1. Review of the First Year of the Value Creation Plan 2027: Promising Progress Towards Sustainable Growth
In fiscal year 2025, the first year of the Value Creation Plan 2027, we made steady progress as planned on three key initiatives: implementing structural reforms to strengthen the profit base, improving portfolio management, and focusing on Diagnostics & Life Sciences.
To achieve our vision for 2030, we have established two phases: Phase 1, which will continue until fiscal year 2027, when we will build the foundations for growth, and Phase 2, which will end in fiscal year 2030, when we will achieve sustainable growth. We consider building a lean and agile organization that can compete as a system, rather than simply cutting costs, to be an achievement of this first year.
Key Initiative 1. Structural Reform to Strengthen the Profit Base
The first key initiative, structural reforms to strengthen the profit base, prioritizes optimization of costs, locations, and organizations across the Group and aims to improve profits by JPY 8 billion to JPY 12 billion over the three-year period ending in fiscal year 2027. In fiscal year 2025, profit improvement effects of JPY 3.1 billion were achieved, making steady progress.
This achievement is the result of progress in initiatives implemented in each domain. In the Diabetes Management domain, we achieved improvement effects of approximately JPY 900 million. We consolidated packaging operations that were previously distributed across multiple sites at a single location, brought packaging and other work that had been outsourced in-house, and negotiated prices for materials with suppliers. The integration of warehouses, optimization of transportation routes to customers, and adoption of common product platforms increased efficiency in design, manufacturing, and procurement, all contributing to reducing costs.
The Healthcare Solutions domain achieved improvements of approximately JPY 600 million. We made progress in optimizing procurement, including changing and consolidating suppliers for reagents and consumables used in LSI Medience’s testing, conducting competitive bidding, and changing suppliers for Wemex’s hardware devices. In addition, we reduced fixed costs and advanced structural reforms through the relocation and consolidation of business sites.
In the Diagnostics & Life Sciences domain, we achieved profit improvements of approximately JPY 1.6 billion. In the pathology business, we reduced manufacturing costs by bringing manufacturing in-house and improving processes. In the biomedical business (now the Life Sciences Business Unit), we changed suppliers for materials and switched to lower-cost materials. In addition, we lowered fixed costs by streamlining organizations, including integrating Japan sales organizations and standardizing global back-office operations.
What we kept in mind as we implemented these structural reforms is that we are not seeking to simply reduce costs, but to build competitive structures. We created the Smart Spend program to break down organizational silos and leverage the Group’s global scale. The program initially focused on the procurement of indirect materials, with each business unit adopting standardized methods, and has already achieved meaningful cost reductions. Going forward, we plan to expand the scope to include the procurement of direct materials. In this way, we have created a framework that can maximize our strengths while making organizations leaner and stronger.
Key Initiative 2. Improve Portfolio Management
The second key initiative is improving portfolio management. PHC Group is clarifying the positioning of each business based on growth potential and return on invested capital (ROIC), and strategically pursuing a strategy of selection and concentration.
First, PHCbi (now part of the Life Sciences Business Unit) is a growth business that drives growth through continued investment, and we are investing in the cell and gene therapy (CGT) field and the life sciences field with a focus on building the foundations for growth over the medium to long term. We are making strategic investments to develop nurture businesses into growth businesses. We transferred the continuous glucose monitoring (CGM) business (discussed below), and improved the profitability of the manufacturing departments of Epredia while investing in digital pathology. We also integrated PHCbi and PHC IVD and unified Japanese sales organizations in the Life Sciences Business Unit and streamlined corporate organizations. This reorganization is helping to realize synergies including more effective use of resources.
The Diabetes Management segment, a foundational business that strengthens existing business foundations and maintains stable earnings, improved profitability by capturing market share in Europe, implementing unit price improvement measures in the U.S., and increasing operational efficiency. Wemex continues to launch cloud products and capture medical DX demand and is working to strengthen cash generating capability by integrating businesses and implementing structural reforms with Wemex Healthcare Systems (WHS). Also, LSI Medience, a restructuring business for which we are exploring business reorganization including external partnerships and the use of outside capital, profitability has improved, ISO certification has been reacquired, and business restructuring is progressing steadily. This fiscal year, we are reviewing the business foundations of Mediford, including updating management structures.
Among these developments, the most significant was the transfer of the CGM business, which had been positioned as a nurture business. In last year’s Integrated Report, we reported that we were strengthening CGM sales and that Eversense® 365, launched two years ago, was a highly differentiated product with growing user numbers, although not at the levels that we initially anticipated. As part of the portfolio management improvement process, we examined return on investment (ROI) and found that achieving growth would require further investment. A second issue is that while our Diabetes Management segment is a mass-market business that supplies hospitals and pharmacies, Eversense required an implantation procedure which in turn required highly specialized systems and infrastructure involving direct interaction with doctors and patients. This departed substantially from our core BGM business model, and therefore, after comprehensively considering the issue from these perspectives, we concluded that uniting the business within Senseonics, which has an integrated and specialized structure spanning development, manufacturing, and sales, would maximize the product value and would be the optimal course of action for the company from the perspective of investment efficiency. Based on this, we decided to transfer the business. The result was an improvement in overall consolidated profitability.
Key Initiative 3. Focus on Diagnostics & Life Sciences
The third key initiative is to focus on Diagnostics & Life Sciences and leverage the precision technologies that are the Group’s strength. Our goals for 2030 and beyond are to be an innovator in cancer diagnostic solutions that enables more accurate, timely, and simpler diagnoses and to act as an accelerator and enabler of advanced cancer treatments, facilitating their early adoption.
To achieve this goal, we adopted an approach in the Value Creation Plan 2027 to strengthen business foundations in Phase 1 (through fiscal year 2027), create domain solutions in Phase 2 (through fiscal year 2030), and expand solutions through new businesses from fiscal year 2030 onward. In fiscal year 2025, we optimized our manufacturing sites as one aspect of strengthening business foundations. For example, we transferred the assembly work for some Epredia products, which had been performed in the UK, to PHC Indonesia, a manufacturing site with a 35-year history, improving both cost competitiveness and supply stability. We also transferred PHCbi CO2 incubator production from Indonesia to our site in China as a strategic response to policies favoring domestic production in China, thereby establishing a structure that will contribute to expanding sales in the Chinese market.
We also strengthened R&D, which is responsible for producing next-generation technologies. In July 2025, we established Diagnostics & Life Sciences Domain R&D and in April 2026 expanded this initiative as Core Technology Laboratory (CoreTech Lab), which handles technology development for the entire Group. With a slogan of “Healthcare with Precision - Invent the Core, Create the Future,” the lab is advancing technological innovation across PHC Group. CoreTech Lab will continue to focus on the Diagnostics & Life Sciences domain, while seeking to expand research areas over the long term in the Diabetes Management and Healthcare Solutions domains as well, ultimately building a corporate R&D organization that contributes to each business, building development sites from a global perspective and driving development across all business domains. Joint projects are already underway with the Institute of Science Tokyo, and we are accelerating the pace of development through external collaboration.
At the same time, we are navigating challenges in expanding our growth areas. While we are making steady progress on business foundations, expanding into new areas brings new challenges. In particular, we are strengthening our product lineup related to cell and gene therapy (CGT), and although there is some overlap with existing products in terms of customers, the specialized knowledge required is different. It is essential that we strengthen technical sales personnel who can converse on equal footing with experts in fields different from our existing products and who have the ability to leverage the specialized knowledge and technical capabilities of our existing products. While strengthening our so-called last-mile sales structure, which directly impacts customer purchasing intent, we also need to focus on how to strategically address the current U.S. market environment with reduced research-related demand due to lower government funding, until the U.S. once again becomes a tailwind.
3. Preparing for Next Growth: Fiscal Year 2026 Business Targets and Transformation of the Business Architecture
In fiscal year 2026, we will continue to steadily carry out the Value Creation Plan 2027. In terms of business performance, the improvement effects of structural reforms and improved portfolio management are steadily emerging, and we expect profitability to improve significantly. At the same time, looking ahead to where we will generate growth under the next three-year mid-term management plan, our priority will be to build systems that can guide us to growth areas.
In the Diabetes Management segment, we will seek to maintain stable foundations in developed countries and sustain stable cash-generating capacity by streamlining organizations and improving operational efficiency in response to shrinking markets. As a result of the transfer of the CGM business, we are currently focusing on our core strength in BGM, but by leveraging the Group’s market access and strengths, we will continue to search for new growth opportunities.
In the clinical diagnostics business, we will pursue further improvement of profitability through price increases and by strengthening genetics-related fields. Also, in the CRO business, we will seek to improve utilization rates by strengthening order-taking activities.
In the healthcare IT solutions business, in response to the shift toward cloud computing and current policy trends, we will seek to expand the sales of Medicom Cloud, our cloud-based EMR system launched in fiscal year 2025, and also develop a cloud-based system for dispensing pharmacies. Japan’s current healthcare system is centered on treatment, but we can see that social interest is shifting toward preventive healthcare. Now that digital utilization makes it possible to achieve personalized preventive healthcare, we will seek to leverage this development as an opportunity and develop services that support health management into a new pillar of growth.
In the pathology business, we will prioritize the transformation of the existing model centered on consumables, such as glass slides and reagents, toward the digital pathology domain, where AI may be applied and scan data are archived. We will continue improvements targeting this growth market, including updating our sales and marketing organizations, launching new products, and optimizing production systems.
In the Life Sciences business, we will leverage our newly integrated organizational capabilities to expand sales in the cell and gene therapies field using our LiCellGrow™ automated cell expansion system and LiCellMo™ live cell metabolic analyzer. We also plan to expand sales of in vitro diagnostic reagents and instruments.
What I see as a Group-wide issue as we implement these initiatives is reframing our business to meet evolving needs. Until now, we have been conducting business in an era where quality products can succeed on their merits, but added value in current markets is shifting to software and data. This means we need to transform our outstanding technologies into reliable profit and customer value. I believe that strengthening our organizational capability to build and deliver end-to-end businesses based on market value is an essential step toward our next phase of growth.
4. Outlook for 2030 and Message to Readers: Co-Creating Joyspan
Last year, I discussed the pursuit of both sustainability and innovation and valuing our base businesses while incorporating new technologies. This strategy remains today.
I have been paying close attention to the concept of “joyspan” advocated by U.S. gerontologist, Dr. Kerry Burnight. This is the idea of extending the period in which one feels richness from the small joys of daily life and connections with others. In other words, it refers to extending one’s emotionally fulfilling and happy life span. I personally believe that true richness can be achieved only when the heart is fulfilled, not through physical health alone. Looking to the future, as a global healthcare group, I see a new potential goal of maximizing people’s joyspans.
Burnight identifies four ways to extend one's joyspan: Grow, by stepping outside one's comfort zone and continuing to develop; Connect, by building relationships with society and other people; Adapt, by responding flexibly to changing environments; and Give, by contributing to others. These four points align closely with the four values set by PHC Group: Curiosity, Courage to Act, Respect and Collaboration, and Integrity.
Healthcare professionals, who are among our stakeholders, have worked diligently under demanding conditions including long working hours. To extend the joyspan of our stakeholders, including healthcare professionals and customers, we ourselves must have a deep understanding of its importance and approach it with a sense of openness. This means that each and every employee must go outside their comfort zones and achieve personal growth. It also means co-creation by teams and continuously returning value to customers while adapting to change. I am confident that it is this chain of action and the sense of fulfillment of employees in their work that will be the source from which our next innovations will be created.
PHC Group seeks to be an organization that first expands this circle, starting with its employees, and continuously provides to stakeholders the time to feel richness in their heartsーthat is, joyspan. I request your continued support and guidance.