May 3, 2006

Kyowa Hakko's profits decline 23.8 percent on higher R&D spending

Japanese chemicals producer Kyowa Hakko Kogyo announced on Apr 28 declines in its consolidated sales and operating income by 1.5 percent and 23.8 percent to JPY353.4 billion and JPY25.5 billion respectively year-on-year, for its FY2005 ending Mar 31.

However, recurring income (JPY28.2 billion) and net income (JPY16.2 billion) for FY2005 exceeded the upwardly revised forecasts announced in July 2005, according to the press release.

"Increased R&D expenses mainly related to the anti-Parkinson's disease agent KW-6002 was the main reason for the decline in operating income," the company explained, revealing that R&D spending in FY2005 was up 14.3 percent from 2004, to JPY32.8 billion. This represented 9.3 percent of net sales.

In its bio-chemicals division, sales of its products such as amino acids decreased 0.6 percent to JPY57.4 billion, while operating income fell 40.7 percent to JPY4 billion, due to "increased price competition and higher raw material and fuel prices".

"Sales of amino acids... were affected by intensified price competition in overseas markets but this was largely offset by increased domestic sales of raw materials for generic pharmaceutical products," Kyowa Hakko said.

For FY2006, Kyowa Hakko expects a 3.8-percent decline in net sales but a 1.8-percent increase in operating income. Declines in recurring income and net income of 11.4 percent and 20.1 percent respectively are also seen. The sales forecast is in line with the business plan target while the operating income forecast is also higher than the plan's target.

For its bio-chemicals business, both net sales and operating income are expected to increase in FY2006 as it attempts to increase sales of its amino acids, among other products. This division's net sales are seen to decline to JPY340 billion but operating income will remain at JPY26 billion--similar to FY2005 level--the company says.

Despite its FY2005 performance, Kyowa Hakko will still continue in invest in R&D, or as its president Dr Yuzuru Matsuda shares, "to advance our research and development, invest in production facilities, promote sales growth, and implement cost reductions".