Kyowa Hakko Interim Operating Income up 25.2%

Kyowa Hakko Kogyo Co., Ltd. (Kyowa Hakko) (TOKYO:4151) today
announced its consolidated financial results for the interim period of
fiscal 2007 (the six-month period ended September 30, 2007).

Consolidated net sales for the interim period were JPY 192.6
billion, 11.3% higher than in the interim period of the previous
fiscal year. Consolidated operating income was JPY 18.2 billion (up
25.2%) and recurring income was JPY 18.0 billion (up 19.4%).
Consolidated net income was JPY 11.0 billion, an increase of JPY 7
billion (177.2%) compared to the interim period of the previous fiscal
year, which was affected by an extraordinary loss of JPY 6.4 billion.

R&D expenses during the interim period were JPY 18.8 billion, an
increase of 23.7% compared to the first half of the previous fiscal
year, and represented 9.8% of net sales.

Commenting on the results, Yuzuru Matsuda, President and CEO of
Kyowa Hakko said, ´Strong performances by core products and our
success at implementing broad ranging cost reductions under our
mid-term plan strategy, along with a shift in certain R&D and other
costs to the second half of the fiscal year, has resulted in strong
growth in interim operating income, and our forecasts for the full
year remain unchanged.

We have also recently announced our plans to form a strategic
alliance with the Kirin Group and integrate our business with Kirin
Pharma, the pharmaceutical business of the Kirin Group, to form Kyowa
Hakko Kirin that will become a 50.1% consolidated subsidiary of Kirin
Holdings. By leveraging the respective strengths of two of Japan´s
leaders in antibody drug technology-centered biotechnology, Kyowa
Hakko Kirin will aim to provide new medical value and compete globally
as a top-class, R&D based life sciences company. Both groups will
promote the business collaboration arising from this strategic
alliance, enhance competitiveness and management efficiency, and
maximize synergy, and will aim to improve their corporate value
through further development.

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Summary of operating results for the interim period
(Amounts less than 1 million yen have been ignored)
Billions of yen %
-------------------------------------------------
Consolidated results Consolidated results Change
for the period for the period
ended ended
September 30, 2007 September 30, 2006
----------------------------------------------------------------------
Net sales 192.6 173.1 +11.3%
Operating income 18.2 14.5 +25.2%
Recurring income 18.0 15.1 +19.4%
Net income 11.0 3.9 +177.2%
Net income per share JPY 27.77 JPY 9.66 +187.4%
----------------------------------------------------------------------
*T

Segmental performance

In the Pharmaceuticals business, a strong performance from core
ethical pharmaceutical products led to net sales of JPY 68.9 billion,
an increase of 5.8% compared to the first half of last fiscal year.
However, a lump sum payment to ArQule, Inc. following the in-licensing
of anticancer drug ARQ 197 resulted in an increase in R&D expenses
leading to operating income of JPY 9.7 billion, a decrease of 2.4%.

Sales of Coniel, a treatment for hypertension and angina pectoris,
were slightly lower than in the first half of the previous fiscal
year, but sales of both Allelock (olopatadine hydrochloride) an
antiallergic agent, and Navelbine, an anticancer agent, increased.
Meanwhile, Patanol, an antiallergic ophthalmic solution, launched in
October 2006, has penetrated its market and contributed to sales
growth.

As regards income from the licensing-out of technologies and
export of pharmaceutical products, sales of antiallergic agent
Olopatadine hydrochloride that is outlicensed to Alcon, Inc. continued
to perform very well.

In new drug development in Japan, approval for antiepileptic
Topina was acquired in July and sales commenced in September 2007.
Meanwhile, Phase II clinical trials for KW-6002, a treatment for
Parkinson´s disease, and KW-2246, an analgesic for cancer pain, as
well as Phase I clinical trials for KW-0761 as a blood cancer
treatment, and KW-6500, a treatment for Parkinson´s disease, are in
progress.

Overseas, in the U.S. we filed an NDA for the anti-Parkinson´s
agent KW-6002 as a adjunct therapy to levodopa in April, 2007 and
KW-2449, an anticancer agent, is in Phase I trials. In Europe Phase I
trials are progressing for therapeutic antibody KW-0761 as an
antiallergenic treatment and for anticancer agent KW-2478. Meanwhile,
in China, we filed an application for the additional indication of
angina pectoris for Coniel, while Allelock, an antiallergic agent, is
in Phase III trials.

In the Bio-Chemicals business, sales increased 31.3%, to JPY 43.8
billion, while operating income increased 157.4%, to JPY 4.0 billion.
Sales of pharmaceuticals and industrial use raw materials, mainly
amino acids, nucleic acids, and related compounds, demonstrated strong
growth driven primarily by increased overseas demand for amino acids
for pharmaceutical use raw materials and intravenous liquids, and also
by the effects of foreign exchange rates. In addition, Daiichi Fine
Chemical, which became a consolidated subsidiary in June of this year,
benefited from an improved vitamin market and contributed to a strong
performance.

In healthcare products, sales increased over the first half of
last fiscal year supported by factors such as steadily expanding
mail-order sales of the Remake series.

Sales of agrochemicals and products for the livestock and
fisheries industry decreased due to the effects of severe competition
and the effects of low pricing. However, sales of alcohol increased as
efforts to expand sales of industrial-use alcohol bore fruit.

In R&D, focus was placed on research to raise the productivity of
amino acid fermentation production as well as on the integration of
Kyowa Hakko´s existing fermentation technology with Daiichi Fine
Chemical´s synthesis technology in order to develop high value-added
pharmaceutical raw materials and intermediates.

In the Chemicals business net sales increased 11.4%, to JPY 51.0
billion, while operating income increased by 93.6%, to JPY 3.2
billion. In Japan, firm demand underpinned an increase in shipment
volumes, while revisions of core product prices were implemented as a
significant rise in the naphtha and crude oil markets led to a
background of higher raw materials and fuel prices. As a result, sales
showed a large increase compared to the first half of the previous
fiscal year. Export shipment volumes were lower than in the first half
of the previous fiscal year, despite high prices in overseas markets,
as production of certain products declined due to difficulties at
production facilities, and export sales also declined slightly. By
product category, export shipment volumes of high-purity solvents to
the IT industry were slightly lower than in the first half of last
fiscal year due to market inventory adjustments. Sales of specialty
chemicals products were higher than in the first half of last fiscal
year in Japan and overseas, supported by steady growth in core
refrigerant oil raw materials.

In the Food business, sales decreased 0.2%, to JPY 20.9 billion,
while operating income decreased 22.1%, to JPY 0.6 billion. In
seasonings, sales were lower than in the first half of last fiscal
year partly due to the effects of adjustments to production of
seasonal products due to unseasonable weather and sluggish sales of
extract seasonings due to intensifying competition. Sales of Umami
seasonings also decreased slightly as price rises following a sharp
rise in the price of raw materials led to a decline in sales volumes.
In bakery products and ingredients, sales of products such as core
yeasts and flavor enhancers grew and sales of premixes recovered
leading to an increase in sales over the first half of last fiscal
year. In processed foods, sales were slightly lower than in the first
half of last fiscal year, partly as a result of a decrease in OEM
products.

In the Other business segment, sales increased 1.8%, to JPY 24.6
billion, while operating income decreased 1.1% to JPY 0.4 billion.

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Forecasts for the fiscal year ending March 31, 2008(a)
Billions of Yen %
-------------------------------------------------
FORECAST Change compared to
Fiscal Year ending March the previous fiscal
31, 2008 year
----------------------------------------------------------------------
Net sales 395.0 +11.5%
Operating income 36.0 +17.3%
Recurring income 36.0 +16.5%
Net income 26.0 +104.8%
Net income per share JPY 65.35 +108.7%
----------------------------------------------------------------------
These forecasts assume average exchange rates for fiscal 2007 of
JPY117/US$ and JPY158/euro.
*T

In fiscal 2007, the final year of its three-year business plan,
Kyowa Hakko is pursuing future growth by carrying out active
investments while implementing comprehensive cost-cutting measures. We
will also increase investment in marketing to expand sales as we
strive to build the foundations for future profits.

In fiscal 2007, we forecast increases in both net sales and
operating income.

In the Pharmaceuticals business, fiscal 2007 net sales and
operating income are each forecast to increase as sales volumes of
core products, including Allelock and Patanol, continue to grow. We
also expect increased licensing-out of technologies and export of
pharmaceutical products, in particular of Olopatadine hydrochloride.
In the Bio-Chemicals business, core amino acids and nucleic acids and
related compounds are performing well, particularly in overseas
markets and Daiichi Fine Chemical, newly consolidated from this fiscal
year, is also making a large contribution, as a result both net sales
and operating income are forecast to increase. In the Chemicals
business, while we expect a large increase in sales as higher raw
materials and fuel prices lead to higher product prices, operating
income is forecast to decline as difficulties at production facilities
lead to lower shipment volumes. In the Food business, sales are
forecast to increase as we actively utilize solutions-based marketing
and introduce new products resulting in higher sales volumes of
natural seasonings, particularly sauces. However operating income is
expected to decline partly due to higher raw materials prices.

(a)The above forecasts are based on information available and
assumptions made at the time of release of this document about a
number of uncertain factors that can affect results in the future. It
is possible that actual results are materially different for a wide
variety of reasons.

For further information please access:
http://ir.kyowa.co.jp/english/index.cfm

This document is an English translation of parts of the
Japanese-language original. All financial information has been
prepared in accordance with generally accepted accounting principles
in Japan. It contains forward-looking statements based on a number of
assumptions and beliefs made by management in light of information
currently available. Actual financial results may differ materially
depending on a number of factors, including fluctuations in exchange
rates, changing economic conditions, legislative and regulatory
developments, delays in new product launches, and pricing and product
initiatives of competitors.