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Q3 2011 Terumo Corporation Earnings Webcast

28/01/2011 - Tokyo, Japan

COMPANY REPRESENTATIVE: Now I’d like to begin the presentation for the third quarter financial results of the fiscal year ending March 31, 2011, presented by Terumo Corporation on January 27, 2011.

Today's presentation is in two parts. In addition to the financial results, I would also like to share with you some of the topics and products that have contributed to the financial results as the third quarter highlights.

Slide page 3. I would like to explain the financial results. We closed our third quarter under a very harsh environment, with a very strong yen, as well as the revision of the drug reimbursement price. Despite all of these impacts, our net sales grew by 2% versus the same term previous year, at JPY244.2 billion.

As for the operating income, through the efforts for the shifting to more profitable products and cost-cut efforts we have not been able to offset completely the impact of yen appreciation, or decline in the price, and it fell to JPY48.1 billion, minus 4% of the same term previous year. Excluding the foreign exchange impact, it grew by 4%.

As for the ordinary income, we were significantly impacted by the foreign exchange loss recognized in the first half, and fell by 15% and JPY42.9 billion. Net income fell to JPY27.5 billion, minus 14%.

Next slide, page 4. I would like to explain, one by one, starting with the sales.

First of all, sales by region. As for the domestic market, we were under the very harsh environment with the impact of the reimbursement price cut, but for the general hospital products and blood transfusion product, they grew very favorably, leading to the overall growth of the sales by 1%.

As for the market outside of Japan, centering around the catheter products, in all regions we have been able to achieve double-digit growth in local currency basis, achieving 15% of the overall growth.

As for the overseas sales ratio, despite the yen appreciation, we have been able to grow it by 1%, at 45%.

Slide page 5. This slide describes the sales per each business segment. As for the General Hospital business, excluding foreign exchange impact, it grew by 3%, mainly in the Japanese market. The infusion pump, syringe pump, as well as the new blood glucose monitors, achieved a very favorable growth of the business. And also the chronic care market that we have started developing from this term, has begun to bear results, leading to the significant growth of the semi-solid nutrition products.

As for the Cardiac and Vascular business, we saw the very favorable growth of the sales centering around the catheter product, and excluding ForEx impact, achieved a growth of 14%.

Blood Transfusion business achieved 9% of the growth, excluding the foreign exchange impact. We saw the significant growth of the sales of the blood bag, and also, in the market outside of Japan, TACSI, our automated integrated centrifuge and separation system, achieved a significant growth.

As for the Consumer Healthcare business, we suffered from the rebound from the previous year's outbreak of the H1N1 flu, leading to the significant rise in the sales of the thermometer, and also we suffered the prolonged clearance of the inventory, leading to minus 34% of the sales.

Slide page 6. So far I have been explaining about the sales, and I would like to make additional comments on the highlights of the sales for the third quarter.

In the market outside of Japan, certainly we saw the significant growth of the catheter business, as the document describes, in all regions we have been able to achieve the growth greater than 20%.

By analyzing the factors behind this high growth, in industrial nations, with various health reforms undertaken, there has been mounting pressure on the healthcare costs. And we believe that we have been able to offer the products that fulfill the market needs for the health economics. And also in China and other emerging markets, with the further expansion of the overall market, we have been able to achieve additional growth.

As for the Japanese market, the IVUS, our Intravascular Ultrasound imaging system, was very favorable as underpinning the growth of the catheter business. As for the Hospital business, as a result of our efforts in developing the chronic care market, we achieved 29% of the growth for the semi-solid nutritional food business.

As for the Consumer Healthcare, it is suffering. But we have been able to launch new products such as Activity Meter, which has been covered by the Japanese financial newspaper, leading to the recovery trend.

Slide page 7. Now I would like to explain further about the variabilities of the gross profit rate.

With the increase in the sales ratio for more profitable products and the efforts for the cost reductions and with the increase in the sales volume, we achieved 1.4 points of the positive. However, with the reimbursement price reductions and yen appreciation leading to 2.1 points of the negative, as a whole we saw the third quarter gross margin ratio of 52.1%, minus 0.7% from the same term previous year.

Slide page 8. Next I would like to explain about SG&A. SG&A totaled JPY79.1 billion, which was 4% of increase. As for the general expense, we saw the increase as a result of the growth in terms of the volume and headcount. However, with the continuous efforts for the efficient operation and yen appreciation, we have been able to control this increase down to the level of 2%, in line with the growth of the top-line sales.

As for the R&D cost, it recognized 14% of the growth versus the same term previous year, but this is pretty much in line with the annual plan. Through the year we expect the R&D expense of JPY19.5 billion, plus 11% of the same term previous year. As a result, our SG&A against the net sales is 32.4%, 0.5% increase from the same term previous year.

Next, the slide page 9. Now I would like to explain the progress status of the forecast of annual financial results.

First, we made a revision of the forecast for the full year in October 2010, and no further change has been made at this time. Against the forecast, the progress in the third quarter was 75% in net sales and 76% in operating income, which is very much in line with our forecast. Though there is little time left in fiscal 2010, we are determined to work very hard to try to meet the forecast of this fiscal year.

Slide page 10. So far, I have been explaining about the financial results for the third quarter. Now I would like to share with you three topics, including our products, as well as some [episodes] contributing to the financial performance of this term.

The first one is about the Intravascular Imaging business, with the IVUS as the main product, leading the overall catheter business in the Japanese market. Second one is the latest topics about the US TRI business, which is growing very steadily. The third one is the semi-solid nutritional products in the chronic care market.

Next, the slide page 11. First, I would like to introduce our Intravascular Imaging business. Intravascular imaging is the system that measures the cross-section of the vessels at a time of the intervention. So for the interventional treatment and testing, in order to select the right stents and to check on the good fit of the stent, this is the tool that thereby is securest and efficient catheter intervention.

As for the intravascular imaging technology, it is classified by the types of signals.

An ultrasound-based intravascular imaging system is our IVUS, which is growing significantly in its sales in the domestic market. It enables the measurement of the deep part of the vessel walls, leading to the clear depiction of the entire vessels. Whereas the light and infrared rays-based technology is the intravascular Optical Coherence Tomography system, such as OFDI or OCT. This offers higher resolutions of the image, enabling more detailed observation of the vessel walls.

Currently, IVUS is the main product in this field, but recently more and more new technologies such as OFDI/OCT are being used, and its value is drawing keen attentions as a technology augmenting IVUS.

Slide page 12. The IVUS system that we market in the Japanese market currently is highly valued in this market as a result of the continuous improvement made on this product.

In the year 2008, we introduced our new product of IVUS console that would enable more vivid images. We have also been updating our image analysis software, contributing to more detailed clinical observations.

Furthermore, in 2008, we introduced our new products of IVUS catheter, leading to a greater ease of use for the doctors as a result of the continuous improvements, such as maneuverability.

As a result, the market evaluation of our console and IVUS catheter has greatly improved. And, despite the decline in the prices as a result of the reimbursement price revision, we have been expanding on the sales and market share, and, through further improvement, would like to target at the sales of JPY5 billion, with the market share of 36% in the fiscal year ending March, 2012.

Slide page 13. Here, I would like to introduce some latest topics on the US TRI.

According to the Terumo survey, the uptake of TRI in the US market is expected to grow from the initial 3% to 8% at the end of this term.

At the end of next month, Terumo is going to sponsor the symposium that would introduce the very basic points about the TRI in the Medical Congress of CRT to be organized in the United States. And with the support of the healthcare reform in all the other medical congresses, there are more and more symposia and seminars covering the topics of TRI, with the greater attention paid on TRI.

And, since last year, we have seen the smooth growth of the sales of TRI-related products in US market, and we expect that we should be able to achieve our original goal of $20 million by the end of this term.

Slide page 14. Lastly, I would like to discuss semi-solid nutrition product, which is growing very favorably in the chronic care market. Tube feeding is really for the patients who cannot orally ingest nutrition. This would enable the nutrition to be directly provided to the patients through intranasal tubes, as well as the tubes in the stomach or intestine. This offers the benefit of physiological nutrition, compared to the drip infusion.

And for the tubal feeding, generally the liquid food is used, and, as you can see on the slide, the whole flow of the procedure would be required, but there are mainly two challenges to this tubal feeding.

First of all, the food for this tubal feeding is liquid. Hence there is always this risk of aspiration pneumonia as a result of the esophageal reflux, especially for the older patients, or the bedridden patients. They are at the higher risk of pneumonia.

Secondly, this whole procedure takes a significant amount of time and effort for the staff personnel. And, as a result of the revision of the technical fee reimbursement system in April of last year, there are many patients that moved from the acute phase hospital to the chronic phase facilities, leading to a greater number of patients requiring this kind of tubal feeding. As a result, for those staff personnel and nurses working there, they would have to spend enormous amount of time from the preparation until the final clean-up.

Slide page 15. We believe that such issues in the tubal feeding can be solved by Terumo's semi-solid nutritional products. Compared to the general liquid food, the viscosity is higher, and reflux is less likely to occur and the risk of the aspiration pneumonia is greatly reduced.

This bag of the semi-solid nutritional food can be directly linked to the fistula in the stomach. We no longer need the bottles or the connector tubes through the gastric fistula, not requiring any cleaning or sterilization work. And the nurses who have tried this product are quite surprised at the simplicity in the procedure as well as the significantly shorter time required for restraining patients during feeding.

We believe this is the kind of product that can offer practical solutions to the needs of the medical field. And, through the further expansion of the market and the increase in the market share, we would like to target that JPY6 billion of the sales in fiscal year ending March, 2014.

And with this, I would like to conclude my presentation. Thank you very much.

EDITOR: Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.

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Document FNDW000020110211e71s000p3