Kyowa Hakko Interim Operating Income Up 18.4%

Kyowa Hakko Kogyo Co., Ltd. (Kyowa Hakko) (TOKYO:4151) today
announced its consolidated financial results for the interim period of
fiscal 2006 (the six-month period ended September 30, 2006).

Consolidated net sales for the interim period were mainly affected
by the ending of the distribution agreement for antimycological agent
Itrizole and reductions in pharmaceutical prices and declined to JPY
173.1 billion, 2.4% lower than in the interim period of the previous
fiscal year. A strong performance from core pharmaceutical products
and a decline in personnel costs and R&D expenses led to operating
income of JPY 14.5 billion (up 18.4%) and recurring income of JPY 15.1
billion (up 5.2%). Consolidated net income was affected by
extraordinary losses, including losses on the sale of subsidiaries'
shares and asset impairment losses, and declined by 47.5% to JPY 3.9
billion.

R&D spending during the interim period was JPY 15.2 billion, a
decline of 6.4% compared to the first half of the previous fiscal
year, and represented 8.8% of net sales, 0.4 percentage points less
than in the first half of last fiscal year.

Commenting on the results, Dr. Yuzuru Matsuda, President of Kyowa
Hakko, said, "A strong performance by core pharmaceutical products,
along with our success at reducing costs, has resulted in strong
growth in interim operating income. The operating environment remains
challenging but for the full-year we expect to increase operating
income in our core Pharmaceuticals business, and to record
double-digit growth in consolidated operating income. In fiscal 2005,
the first year of our business plan, we exceeded our operating income
target and we expect to do so again in fiscal 2006."

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Summary of operating results for the interim period

Billions of yen %
-----------------------------------------------
Consolidated Consolidated Change
results for the results for the
period ended period ended
September 30, 2006 September 30, 2005
---------------------------------------------------------------------
Net sales 173.1 177.3 -2.4%
Operating income 14.5 12.3 +18.4%
Recurring income 15.1 14.3 +5.2%
Net income 3.9 7.5 -47.5%
Net income per share JPY 9.66 JPY 17.95 -46.2%
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Segmental performance

Net sales in the Pharmaceuticals business were JPY 65.1 billion, a
decline of 16.3% compared to the first half of last fiscal year, but
lower R&D expenses and cost reductions led to operating income of JPY
9.9 billion, an increase of 37%. Despite strong volume growth in core
products, sales were affected by a large fall in sales of
antimycological agent Itrizole after the ending of a distribution
agreement in March 2006 and pharmaceutical price cuts introduced in
April 2006. Operating income benefited from lower R&D expenses and
reduced costs. Sales of prescription pharmaceuticals such as Coniel, a
treatment for hypertension and angina pectoris, and Allelock
(olopatadine hydrochloride), an antiallergic agent, were lower than in
the first half of last fiscal year but sales of Durotep Patch, an
analgesic for persistent cancer pain, and Navelbine, an anticancer
agent, each increased. In the licensing-out of technologies and export
of pharmaceutical products, sales of antiallergic agent Olopatadine
continued to perform very well.

In new drug development in Japan, Bothdel (MM-Q01), the contrast
medium for MRI, received approval in April 2006 and sales commenced in
September, while the antiepileptic KW-6485 is currently in the NDA
application stage. Kyowa is also carrying out clinical trials in Japan
on KW-6002, an anti-Parkinson's disease treatment and KW-2246, an
analgesic for cancer pain. Overseas, KW-6002 has completed Phase III
clinical trials in North America and Europe as an anti-Parkinson's
treatment and we are aiming for its early approval as a new drug. In
North America, KW-6002 is undergoing Phase II clinical trials for
Restless Legs Syndrome and cancer treatment KW-2449 is in Phase I
trials. In Europe, therapeutic antibody KW-0761 is currently in Phase
I clinical trials as an antiallergic agent, while in China, Phase III
clinical trials are underway for Allelock, an antiallergic agent, and
for additional indications for Coniel as a treatment for angina
pectoris.

In the Bio-Chemicals business, sales increased 17.6% to JPY 33.3
billion, while operating income decreased 8.1% to JPY 1.5 billion,
reflecting increased price competition and higher raw material and
fuel prices. Sales volumes of pharmaceuticals and industrial materials
including amino acids, nucleic acids, and related compounds increased
despite being affected by intensified price competition in domestic
and overseas markets and sales increased compared to the first half of
last fiscal year. In Japan, raw materials for generic pharmaceuticals
were boosted by changes to the medical insurance system and
contributed to sales growth. In healthcare products, sluggish demand
for domestic beverage-use amino acids continued; however, mail-order
sales of the Remake series grew strongly and sales in overseas markets
of amino acids used as dietary supplements showed growth, while
overall sales remained similar to the first half of last fiscal year.

In the Chemicals business, sales increased 11.2% to JPY 45.8
billion, while operating income was affected by higher raw material
and fuel prices and increased distribution costs and decreased 13.5%
to JPY 1.6 billion. Domestic shipment volumes declined somewhat but
increases in product prices reflecting the higher price of raw
materials and fuels led to a large increase in sales compared to the
first half of last fiscal year. Export shipment volumes were lower but
strong overseas demand for plasticizer raw materials and others led to
a small increase in sales compared to the first half of last fiscal
year. By product category, sales of high-purity solvents to the IT
industry were strong and specialty chemicals products recorded sales
growth in Japan and overseas, driven by a strong performance from core
refrigerant oil raw materials.

In the Food business, sales increased 0.3% to JPY 20.9 billion,
while operating income decreased 5.7% to JPY 0.8 billion. In
seasonings, sales of natural seasonings including fermented seasonings
and customer-specified extract-type seasonings were higher than in the
first half of last fiscal year. Sales of Umami seasonings also
increased leading to higher overall sales of seasonings.

In the Other business segment, sales decreased 7.3% to JPY 24.2
billion, while operating income decreased 6.6% to JPY 0.4 billion.

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Forecasts for the fiscal year ending March 31, 2007(a)

Billions of Yen %
-----------------------------------------------
FORECAST Change compared to
Fiscal Year ending the previous fiscal
March 31, 2007 year
----------------------------------------------------------------------
Net sales 353.0 -0.1%
Operating income 29.0 +13.6%
Recurring income 29.0 +2.8%
Net income 12.0 -26.3%
Net income per share JPY 30.14 -21.4%
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In fiscal 2006, the second 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 2006, we expect net sales to remain at a similar level
to last fiscal year due to a decline in sales of antimycological agent
Itrizole (fiscal 2005 sales: JPY 21.5 billion) following the
termination of a distribution agreement in March 2006. Operating
income and recurring income are each forecast to increase, to JPY 29
billion, driven by a strong performance by core products and
contributions from new products, along with declines in R&D expenses
and personnel costs, while net income is forecast to decline to JPY
12.0 billion.

(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.