Torii Pharmaceutical : Notice of the Opinion of the Board of Directors Regarding the Shareholder Proposal

Tokyo, February 10, 2023

Note: This document is a direct translation of the document released in Japanese. If there are any discrepancies between this document and the original Japanese version, the original Japanese version prevails.

FOR IMMEDIATE RELEASE

Notice of the Opinion of the Board of Directors Regarding the Shareholder Proposal

Torii Pharmaceutical Co., Ltd. ("Torii") (TSE:4551) hereby announces that it has received a document (the "Shareholder Proposal Document") from its shareholder LIM JAPAN EVENT MASTER FUND (the "Proposing Shareholder") that makes a proposal for the 131st General Meeting of Shareholders scheduled for March 28, 2023 (the "General Meeting of Shareholders"). After a series of careful deliberations on its contents, at the Board of Directors' meeting of Torii held today, the Board of Directors made the decision to oppose the Proposing Shareholder's shareholder proposal (the "Shareholder Proposal"). The following is a notice regarding this decision.

I. Content of the Shareholder Proposal and Reason

1. Agenda Items

1. Appropriation of Surplus
2. Repurchase of Treasury Stock
3. Partial Amendment to the Articles of Incorporation (Disclosure of Remuneration for Directors with Representative Authority)
4. Partial Amendment to the Articles of Incorporation (Disclosure of Result of Examination of Fund Management through CMS)

2. Summaries of the Proposal and Reasons for Proposal

The content is described in the attachment entitled "Details of the Shareholder Proposal."

This attachment contains the relevant portions of the Shareholder Proposal Document submitted by the Proposing Shareholder in the original text. (The reasons for the proposals except for "Appropriation of Surplus" provided here are the summaries of the original text submitted by the Proposing Shareholder.)

II. Opinion of the Board of Directors Regarding the Shareholder Proposal 1. Appropriation of Surplus

(1) Opinion of the Board of Directors

The Board of Directors opposes this proposal for the reasons stated below.

(2) Reason for Opposition

In the pharmaceutical business, after a product is launched and its patent period eventually expires, other generic products become available on the market. This will reduce the sales of proprietary products rapidly and drastically. Therefore, when pharmaceutical companies fail to create and sell new drugs in a continuous manner, not only their growth but their very survival can be at stake.

For a company like Torii that has limited R&D functions, in-licensing is a very effective way of acquiring new drugs. Torii will work more aggressively than before on business investments in in- licensed drugs, in order to recover quickly from the decrease in business volume after the return of

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sales rights for anti-HIV drugs, achieve the goals of the Medium-/Long-Term Business Vision "VISION2030" ("Net sales break the all-time high" and "Operating income comes within the range of breaking the all-time high"), which was formulated by Torii in February last year, and ensure sustainable growth thereafter. By considering the current state of the lineup of products in development and development risks, Torii aims to acquire in-licensed drugs that are adequate in quality and quantity.

Competition to acquire in-licensed drugs is intensifying, and considering the fact that acquisitions are achieved in a crowded field of competitors through tough negotiations and the possibility that there may be multiple opportunities to acquire promising in-licensed drugs at the same time, the important factors will be to have sufficient cash on hand and be able to proceed flexibly. In addition, preparation of sufficient cash on hand is needed because there is a risk of failure in development after in-licensing and it takes a long time to create revenue after development.

Torii sees shareholder returns as one of its most important management goals, and always strives to pay stable and continuous dividends. At the same time, Torii sees the achievement of increased corporate value over the medium-/long-term as being the greatest return to shareholders. Based on this belief, Torii will give priority to using cash on hand for business investments, and continue to grow its sales and profits through business investments, and aim to enhance medium-/long-term corporate value with awareness of the cost of capital.

The nature of the business of investment with respect to in-licensing does not allow Torii to decide the investment amount, timing, or other matters on its own in advance, and thereby makes it difficult for Torii to present concrete plans. However, with regard to capital allocation, Torii set the next five years through 2027 as an intensive business investment period, and intends to use approximately ¥40.0 billion for business investments for in-licensing, among others. In addition, in consideration of the need for a certain amount of cash on hand as working capital for ordinary business operations and as investment capacity from FY 2027, Torii will regularly evaluate the adequacy of its lineup of in- licensed drugs and its financial situation, etc., and provide the appropriate shareholder returns.

In light of the above, while comprehensively considering Torii's current performance, its medium- /long-term business prospects and progress in respect of its products in development and the status of its acquisition of in-licensed drugs, Torii reviewed the level of dividends that will enable Torii to make stable and continuous dividend payments while making proactive business investments to increase Torii's medium-/long-term corporate value. As a result of this review, in regard to Torii's proposal for the appropriation of surplus at the General Meeting of Shareholders, Torii plans to propose paying a dividend of ¥76 per share at the end of FY2022. If this proposal is approved, the full-year dividend per share for FY 2022 will be ¥100, an increase of ¥52 from the full-year dividend per share of ¥48 for FY 2021. In addition, in FY 2023 and thereafter, Torii will maintain our basic policy of continuous and stable dividends while further enhancing Torii's shareholder returns, and Torii will review the progress Torii has made in our business operations and investments while striving to improve dividend on equity ratio (DOE) over the medium-/long-term, aiming for a DOE level that compares favorably with that of other companies within the same industry in the future.

In contrast, Torii believes that the appropriation of surplus stated in the Shareholder Proposal, the amount of which far exceeds the amount of the appropriation of surplus to be proposed by Torii at the General Meeting of Shareholders, is based on a short-term perspective without consideration of the characteristics of the pharmaceutical business or the need for Torii to conduct proactive business investments. There are concerns about the risk that it will be difficult to achieve results from in- licensing if this proposal is approved; therefore, Torii has determined that it will not lead to increased

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corporate value in the medium-/long-term.

For the above reasons, the Board of Directors opposes this proposal.

2. Repurchase of Treasury Stock

(1) Opinion of the Board of Directors

The Board of Directors opposes this proposal for the reasons stated below.

(2) Reason for Opposition

Torii sees the repurchase of treasury stock as one of the options to return profits to its shareholders. However, as stated in the opinion of the Board of Directors on "1. Appropriation of Surplus" above, Torii believes that it is indispensable for Torii to conduct proactive business investments for acquiring new in-licensed drugs in order to ensure sustainable growth in the future under Torii's current business circumstances, and that Torii must secure adequate cash on hand for that purpose.

Torii believes that a large-scale repurchase of treasury stock as stated in the Shareholder Proposal is based on a short-term perspective without considering the characteristics of the pharmaceutical business or the need for Torii to conduct proactive business investments. There are concerns about the serious risk that it will be difficult to achieve results from in-licensing if this proposal is approved; therefore, Torii has determined that it will not lead to increase of the corporate value in the medium- /long-term.

For the above reasons, the Board of Directors opposes this proposal.

3. Partial Amendment to the Articles of Incorporation (Disclosure of Remuneration for Directors with Representative Authority)

(1) Opinion of the Board of Directors

The Board of Directors opposes this proposal for the reasons stated below.

(2) Reason for Opposition

The Board of Directors has established a decision-making policy with regard to the content of remuneration for each Director, including the Representative Director (the "Decision-Making Policy"), and in accordance with such Decision-Making Policy, etc., remuneration is determined through an appropriate process described below. Independent outside directors now constitute a majority of the Board of Directors, leading to a system to enhance the independence and objectivity of the function of the Board of Directors and accountability of the Board of Directors.

• Remuneration for Directors is determined for each position, and when setting the remuneration level, it is determined in consideration of objective data such as remuneration surveys conducted by external organizations and maintaining a balance with the remuneration level of Torii's employees, etc.
• Remuneration for executive directors consists of monthly remuneration, bonuses, and restricted stock compensation, which are determined according to position. The ratio of monthly remuneration, bonuses and restricted stock compensation are determined as incentives to pursue Torii's sustainable growth and enhance its medium-/long-term corporate value.
• Bonuses for executive directors consist of a portion reflecting individual evaluations and a portion linked to Torii's performance.
• The amount of monthly remuneration and bonus is determined individually based on the
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Decision-Making Policy, and within the range of remuneration approved at the 115th general meeting of shareholders held on June 21, 2007. The determination of the specific amount and timing of payment is at the sole discretion of President and Representative Director Goichi Matsuda; however, to ensure that such determination is made appropriately, each remuneration amount is explained to and approved by the independent outside directors in advance.

• Based on the content approved at the 126th general meeting of shareholders held on March 28, 2018, the Board of Directors determines the specific timing and allocation of the restricted stock compensation to each eligible Director. Since independent outside directors constitute a majority of the Board of Directors of Torii, and since the independent outside directors are not eligible for restricted stock compensation, in determining the specific timing and allocation of restricted stock compensation to each eligible Director, a system has been

established that ensures that the Board of Directors, containing the independent outside directors, makes appropriate decisions in the interest of providing incentives to pursue Torii's sustainable growth and enhance its medium-/long-term corporate value.

In addition, in accordance with applicable laws and regulations, Torii appropriately discloses Directors' remuneration, including an overview of the Decision-Making Policy and the total amount of remuneration for each position and total remuneration by type, including restricted stock compensation, in its business reports and annual securities reports. Accordingly, Torii believes that it discloses sufficient information for shareholders and the stock market to properly assess the performance of Torii's Representative Director and its corporate governance system.

This proposal calls for provisions to be newly established that require the individual disclosure of remuneration for Directors with representative authority; however, such provisions are not aligned with the provisions of the Articles of Incorporation, which constitute the fundamental rules of a company, and given that the amount of Director remuneration is determined through an appropriate process in Torii as described above, and that proper disclosure is made with respect to Director remuneration, in accordance with applicable laws and regulations, Torii believes that this proposal is inappropriate.

Torii's Directors are appointed through an appropriate and transparent process. Specifically, the Representative Director selects persons of excellent personal characteristics who possess the ability and insight to appropriately perform their duties as a Director, formulates a proposal for Director candidates, and, prior to submitting the proposal to the Board of Directors, secures an opportunity to obtain appropriate advice from independent outside directors. Thereafter, ultimately, the final determination is made by a resolution of the Board of Directors, the majority of which consists of independent outside directors. Accordingly, it is incorrect for the Proposing Shareholder to claim that the appointment of some former employees of Japan Tobacco Inc. as officers of Torii is improper.

For the above reasons, the Board of Directors opposes this proposal.

4. Partial Amendment to the Articles of Incorporation (Disclosure of Result of Examination of Fund Management through CMS)

(1) Opinion of the Board of Directors

The Board of Directors opposes this proposal for the reasons stated below.

1. Reason for Opposition
   Given the recent discussions for strengthening corporate governance over the transactions between
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parent and subsidiary companies, and based on the policy to reduce funds managed through CMS (cash management system) to the amount necessary for the purpose of using CMS as a fund settlement account, the balance of Torii's funds in CMS as of December 31, 2022, amounted to 11,217 million yen, a reduction of approximately 52% from 23,362 million yen as of December 31, 2021. In addition, by the end of FY 2023, Torii plans to further reduce the outstanding balance to the extent required in light of the use of CMS as a fund settlement account and taking into account the advantages of using CMS as a fund settlement account (such as reduction of payment fees, exchange contracts at favorable exchange rates, etc.).

In addition, the Board of Directors periodically reviews the status of Torii's fund management, including that handled through CMS, and ensures that Torii's transactions with the parent company, including those conducted through CMS, are properly disclosed in the business reports and annual securities reports in accordance with applicable laws and regulations. Going forward, in light of Torii's policy of using CMS as its fund settlement account, the Board of Directors will periodically check the status of its use and will appropriately disclose Torii's transactions with the parent company that were handled through CMS in accordance with applicable laws and regulations.

This proposal calls for provisions to be newly established in the Articles of Incorporation that require the disclosure of the results of the review of management of cash on hand, which is a discrete matter related to management; however, this proposal is not aligned with the provisions of the Articles of Incorporation, which constitute the fundamental rules of a company, and, as mentioned above, Torii is using CMS appropriately after clarifying the purposes of its use, and given that the Board of Directors, the majority of which consists of independent outside directors, checks the status of the use of CMS and properly discloses such status in accordance with applicable laws and regulations, Torii believes that this proposal is inappropriate.

For the above reasons, the Board of Directors opposes this proposal.

Contact for Torii Pharmaceutical Co., Ltd.: Corporate Planning Department (Public Relations)

Torii Pharmaceutical Co., Ltd. E-mail: [e-mail] Tokyo: [phone]

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