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Strengthen Wakamoto (4512 JP Equity)
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This website serves as a campaign platform for the shareholders of Wakamoto Pharmaceutical Co., Ltd. ('Wakamoto')
Recent Dialogues
On 2 December 2024, a letter was dispatched to the nomination and remuneration committee.
Contents: The Recommendation of Our Representative as a Candidate for Wakamoto’s Director.
On 2 December 2024, a letter was dispatched to the Board of Directors.
Contents: Evaluation of President Igarashi and the Medium-Term Management Plan
On 26 November 2024, a letter was dispatched to Chiba Bank, a significant shareholder of Wakamoto.
Contents: Re-pointing out the “washing” of shares in Wakamoto Pharmaceutical
On 10 June 2024, a letter was dispatched to Mizuho FG (Mizuho Bank), the main bank and significant shareholder of Wakamoto.
On 6 June 2024, a letter was dispatched to Chiba Bank, a significant shareholder of Wakamoto.
Contents: Wakamoto Shares Held by Chiba Bank: Clarification on Purpose of Holding
On 27 May 2024, a letter was dispatched to the Board of Directors.
On 13 May 2024, a letter was dispatched to the Board of Directors.
Contents: Questions and Requests for the Upcoming AGM and Financial Results Briefings
On 15 April 2024, our shareholder proposals were disclosed.
Contents: Proposals for the AGM coming June
On 6 March 2024, a letter was dispatched to the Company’s Board of Directors.
On 29 January 2024, correspondence was directed to the Company.
Contents of this website
Measures we consider to improve the adjusted PBR at 0.6x.
Enhancing ESG practices to reduce the cost of capital.
Optimising capital efficiency
Our view of Wakomoto's issues & solutions
(Note: Unless stated otherwise on this site, the share price and market capitalisation figures as of 29 November 2024 are JPY 240 and JPY 8.4 billion, respectively; financial data reflects figures from September 2024.)
Exceptionally low valuation of the share price
As illustrated in Annexe 1, the valuation of the share price stands at merely 0.55 times (■÷■) when viewed through the adjusted price-to-book (P/B) ratio.。
It's worth noting that the price-to-book (P/B) ratio, calculated prior to adjustment, remains significantly below 1x (■÷■).
Annexe 1: Diagram illustrating the adjusted price-to-book ratio (PBR).
The adjusted price-to-book (P/B) ratio (share price divided by adjusted BVPS) is notably low.
(Not: Adjusted BVPS are determined by dividing the sum of after-tax unrealised gains on rental properties added to equity by the total number of issued shares, excluding treasury shares. After-tax unrealised gains on rental properties are calculated using the formula (market value of rental properties - book value of rental properties) x (1 - assumed tax rate of 30%)).
Pharmaceutical business has accumulated losses of >8 billion yen
As detailed in Annexe 2, the Pharmaceuticals division has experienced losses for 15 consecutive quarters since reported as a segment. Over the last 14 fiscal years, the cumulative segment loss has reached 8.7 billion yen.
As highlighted in Annexe 3, concerns were raised regarding the focus on the field of ophthalmology. It's important to acknowledge that the late Mr. Makita Shoichi, who departed from the Bank of Japan, played a pivotal role in the revival and management overhaul of Wakamoto Pharmaceutical.
However, it appears that the medical business has adopted a management policy of focusing on the ophthalmology area (Nobuyuki Kamiya, appointed president in April 2011 (Drug Magazine, June 2011 issue)) and specialising in medical products in the ophthalmology area (Yoshihiro Horio, appointed president in April 2017 (Drug Magazine, August 2017 issue)).
Rather than adhering to its management strategy of specialising in ophthalmology, the Company ought to evaluate the viability of continuing its pharmaceutical business from a capital cost viewpoint.
Annexe 2: Cumulative segment profit/loss for the pharmaceutical business since reported.
The cumulative segment loss exceeds the market capitalization of 8.4 billion yen.
Annexe 3: Caution against over-specialisation in ophthalmology within the pharmaceutical sector.
Over two decades ago, amid a company restructuring, the president had already flagged concerns about the focus of the pharmaceutical business.
A potential explanation for the underperformance of the pharmaceutical division might be its overly concentrated efforts on ophthalmic drugs across various functions - including research, development, sales, and academia. The division's deep entanglement with ophthalmologists has left little room to explore other business avenues, positioning us more as a specialist in ophthalmic drugs rather than a diversified pharmaceutical company. While enhancing the ophthalmology division's output is commendable, broadening our pharmaceutical portfolio is crucial for the overall growth of our company. I had a conversation on this matter years ago with our advisor, Dr Kasuya, who concurred with my observations. Consequently, I encouraged him to identify an outstanding researcher to spearhead diversification in our product development. This transformation necessitates a fortified focus on research and development, a critical element for our reform.
Cited from 'Wakamono-Rebuilding 50 Years in Retrospect' by Makita Shoichi, 14 March 2002.
The proposal to appoint President Igarashi as a director was met with opposition from over 80% of institutional investors.
As detailed in Annexes 4 and 5, institutional investors have raised concerns regarding the following issues and consequently cast opposing votes on the proposal to appoint President Igarashi:
- Business performance and capital efficiency
- Number and proportion of outside directors (Board composition)
- Amount of cross-shareholdings
With regard to capital efficiency, as illustrated in Annex 6, the company is engaged in property leasing activities unrelated to its core business. The post-tax market yield on these properties remains exceptionally low, hovering around 1%.
Conversely, as discussed in Annex 15, the company has set a medium-term management plan target of achieving an ROE of 8%. However, retaining rental and other properties with yields below the ROE target is not justifiable from a cost-of-capital perspective. We expect the company to undertake the following initiatives:
Annexe 4: Outcomes of institutional investors' votes on the appointment of President Igarashi.
At the AGM in June 2024, 17 of the 21 institutional investors voted against the proposal to re-elect the president.
Name
Voting
reason
1
Nomura AM
Opposition
Clarify specific business strategies that meet the high goal of doubling sales.
2
Nissay AM
〃
Fulfills the criteria for shares held for policy purposes
3
SMTAM
〃
Performance criteria
4
Nikko AM
〃
Because the performance does not meet our standards, because the number of outside directors does not meet our standards, and because of the standards for cross-shareholdings.
5
SMD AM
〃
Opposition based on ROE standards, standards for the composition of the board of directors, and standards for cross-shareholdings
6
Manulife Investment
〃
Composition of the Board of Directors, ROE standards, amount of cross-shareholdings
10
Mitsubishi UFJ Trust
〃
Performance (ROE), Board Composition, and cross-shareholdings
11
AM One
〃
Board of Directors Composition Standards (Outside Directors)
12
Blackrock
〃
Cannot support the reappointment of directors in the face of continued poor business performance. We call for the appointment of more than one-third independent outside directors.
13
Fidelity
〃
Exercise of voting rights in accordance with the policy of the external contractor
14
Pension Fund Association
〃
The criteria for business performance and board composition
15
Mizuho Trust
〃
Board of Directors Composition Standards (Outside Directors)
16
Daiwa AM
〃
Insufficient efforts to reduce cross-shareholdings
17
Amundi
For
-
18
Meiji Yasuda Life
〃
-
19
AXA Life
〃
-
20
Asahi Mutual Life
〃
The company has fallen below the 5% ROE threshold for three consecutive terms, and therefore meets the criteria for individual scrutiny.
During the dialogue, it was determined that the company had made efforts to improve profitability and had achieved a certain level of success.
21
Sumitomo Life
〃
-
(Note: compiled by Nanahoshi Management from company websites with reference to Prof. Tsuburaya's laboratory website ; AM stands for Asset Management).
Annexe 5: Board of directors.
The percentage of outside directors is less than 1/3.
1
Representative director
Arata Igarashi
2
Director
Kimihiko Sato
3
Director
Yuko Hirai
4
Director
Hiroyoshi Kasai
5
Director
Haruhisa Hirata
6
Director
Makoto Taniguchi
7
Director
(Member of the Supervisory Committee)
Haruhisa Hirata
8
Independent Outside Director
(Member of the Supervisory Committee)
Katsuyoshi Ejima
9
Independent Outside Director
(Member of the Supervisory Committee)
Ikuro Kuwahara
10
Independent Outside Director
(Member of the Supervisory Committee)
Kana Hikawa
Annexe 6: After-tax market value yields of rental properties.
The market value of rental property amounts to half of its market capital.
(Note: The after-tax market value yield is determined by dividing the rental profit or loss adjusted by (1 - the expected tax rate of 30%), as mentioned in the notes to the annual report, by the average balance of the market value of rental properties over the period)
Approaches to managing climate change risks in relation to cross-shareholdings.
As highlighted in Annexe 7, there's a growing emphasis on addressing climate change risks associated with cross-shareholdings. Initially, a company's possession of cross-shareholdings is viewed as an investment in the issuer of those shares. Consequently, we posit that the climate change risks encountered by issuers of cross-shareholdings should be acknowledged to the same extent as those risks faced by, for example, a company's own manufacturing facilities. Thus, it's the belief that companies ought to disclose the climate change risks of issuers of cross-shareholdings as part of their own climate change risk profiles.
Nevertheless, we stand against cross-shareholdings, whether disclosed or not. There are several issues with business relationships founded on strategic shareholdings. For instance, they can hinder a healthy competitive landscape and become hotbeds for fraudulent activities. Additionally, an increase in the number of stable shareholders may weaken management discipline.
Nonetheless, as indicated in Appendix 8, the company has pledged just under 80% of its cross-shareholdings as collateral to banks. The act of pledging cross-shareholdings as collateral clearly signals that the company has no plans to sell at least those shareholdings used as collateral. This move by the company should be seen as contravening the spirit of the Corporate Governance Code, which aims to reduce cross-shareholdings.
Annexe 7: Perspectives on the Climate Change Risk of Policy Shares
Cross-shareholdings must also be considered in the context of responding to climate change risk.
As the cost of greenhouse gases becomes acknowledged, firms with significant policy holdings at risk of becoming stranded assets should be urged to offer more transparent explanations.
(Kazuhiro Toyoda, Schroder Investment Management)
Japanese firms are equally obliged to reveal the climate change risks associated with their policy holdings.
(Tomohiro Ikawa, Fidelity Investment Trust)
Cited in the Nikkei Newspaper Morning Edition, 19 October 2023, page 19, under 'Environmental Risks in Stocks with Policy Holdings'.
Annexe 8: Summary from Page 55 of the Company's 128th Annual Report
Although the company is essentially free of debt, it has secured JPY 2.243 billion, representing 92% of its total policy shareholdings valued at JPY 2.442 billion, with banks as collateral for a JPY 900 million credit line. This line may or may not be utilized in the future (as of the end of March 2024).
(Notes to the Financial Statements)
Securities Pledged as Collateral
Starting this fiscal year, the company has entered into an overdraft agreement of 900,000 thousand yen with a bank, where it has an overdraft facility, which has been pledged as collateral. By the end of this fiscal year, no borrowings have been made under this overdraft agreement.
| 31.3.2023 | 31.3.2024 | |
| Securities | 1,898,817 thousand | 2,243,729 thousand |
Disclosure on animal welfare
In the pharmaceutical industry, animal testing is conducted globally in adherence to the 3Rs (*) to verify efficacy and safety data.
*Reduction in the number of animals used, minimization of suffering (Refinement), and adoption of alternative methods (Replacement).
As detailed in Annexes 9 and 10, in their commitment to the 3Rs, pharmaceutical companies worldwide have released numerical data on the quantity of laboratory animals purchased by species, for instance, aiming at the reduction of the number of animals used in experiments (Reduction).
In connection with this, the company discusses its adherence to the 3Rs, conducts monthly visits to the animal memorial, and discloses that it is consistently accredited by the General Pharmaceutical Information Centre of Japan for following the Guidelines on Animal Experiments, among others, as mandated by the Ministry of Health, Labour and Welfare (Notification of 1 June 2006).
Nevertheless, we contend that in order to verify adherence to the 3Rs, disclosure should encompass not just the qualitative information mentioned above, but quantitative data as well.
Annexe 9: Instances of discussions regarding the number of laboratory animals acquired by animal
Worldwide pharmaceutical corporations reveal the quantity of laboratory animals they procure for research purposes.
(Source: Bayer)
Annexe 10: Quantity of laboratory animals acquired by species (instances of comprehensive disclosure)
Novo Nordisk provides in-depth disclosures specific to each animal type.
(Source: Novo Nordisk)
Board of directors, of which just under 30% hail from the principal bank
As detailed in Annexes 11 and 12, 30% of the Company's Board of Directors are representatives from its principal bank, Mizuho Financial Group ("MHFG"), with the majority of the Board consisting of individuals from MHFG.
While MHFG, as a significant shareholder owning about 3% of the company's shares, dispatching directors is not inherently problematic, the reality that an individual from a shareholder with merely a 3% stake persistently fills less than 30% of the board seats exceeds the customary practice of nominating directors by a major shareholder. This scenario suggests a lineage of control stemming from the main bank.
Annexe 11: Profile of directors from MHFG in recent years
Internal directors of the board join the company as directors and then become directors of the board.
Mr. Arata Igarashi (President and Representative Board Director)
Apr 1981 Joined Industrial Bank of Japan (now Mizuho FG)
Apr 2005 General Manager, Sales Division 14, Mizuho Corporate Bank, Ltd.
May 2010 Joined the Company (Director)
Jul 10 General Manager, General Affairs & Public Relations Dept.
Apr 2011 General Manager of Corporate Planning Office and General Manager of General Affairs Department
June 2011 Board Director
Jun. 2012 Managing Board Director
Jun 19 Senior Managing Board Director
Apr 2022 President and Representative Board Director (to present)
Mr. Katsuyoshi Ejiima (slid from external auditor to Board Director)
Apr 1977 Joined Dai-Ichi Kangyo Bank (now Mizuho FG)
Mar 2006 Managing Executive Officer, Mizuho Corporate Bank, Ltd.
Apr 2008 Managing Executive Officer, Mizuho Bank, Ltd.
Jun 202009 President and Director, Mizuho Investors Securities Co.
Jan 2013 Executive Vice President and Executive Vice President of Mizuho Securities Co.
Apr 2014 Standing Advisor of Mizuho Securities Co.
Jun 2016 Outside auditor of the Company
Jun 2017 Independent Outside Director (Member of the Supervisory Committee) of the Company (currently in his seventh year)
Mr. Yuko Hirata (Board Director)
Apr 1989 JoinedIndustrial Bank of Japan (now Mizuho FG)
Oct 2007 Senior Manager, Global Alternative Investment Management Department, Mizuho Corporate Bank, Ltd.
Apr 2009 Professor at the Graduate School of Accounting and Finance, Chiba University of Commerce (tenure until March 2018)
Apr 2010 Deputy General Manager, Asset Management Operations Department, Mizuho Corporate Bank, Ltd.
Jan 2013 Director, Investment Banking Group, Mizuho Securities Co., Ltd.
Apr 2016 Managing Director, Financial Institutions & Public Sector Division, Head of Public Sector, Mizuho Securities Co., Ltd.
Apr 2018 Deputy General Manager, Financial Institutions & Public Sector Division, Mizuho Securities Co., Ltd.
Jun 2021 Board Director, Seibu Oil Company Limited.
Apr 2023 Joined the Company (Director)
Jun 2024 Managing Board Director, General Manager of the Administration Division, General Manager of the General Affairs Department, and General Manager of the Sustainability Promotion Department
(Note: prepared by Nanahoshi Management from the annual report.)
Annexe 12: Representation of MHFG Members on the Board of Directors
For the eighth consecutive year, over a quarter of the Board of Directors comprises individuals from Mizuho Financial Group (MHFG).
| # of directors | percentage | A | K | H | |
| Jun24 | 10 | 30% | 〇 | 〇 | 〇 |
| Jun23 | 7 | 28.6% | 〇 | 〇 | |
| Jun22 | 7 | 28.6% | 〇 | 〇 | |
| Jun21 | 7 | 28.6% | 〇 | 〇 | |
| Jun20 | 7 | 28.6% | 〇 | 〇 | |
| Jun19 | 7 | 28.6% | 〇 | 〇 | |
| Jun18 | 8 | 25% | 〇 | 〇 | |
| Jun17 | 7 | 28.6% | 〇 | 〇 | |
| Jun16 | 13 | 15.4% | 〇 | 〇 | |
| Jun15 | 13 | 7.7% | 〇 |
(Note: This is compiled from the company's annual report by us).
The truth about the resignation of the former Chairman and President (and former Chief Advisor to the Board of Directors)
As indicated in Annexe 13, Mr. Nobuyuki Kamiya ("Mr. Kamiya"), the former Chairman and President of the Board of Directors of the Company, was planned to transition from Director and Chief Advisor to solely Chief Advisor in late June 2022. However, he unexpectedly resigned in mid-June of the same year.
Articles suggest that Mr. Kamiya's resignation was prompted by personal misappropriation.
As detailed in Annexe 14, Mr. Kamiya served as the representative director of the Company for over 10 years and also held the position of chief advisor to the board of directors. As shareholders, we cannot ignore the sudden resignation of someone so closely associated with the company, especially when the company cited 'personal reasons' for his departure amidst reports of personal misappropriation. We urge the Company to implement the following measures:
Annexe 13: Disclosures and Articles on Private Misuse
The company stated that Mr. Kamiya's departure was due to personal reasons.
Announcement of changes in directors (including changes in representative directors)
RE: Mr Kamiya
- Former position: director and chief adviser → New position: chief adviser (planned for late June 2022)
Notice of resignation of director.
RE: Mr Kamiya
- Former position: director and chief adviser → New position: none
- Reason for resignation: personal reasons
(Note: compiled by Nanahoshi Management from the website and the Daily Yakugyo website.)
Annexe 14: Mr. Kamiya's Biography
His roles have included president, chairman, and chief adviser.
Apr 1968: Joined Kowa Shinyaku Co.
Jun 2004: Became a Director at Kowa Co.
Apr 2006: Appointed as Director at Kowa Shinyaku Co.
Jul 2007: Elevated to Managing Director at Kowa Co.
Jan 2010: Joined Wakamoto as a Director
Jun 2010: Took on the roles of Vice Chairman and Representative Director
Apr 2011: Became President and Representative Director
Jun 2004: Served as Representative Director, Chairman, and President
Apr 2017: Appointed as Chairman of the Board and Representative Director
Apr 2009: Assumed the position of Chairman of the Board
Jun 2009: Became Director and Chief Adviser
Jun 2010: Stepped down
(Note: compiled by Nanahoshi Management from the company's annual report).
Lack of Specificity and Feasibility in the Medium-Term Management Plan
As outlined in Annex 15, on 15 May 2024, the company announced a five-year Medium-Term Management Plan ("MTMP") starting from the fiscal year ending March 2025.
First, the MTMP aims to double revenue over five years, targeting ¥15 billion. However, as shown in Annex 16, a comparison between the revenue of ¥10.7 billion in the fiscal year ending March 2019 and ¥7.7 billion in the fiscal year ending March 2024 reveals a decline of approximately 30% over the past five years. Under such challenging circumstances, pursuing dramatic improvement appears highly unrealistic. Moreover, the lack of a concrete business strategy or detailed initiatives casts significant doubt on the feasibility of this plan.
Secondly, an ROE target of 8% has been set. However, the company has failed to disclose the basis for the calculation, specifically the projected profits and equity capital, making it impossible for us to assess either the appropriateness or the achievability of this target.
Furthermore, the MTMP fails to address critical aspects. The company comprises four business segments, as indicated in Annex 15: three disclosed segments and "Real Estate Leasing." Yet, the MTMP documentation makes no mention of the real estate segment. As highlighted in Annex 6, the post-tax market yield for "Real Estate Leasing" hovers around a mere 1%, rendering the continuation of this business unjustifiable from a cost-of-capital perspective.
The MTMP also aims to halve cross-shareholdings. While reducing cross-shareholdings is, in itself, a positive step, we believe it is imperative to go further. Specifically, the company should use proceeds from the sale of all non-operating assets, including rental properties and cross-shareholdings, to enhance shareholder value through investments or shareholder returns.
*As highlighted in Annex 17, the net proceeds from selling leasehold property and policy shares（■）, as detailed on the balance sheet and after deducting assumed tax payments（■）, plus cash on hand（■）, minus interest-bearing debt （■）(referred to as 'net cash equivalents（■）' in Annexe 16), are substantial. We advocate for the Company to utilize the surplus cash, exceeding the proceeds from the sale of non-operational assets and working capital, for investments and shareholder returns to boost the Company's shareholders' value.
The company has set a dividend payout ratio of 50%. However, given its high equity ratio of 78.3%, a capital policy that ties dividends to a fixed percentage of equity capital, rather than profits alone, would be more effective in optimising its equity structure.
Annexe 15: Targets for the final year of the medium-term management plan
The company has set ambitious targets of doubling sales and achieving an ROE of 8%.
| Actual | Targets | Change | ||
|---|---|---|---|---|
| FY23 | FY28 | % | CAGR | |
| Revenue | 7.7bil | 15bil | 1.9x | +14% |
| Pharmaceutical | 3.4bil | 6.7bil | 2.0x | +15% |
| Healthcare | 2.5bil | 4.6bil | 1.8x | +13% |
| Global | 1.7x | 3.5bil | 2.1x | +16% |
| ROE | 0.9% | 8％< | Massive improvement | - |
| Cross-shareholdings (v.s. shareholders' fnds) |
20% | <10％ | ||
Annexe 16: Historical Trends in Sales and Medium-Term Targets
Each of the three segments is expected to see a significant increase in revenue.
Annexe 17: The acmout of net cash equivalents.
The proceeds from the sale of non-operating assets amounted to 4.5 billion yen, compared to a market capitalization of 8.4 billion yen.
Wakamoto Pharmaceutical Business Partners' Shareholding Association
The third largest shareholder in the company is the Wakamoto Pharmaceutical Business Partners' Shareholding Association. Yet, the presence of this Shareholding Association contradicts the objectives of the Corporate Governance Code, which advocates for minimizing policy shareholdings. The reason being, shares in publicly traded companies, when involved with business partners' shareholding associations, are often acquired as policy shares.
As indicated in Annexe 18, companies listed as part of business partners' shareholding associations mention "acquisition of shares through business partners' shareholding associations" in the "Purpose of holding the shares" section within their annual reports.
The Japan Securities Dealers Association's guidelines on shareholding schemes articulate that the aim of a business partners' shareholding association is "to foster amicable relations through the acquisition of shares by individuals connected with the business." However, it's undeniable that a significant motive behind this is to secure stable shareholders. Indeed, a publication by a leading securities firm outlines that one of the benefits of establishing a business partners' shareholding association is its potential to act as a stable shareholder. We anticipate the Company to undertake the following actions:
Annexe 18: Illustration of financial statements from a company within the Business Partners' Shareholding Association of the Company.
An uptick in stable shareholders might result in a decrease in management discipline within the company.
We hold these shares as a business partner in the pharmaceutical packaging industry, with the aim of maintaining and strengthening stable, long-term business relationships. The quantitative effects of holding these shares are not stated here for reasons of confidentiality, but the Board of Directors has verified the significance of holding these shares, the status of transactions, and economic rationality, and has determined that there is a rational basis for holding these shares. In addition, the number of shares has increased due to the acquisition through the shareholding association.
Source: Justification for holding shares in Asahi Printing Corporation as outlined in its 108th Annual Securities Report, page 55 [Shareholdings].
The necessity of re-evaluating the objectives of the company and the reason for listing on the stock exchange
The duty of directors in a joint stock company is to enrich the shareholders who possess the power to elect them, through increases in share price and dividends. It's expected that Wakamoto's directors adopt a management approach aimed at enhancing shareholder value. Should this prove unfeasible, considering the transition to a private company remains a viable pathway.
Directors should not view transitioning to a private entity negatively. Nonetheless, the exploration of de-listing does not imply a cessation in the pursuit of shareholder interests. Prior to moving towards de-listing, we aspire for the company to attain a shareholder value exceeding an adjusted Price to Book Ratio (PBR) of 1x, encapsulating the latent profits from rental properties fully.
If it becomes challenging to foster management policies that elevate shareholders' value or to contemplate de-listing after striving to enhance shareholder value, we urge the invitation of a director dedicated to the advancement of shareholder value and prompt the resignation of the current directors from their roles.
Annexe 19: The total shareholder return since Mr Kamiya's resignation (after 17 June 2022)
Share prices have notably lagged both in absolute terms and relative to the index.
(Note: Total shareholder yield is a measure of stock price performance that excludes the impact of dividends paid out. The TOPIX, when including dividends, is calculated on a post-tax basis, and similarly, Wakamoto's dividends are recalculated and compared after taxes have been taken into account.)
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