million shares of the Companys common stock. (aggregate amount of 20,000 million ($166,667 thousand)).
48
Independent Auditors Report
To the Board of Directors of Eisai Co., Ltd.
We have audited the accompanying consolidated balance sheets of Eisai Co., Ltd. and consolidated subsidiaries as of March 31, 2003 and 2002, and the related consolidated statements of income, shareholders equity, and cash flows for the years then ended, all expressed in Japanese yen. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards, procedures and practices generally accepted and applied in Japan. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Eisai Co., Ltd. and consolidated subsidiaries as of March 31, 2003 and 2002, and the consolidated results of their operations and their cash flows for the years then ended in conformity with accounting principles and practices generally accepted in Japan.
Our audits also comprehended the translation of Japanese yen amounts into U.S. dollar amounts and, in our opinion, such translation has been made in conformity with the basis stated in Note 1. Such U.S. dollar amounts are presented solely for the convenience of readers outside Japan.
June 24, 2003
49
Risk Factors
The section on Risk Factors discusses potentially serious risks and risk factors that could cause Eisais results to differ significantly from its projections. The potential risks, however, are not restricted to those discussed in this section. Eisais global products Aricept and Aciphex /Pariet account for half of Eisais consolidated sales. If the sales value from these two products declines significantly for competitive or other reasons, additional product sales may be insufficient to maintain current performance. Moreover, our business results could be severely affected if we do not maintain good relationships with partner companies co-promoting these products. Uncertainties in drug development Approximately 1 in 12,000 candidate compounds makes it through the development process to the marketplace. Moreover, products that are launched may not achieve initial earnings expectations, due to unforeseen efficacy and safety issues or launch delays. Even if Eisai achieves good clinical trial results and files for approval, the compound may not be approved or the Company could voluntarily withdraw its marketing application for a wide variety of reasons, including safety issues, unsuitable manufacturing facilities or regulatory changes during product development. The discovery and development of candidate drug compounds normally takes over 10 years. A disproportionate increase in spending on research and development compared with continued sales growth could have a negative effect on the Companys earnings potential. Reduced drug prices In Japan, National Health Insurance (NHI) drug prices are usually revised once every two years. Recent revisions have required cuts in pharmaceutical prices as part of measures to curb health care spending. In the fiscal year ended March 31, 2003, Eisai product prices were reduced by approximately 6% on average. Europe, the United States and other markets are also experiencing increased pressure to reduce drug prices through various systems. Eisai could fail to make operating targets as a result of such changes in drug pricing. Risks related to laws and regulations or litigation Eisais business is regulated by various laws and regulations, including the Pharmaceutical Affairs Law and regulations on intellectual property and the environment. The Company is therefore exposed to potential risks from litigation and other issues involving such laws and regulations. Eisai is currently involved in various lawsuits and other issues as outlined below, but the Company could be affected by other lawsuits or issues in the future, which could have a negative effect on earnings. Eisai is the subject of investigation by various government bodies and the target of civil suits over previous pricing and sales activities for bulk synthetic vitamin E. We have already concluded numerous settlements, but we could be subject to further investigation and litigation, the outcome of which is not possible to predict. The ultimate conclusion of such litigation proceedings could have a negative impact on our financial health and operating results. Product liability Eisai could become the target of product liability claims, through its role in drug research, development, manufacturing and marketing. To date, we have not been involved in a major product liability claim, but we could be confronted by this situation in the future. We are covered by indemnity and product liability insurance, but in some cases insurance coverage may not be sufficient to compensate for the potential burdens on Eisai from product liability and other claims. Marketable stock valuation losses Eisai holds marketable stocks in non-affiliated companies. Depending on market conditions, the Company sells or records evaluation losses on these marketable equity investment securities, which could have a negative effect on the Companys operating results. For example, Eisais losses on marketable stocks in the fiscal year ended March 31, 2003, totaled 2,712 million. Foreign exchange trends Foreign exchange trends could impact Eisais operating results. Business results are recorded and reported in yen, thus exchange rate changes could generate increases or decreases in sales and operating results. Our current hedging strategy is only effective for a small portion of the consolidated exchange rate risk; therefore foreign exchange trends could affect our business results. Plant closures and suspension of operations Eisai product supply could be interrupted by plant closures or suspension of operations due to problems relating to technology or regulatory affairs, or due to fire, earthquake, or other man-made or natural disasters. Eisai has measures in place to address a plant closure or suspension of operations for Aciphex /Pariet and Aricept , such as the availability of back-up manufacturing facilities. However, serious or widespread damage to Eisais plants, such that these measures become insufficient to allow the continued manufacture of these products, could have a negative effect on the Companys business results.
50
Japan and Overseas Operations

North America
Eisai Corporation of North America Glenpointe Centre West, 5th Floor 500 Frank W. Burr Boulevard Teaneck, New Jersey 07666, U.S.A. Tel: 1-201-692-1100 Fax: 1-201-692-1804 Eisai Research Institute of Boston, Inc. 1 Corporate Drive Andover, Massachusetts 01810-2447, U.S.A. Tel: 1-978-794-1117 Fax: 1-978-688-9886 Eisai U.S.A., Inc. [Machinery Division] 3 University Plaza Hackensack, New Jersey 07601-6208, U.S.A. Tel: 1-201-287-2111 Fax: 1-201-692-1972 Eisai Inc. Glenpointe Centre West, 5th Floor 500 Frank W. Burr Boulevard Teaneck, New Jersey 07666, U.S.A. Tel: 1-201-692-1100 Fax: 1-201-692-1804 Eisai Medical Research Inc. Glenpointe Centre West, 5th Floor 500 Frank W. Burr Boulevard Teaneck, New Jersey 07666, U.S.A. Tel: 1-201-692-1100 Fax: 1-201-692-9183
Asia
P.T. Eisai Indonesia Ratu Plaza Office Tower, 11th Floor Jl, Jend. Sudirman No. 9 Jakarta Pusat Tel: 62-21-571-3304 Fax: 62-21-720-4501 Eisai Asia Regional Services Pte. Ltd. 152 Beach Road No. 11-04 Gateway East, Singapore 189721 Tel: 65-6296-6977 Fax: 65-6296-6577 Eisai (Malaysia) Sdn. Bhd. 74, Jalan University, 46200 Petaling Jaya Selangor, Malaysia Tel: 60-3-7957-6964 Fax: 60-3-7957-9211 Eisai (Thailand) Marketing Co., Ltd. 6th Floor, Diethelm Tower A, 93/1 Wireless Road Lumpini, Patumwan Bangkok 10330, Thailand Tel: 66-2-256-6296 Fax: 66-2-256-6299 HI-Eisai Pharmaceutical Inc. 20th Floor, Multinational Bancorporation Centre 6805 Ayala Avenue Makati City, Philippines Tel: 632-887-10-47 Fax: 632-887-51-72 Eisai Hong Kong Co., Ltd. Room 2008, Fortress Tower 250 King's Road, North Point, Hong Kong, China Tel: 852-2516-6128 Fax: 852-2561-5042 Eisai Korea Inc. #1201 City Air Tower 159-9 Samsung-Dong, Kangnam-ku, Seoul 135-973 Republic of Korea Tel: 82-2-3451-5500 Fax: 82-2-3451-5599 Eisai Taiwan Inc. 9th Floor, No. 18, Chang An E. Road, Sec. 1 Taipei, Taiwan Tel: 886-2-2-531-4175 Fax: 886-2-2-531-0063 Weizai Co., Ltd. 9th Floor, No. 18, Chang An E. Road, Sec. 1 Taipei, Taiwan Tel: 886-2-2523-3668 Fax: 886-2-2567-3418 Eisai China Inc. Bai Yu Road #32 Suzhou Industrial Park Suzhou, Jiangsu Province, 215021, China Tel: 86-512-6761-3211 Fax: 86-512-6761-8640
Japan
Head Office 4-6-10, Koishikawa, Bunkyo-ku Tokyo 112-8088, Japan Tel: 81-3-3817-3700 Support Centers Hokkaido Support Center Tohoku Support Center Tokyo Support Center Tokai Support Center Kansai-Hokuriku Support Center Chu-Shikoku Support Center Kyushu Support Center Production Facilities Misato Plant Kawashima Industrial Complex Kashima Plant Research Laboratory Tsukuba Research Laboratories Major Subsidiaries
Sanko Junyaku Co., Ltd. Chiyoda-ku, Tokyo Tel: 81-3-3865-4311 Fax: 81-3-3864-5644 Sannova Co., Ltd. Nitta-gun, Gunma Tel: 81-276-52-3611 Fax: 81-276-52-1341 Elmed Eisai Co., Ltd. Toshima-ku, Tokyo Tel: 81-3-3980-6633 Fax: 81-3-3980-6634 KAN Research Institute, Inc. Shimogyo-ku, Kyoto Tel: 81-75-325-5118 Fax: 81-75-325-5130 Eisai Distribution Co., Ltd. Atsugi-shi, Kanagawa Tel: 81-46-248-2655 Fax: 81-46-248-5909 Clinical Supply Co., Ltd. Hashima-gun, Gifu Tel: 81-586-89-2711 Fax: 81-586-89-3225 Sunplanet Co., Ltd. Bunkyo-ku, Tokyo Tel: 81-3-5978-1941 Fax: 81-3-5978-1970
Europe
Eisai London Research Laboratories, Ltd. Bernard Katz Building, University College London Gower Street, London WC1E 6BT, U.K. Tel: 44-20-7388-4746 Fax: 44-20-7413-1121 Eisai Ltd. 3 Shortlands, 2nd Floor London W6 8EE, U.K. Tel: 44-20-8600-1400 Fax: 44-20-8600-1401 Eisai GmbH Lyoner Strasse 36 D-60528 Frankfurt am Main, Germany Tel: 49-69-66585-0 Fax: 49-69-66585-85 EISAI Machinery GmbH Mathias-Brueggen-Strasse 142 D-50829 Cologne, Germany Tel: 49-221-9564590 Fax: 49-221-9564599 Eisai S.A. Tour Manhattan, 5-6 Place de IIris 92095 Paris La Defense 2 Cedex, France Tel: 33-1-47670005 Fax: 33-1-47670015 Eisai B.V. Strawinskylaan 909, 1077 XX Amsterdam, The Netherlands Tel: 31-20-575-3340 Fax: 31-20-575-3341 Eisai Farmaceutica, S.A. Avda. Partenon 4, Planta Baja 28042 Madrid, Spain Tel: 34-91-455-9455 Fax: 34-91-721-0506
Herusu Co., Ltd. Toshima-ku, Tokyo Tel: 81-3-3971-4919 Fax: 81-3-3971-5346 Eisai Seikaken Co., Ltd. Bunkyo-ku, Tokyo Tel: 81-3-5689-6460 Fax: 81-3-5689-6464 Palma BeeZ Research Institute Co., Ltd. Kawasaki-shi, Kanagawa Tel: 81-44-329-1351 Fax: 81-44-366-2767 Bracco-Eisai Co., Ltd. Bunkyo-ku, Tokyo Tel: 81-3-5319-3381 Fax: 81-3-5319-3387
51
Major Products
Prescription Pharmaceuticals
Aricept Azeptin Iomeron Inhibace Infree Glakay Glucagon G Novo Cleactor Selbex Nitorol-R Neuquinon Myonal Methycobal Juvela Nicotinate Rulid Alzheimers disease treatment Antiallergy agent Non-ionic contrast medium Long-acting ACE inhibitor Analgesic/anti-inflammatory agent Osteoporosis treatment Genetically engineered glucagon preparation Thrombolytic agent Gastritis/gastric ulcer medication Long-acting isosorbide dinitrate preparation Metabolic cardiotonic Muscle relaxant Peripheral neuropathy therapy Microcirculation activator Long-acting macrolide antibiotic Eitest IgGRF Eitest KL-6 Albusure Eitest CA . RF
Diagnostic Products
For detection of microalbumin For determination of antiagalactosyl IgG antibodies For determination of IgG rheumatoidfactor For determination of sialylated carbohydrate antigen KL-6
Eitest PIVKA-II For determination of abnormal prothrombin (PIVKA-II) Clinisearch CA . RF Thrombotest Owren For detection of antiagalatosyl IgG antibodies For monitoring blood coagulation activities
New Eitest-ATL For detection of anti HTLV-I antibody Picolumi AFP For determination of -fetoprotein (AFP) Picolumi CA . RF For determination of antiagalactosyl IgG antibodies Picolumi KL-6 Picolumi PIVKA-II For determination of sialylated carbohydrate antigen KL-6 For determination of abnormal prothrombin (PIVKA-II)
Aciphex/Pariet Proton pump inhibitor
Hepaplastintest For monitoring liver functions and blood coagulation activities
Consumer Health Care Products

Saclon S Sahne Cream Seabond Skainer N for RHINITIS Selbelle Chocola BB Plus Chocola BB Pure Chocola BB Light Chocola CC White Travelmin Nabolin Breathe Right Ubiten S Juvelux 300 For upset stomach associated with pain and heartburn Medicated skin care cream Denture adhesive Medication for rhinitis For stomach heaviness, For over-eating For Vitamin B2 supplement, stomatitis & dermatitis Active type Vitamin B2 preparation with Vitamins B 6, B 1, C Vitamin B2 preparation Vitamin C preparation with L-Cysteine, natural Vitamin E and Vitamin B2 Motion sickness remedy Active-type Vitamin B12 preparation Nasal Strips Ubidecarenone (Coenzyme Q10) preparation Natural Vitamin E preparation
Chemicals and Food Additives

Ajitonica Amicanon D-mixed Tocopherols Concentrate Lysozyme Hydrochloride Xylose Synthetic vitamin E and derivatives Natural vitamin E and derivatives Sweetening material Flavoring agent Food preservative Natural antioxidant
Pharmaceutical Production System and Machines

AIM EIS MWS BSI AAPM Automatic Inspection Machine Eisai Inspection System High-Frequency Wave Continuous Sterilizer Black Spot Inspection Machine Automatic Ampoule Packing Machine
52
Board of Directors, Corporate Officers and Corporate Auditors (As of June 24, 2003)
Board of Directors
Director and Chairman Hiromasa Nakai
Feb. June June June Oct. June June 1959 1989 1993 1997 1999 Entered the Company Director Managing Director Senior Managing Director In charge of Administrative Affairs; Human Resources/ Labor Management 2000 Representative Director and Deputy President 2003 Director and Chairman (current)
Corporate Auditors
Corporate Auditor Nobuo Eda*
Corporate Officers
President and CEO Haruo Naito Executive Vice President CFO and Management Affairs Hideaki Matsui Senior Vice President Regulatory Affairs and Medical Information Yoji Takaoka Senior Vice President Prescription Drug Division Matsuo Ohara Senior Vice President International Business & Corporate Business Development Makoto Shiina
President and CEO Haruo Naito

Oct. June June June June April March 1975 1983 1985 1986 1987 1988 1996 Entered the Company Director Managing Director Representative Director Representative Director Representative Director Representative Director Inc. (current)
Corporate Auditor Yukio Akimoto
and and and and
Senior Managing Director Deputy President President (current) President of Genox Research,
Representative Director Hideaki Matsui

March 1971 Entered the Company June 1997 Director April 1998 In charge of Finance and Management Planning; General Manager, Management Planning Division June 2000 Director and Vice President June 2000 In charge of Finance and Management Planning, Human Resources/Labor Management, Emerging Businesses, European and Asian Businesses June 2001 Director and Senior Vice President June 2001 In charge of Management Planning, Human Resources/ Labor Management, Emerging Businesses, International Businesses June 2002 Director and Executive Vice President June 2002 In charge of Corporate Planning and Management Affairs (current) June 2003 Representative Director and Executive Vice President (current)
Corporate Auditor Teruo Osawa
Senior Vice President Production and Logistics Shintaro Kataoka Vice President Global Clinical Research Jiro Hasegawa Vice President Product Quality & GMP Compliance Kenji Toda
Corporate Auditor Mitsuo Minami*

(Certified Public Accountant, Professor, Faculty of Business Administration, Bunkyo Gakuin University)
Vice President Prescription Drug Division Kozaburo Inoue Vice President Consumer Health Product Division Hideaki Hayano Vice President Corporate Ethics, Legal and Environmental Affairs Nobuo Deguchi
Director and Senior Advisor Yuji Naito

Oct. Jan. May April May April April June 1945 1956 1959 1964 1966 1977 1988 2003 Entered the Company Director Managing Director Representative Director and Senior Managing Director Representative Director and President Chairman of The Naito Foundation (current) Representative Director and Chairman Director and Senior Advisor (current)
Corporate Auditor Katsuro Tanaka*

(Counselor-at-law and Representative Partner, TMI Associates)
Vice President Corporate Communications, Public Relations, Investor Relations and General Affairs Hiroyuki Mitsui Vice President Business Operations Department, Prescription Drug Division Mayumi Watanabe Vice President Production and Logistics and General Manager of the Kawashima Industrial Complex Toshio Arai Vice President Tokyo Area Norio Kano Vice President Human Resources Division Yukio Akada Vice President Discovery & Development Research Headquarters Kentaro Yoshimatsu Vice President International Business & Corporate Business Development Hideshi Honda Vice President Clinical Research Center Hisashi Tanaka
Director Shigehiko Yoshino

April June June June June May Sept. June April June Oct. March 1954 1984 1985 1988 1990 1991 1992 1997 1998 2001 2001 2003 Entered The Saitama Bank, Ltd. Director of the Bank Managing Director of the Bank Senior Managing Director of the Bank Director and Vice President of the Bank President of The Kyowa Saitama Bank, Ltd. President of The Asahi Bank, Ltd. Counselor of the Bank Special Advisor to the Bank Director of the Company (current) Counselor of The Asahi Bank, Ltd. Counselor of the Saitama Resona Bank, Ltd. (current)
* Nobuo Eda, Mitsuo Minami and Katsuro Tanaka are external auditors as stipulated by Act 18-1 related to the exception of the commercial code for audits.
Director Stuart Meiklejohn

Nov. Feb. Oct. June June June July June 1975 1976 1983 2001 2001 2001 2001 2002 Entered Sullivan & Cromwell (international law firm) Admitted to the Bar of the State of New York Partner, Sullivan & Cromwell (current) Director, Eisai Corporation of North America Director, Eisai Inc. Director, Eisai U.S.A., Inc. Director, Eisai Research Institute of Boston, Inc. Director of the Company (current)
Director Mitsuaki Shimaguchi

April April June April June 1975 Assistant Professor, Keio University 1987 Professor, Graduate School of Business Administration, Keio University (current) 1998 Corporate Auditor, Ishii Foods Corporation (current) 2002 Director, The Health Care Science Institute (current) 2002 Director of the Company (current)
53
Corporate Information (As of March 31, 2003)

Date of Foundation: Corporate Address and: Telephone Number Annual Meeting: Stock Exchange Listings: Securities Code Number: 1941 Eisai Co., Ltd. 4-6-10, Koishikawa, Bunkyo-ku, Tokyo 112-8088, Japan Tel: +81-3-3817-3700 The annual shareholders meeting of Eisai Co., Ltd., is held in June. Eisai common stock is listed on the Tokyo Stock Exchange and the Osaka Securities Exchange 4523
Independent Public Accountants: Deloitte Touche Tohmatsu (by Tohmatsu & Co., the Japanese member firm of Deloitte Touche Tohmatsu International) MS Shibaura Bldg., 4-13-23, Shibaura, Minato-ku, Tokyo 108-8530, Japan Paid-in Capital: Number of Shares Outstanding: Number of Shareholders: Transfer Agent: Depositary for Eisai American Depositary Receipts: ADR Ticker Symbol: Newspaper for Public Notice: 44,985 million 291,790,554 30,477 UFJ Trust Bank Limited JP Morgan Chase Bank 270 Park Avenue New York, New York 10017-2070, U.S.A. ESALY
Nihon Keizai Shimbun
Corporate Mission
We give first thought to patients and their families, and to increasing the benefits health care provides.
Corporate Objective
A human health care company capable of making a meaningful contribution under any health care system while observing the highest legal and ethical standards in business activities.
For further information

Public Relations Eisai Co., Ltd. 4-6-10, Koishikawa, Bunkyo-ku, Tokyo 112-8088, Japan Tel: +81-3-3817-5120 Fax: +81-3-3811-3077 http://www.eisai.co.jp/index-e.html
This annual report is printed with soy ink on 100% recycled paper.
Printed in Japan.

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To become the global leader in benefiting patients by providing health care solutions

Annual Report 2003

Eisai Annual Report 2003

Aricept , a treatment for Alzheimers disease, and Aciphex /Pariet (Aciphex :

Eisai Annual Report 2003

Consolidated Financial Highlights

466.6 75.9 41.0 59.7 388.2 591.7

431.7 72.7 36.5 55.0 362.1 557.6

361.7 59.0 23.3 49.6 345.9 549.4

302.5 37.1 11.3 46.7 329.4 485.7

284.9 38.6 15.9 43.7 308.6 463.4

12.8 10.9 7.1 65.6

12.8 10.3 6.6 64.9

13.7 6.9 4.5 63.0

15.4 3.5 2.4 67.8

15.3 5.2 3.5 66.6

141.16 139.85 32.00

123.17 121.92 29.00

78.33 77.57 23.00

37.99 37.66 21.50

53.18 52.67 21.50

Net Income per Share

Return on Equity Ratio (ROE) Return on Assets Ratio (ROA)

10.0 7.5 5.0 37.99 78.33 123.17 53.18 141.16 2.5 0

6.9 6.6 7.1

Eisai Annual Report 2003

Eisai Annual Report 2003

Haruo Naito President and CEO

Eisai Annual Report 2003

>>> Satisfying unmet medical needs

>>> Contributing to the health care of patients around the world

>>> Manufacturing quality pharmaceuticals

>>> Two systems supporting our operational decisions

Eisai Annual Report 2003

Overview of the Fiscal Year Ended March 31, 2003

Third consecutive year of record-breaking earnings

Aricept and Aciphex /Pariet underpinning Eisais business

Eisai Annual Report 2003

Choline Hypothesis in Alzheimers Disease

Postsynaptic Acetylcholine receptor (AChR)

: Choline : AcetylcholineACh AChE: Acetylcholine esterase ChAT: Acetylcholine synthase

Eisai Annual Report 2003

Eisais Key Products

Histamine secretory Histamine cell (mast cell) H2 blocker G cells

MR : Muscarinic receptor H2R : Histamine receptor GR : Gastrin receptor

Eisai Annual Report 2003

Eisai Annual Report 2003

Eisai Annual Report 2003

Strengthened functions in the United States

Expansion of Eisai Research Institute of Boston

Expansion of manufacturing facilities in North Carolina

Eisai Annual Report 2003

Eisai Medical Research Inc.

Quality Assurance unit at Eisai China Inc.

health care (hhc) corporate philosophy to every aspect of our work.

Eisai Annual Report 2003

Maintaining quality at manufacturing sites

Specialization in the pharmaceutical business

Eisai Annual Report 2003

Eisai Annual Report 2003

Research and Development Strategy

Eisai Annual Report 2003

Research and Development Strategy