Alfresa : Total Supply Chain Services

Business Strategy

Total Supply Chain Services

The Alfresa Group provides unique

total supply chain services and contributes

to promoting regenerative medicine products.

From now on, we will vigorously promote TSCSs, leveraging our supply chain capabilities.

An Important Role the Alfresa Group Is Uniquely Positioned to Play

significant role in achieving overall optimization of the supply chain. In the past, the Group provided a service whereby it determined the domestic demand for certain overseas pharmaceuticals and then manufactured the drugs in quantities just sufficient to meet this demand. Moving forward, we plan to nurture this service as a cornerstone of our business.

Yusuke Fukujin

Representative Director & Executive Vice President,

In charge of the Ethical Pharmaceuticals Wholesaling Business and Total Supply Chain Service

Alfresa Holdings Corporation

Ascertaining Demand Accurately Even More Crucial in New Modalities

The Alfresa Group is creating an environment that will enable it to offer total supply chain services (TSCSs), which it is positioning as a growth driver. This is owing to the pharmaceutical industry undergoing a structural transformation due to increasing new modalities such as biopharmaceuticals and regenerative medicine products. With this change, the bottleneck in the pharmaceutical supply chain is moving from development to manufacturing. In the past, development was the more challenging process, as mainstream small-molecule drugs were synthesized chemically; manufacturing was relatively easier. What makes the manufacture of biopharmaceuti- cals and regenerative medicine products challenging is that products are of biological origin, it is difficult to make exactly the same substance at different production facilities, and that production in large quantities is difficult. Additionally, biophar- maceuticals and regenerative medicine products have a high cost of sales ratio, so producing excessive quantities can lead to significant losses while producing too little makes it difficult to meet sudden increases in demand. Addressing these changes requires efficient manufacturing without excesses or shortages. Demand forecasting needs to be extremely accu- rate; companies need to accurately grasp annual demand within a range of 1.0% in each country.

In response to this reality, we believe that we can demonstrate our value in supplying pharmaceuticals to medical institutions nationwide and understanding their demand. For this reason, we established Cell Resources Corporation in April 2022. After taking over a regenerative medicine products manufacturing business from Tella Pharma, Inc., in December 2022, we inaugurated the Total Supply Chain Services Planning and Promotion Department (the TSCS Planning and Promotion Department) at Alfresa Holdings Corporation in April 2023. Under this department, we also established the Regenerative Medicine Planning and Development Office, which will coordinate our response to the significant growth of regenerative medicine products.

When it comes to understanding demand, we believe that our strength lies in being the market leader by sales in the ethical pharmaceuticals wholesaling industry. The Alfresa Group has approximately 3,000 marketing specialists,*1 who engage in daily sales activities nationwide, so we have a large amount of real-time data. For specialty pharma- ceuticals, we have established a support platform for personalized medicine called NOVUMN, which manages traceability centrally. This enables us to gather more data and accurately understand precise demand at the individual level. Additionally, the Group company Specialty Medical Distribution Corporation, which handles specialty pharmaceuticals, manages the treatment schedules of each patient, allowing us to accurately identify demand based on factors such as the number of patients and dosages for over 1,000 cases of rare diseases.

We are also utilizing AI to forecast demand. We have collaborated with Yamato Transport Co., Ltd., to develop an AI system to analyze delivery needs and minimize unnecessary logistics costs. We are also using AI to optimize pharmaceutical companies' inventory criteria and ordering frequency. By accurately understanding actual demand and forecasting needs, we can produce the necessary quanti- ties, which gives us a significant advantage in pharmaceutical manufacturing.

Another important aspect of supplying biopharmaceuti- cals and regenerative medicine products is ensuring uninterrupted quality control and traceability in the supply chain. These modalities involve the horizontal division of labor, and multiple partners are connected across the supply chain. It is no simple task to manage and verify the entire process of obtaining, processing, manufacturing, and delivering a patient's cells in a sterile condition, ensuring they are delivered to the correct patient. This is where our expertise in distribution comes into play.

Accurately understanding and forecasting demand, as well as achieving a balance between cost reductions and quality assurance to ensure safety and security, are crucial hurdles to overcome before biopharmaceuticals and regenerative medicine products are widely adopted. The Alfresa Group's wholesale function enables it to understand demand. The Group also has internal capabilities ranging from manufacturing to dispensing, so it can play a

As modalities in the pharmaceutical supply chain grow more diverse, the value balance is shifting from development and patents toward functions we possess, such as manufacturing, distribution, and overall supply chain man- agement. The impact of NHI drug price revisions has made growth in the traditional pharmaceutical wholesaling business more challenging. However, the Japanese market for regenerative medicine is expected to be worth ¥850.0 ­billion by 2030.*2 We see this as a great growth opportunity for the Alfresa Group.

*1 Marketing specialists: Sales personnel who have specialized knowledge about products and services in the pharmaceuticals wholesaling business

*2 Source: "Fiscal 2019 Final Report on Regenerative Medicine and Gene Therapy Market Research Services," Arthur D. Little

Future Challenges of Expanding

Partnerships and Securing Human

Resources

The TSCS Planning and Promotion Department serves as a command tower for the Group, working in collaboration with each business company to promote overall optimization and synergies. Since its establishment in April 2023, the TSCS Planning and Promotion Department has been consolidating projects that were already underway or were being considered for commercialization within each Group company. The department has also consolidated Group company networks with internal and external stakeholders. By reframing and capturing the Group's functions, the department has helped to generate more promising projects, leading to the recognition of new advantages. While regenerative medicine products will take a little more time to monetize, the business is steadily starting to show results.

We think there are two main challenges to growing this business. One is how to increase the number of partner- ships. As I mentioned earlier, for regenerative medicine products, manufacturing is crucial. As a horizontal division of labor plays out across the industry, we cannot bring individual projects to fruition without collaborating with multiple partners. We are competing in a team game, and we need to build excellent partnerships in order to complete a supply chain that ensures quality while controlling costs. The

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Alfresa Group Integrated Report 2023

Alfresa Group Integrated Report 2023

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Business Strategy

Total Supply Chain Services

Our ultimate goal is to establish a regenerative medicine supply chain originating from Japan and contribute to the healthcare and health of people in Japan and around the world.

Alfresa Group is increasing its open collaboration with various organizations, including startups such as Human Life CORD Japan Inc. and others with outstanding technologies. We are moving forward with collaboration on individual projects with a sense of urgency and a feeling of responsibility. If our pace falls short of our partners', we might become an obstacle to supplying cutting-edge pharmaceuticals to patients.

Another challenge lies in securing talent. Specialized knowledge and capabilities in biology and chemistry are required, so the Company is actively trying to recruit human resources who can make an immediate impact. However, the number of people with this experience is limited in the regenerative medicine industry, which is still in its infancy. Therefore, we believe it is essential to develop human resources within the Group who have a thorough understanding of the field and a strong desire to develop it. To this end, we actively engage in personnel exchanges with our collaboration partners and Specialty Medical Distribution Corporation, helping our employees to gain knowledge and experience in specialty pharmaceuticals and contribute to their respective organizations. Through these initiatives, we should accumulate know-how in talent development that will help us to secure a stable workforce without relying solely on external recruitment, even during future business expansion. We will enhance our overall capabilities by accelerating talent rotation within the Group and promoting collaboration.

Our Ultimate Goal of Establishing a Supply Chain for Regenerative Medicine in Japan

Currently, almost all biopharmaceuticals and regenerative medicine products sold in Japan are manufactured overseas and imported. Any disruptions in the supply of materials or the manufacturing process could cause significant damage to the entire supply chain, disrupting domestic distribution. This situation leads to the constant concern about shortages of biophar- maceuticals and regenerative medicine products whenever accidents, disasters, or conflicts arise. From the perspective of economic security, this is a significant social issue.To address the vulnerability of such supply chains, we need to establish domestic manufacturing of biopharmaceuticals and regenerative medicine products. In the future, we aim to build a total supply chain for regenerative medicine products that can be exported worldwide in collaboration with our partners and contribute to healthcare and health of people in Japan and also worldwide.

To realize this vision, first we need to promote the Alfresa Group's TSCSs broadly, both domestically and globally, and steadily build a track record to enhance trust. In the mean- time, I personally intend to take the lead as the head of TSCSs promotion in actively communicating it to the external market.

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