PRISM BioLab Co.,LTD

Pharmaceutical development requires a long period and substantial investment from the start of research through approval, yet the probability of successful commercialization is markedly lower than in other industries. There are risks that development may be discontinued due to efficacy or safety issues, or that approval may not be obtained due to changes in approval review standards. Development delays would require additional investment, and shortening of the remaining patent term could result in the expected returns not being realized. As a countermeasure, the Company has organized a Scientific Advisory Board and has established a development promotion framework through prior consultations with regulatory authorities.

Expanding and maintaining the drug discovery platform and conducting in-house development require substantial R&D expenditures. Currently, investment in in-house development and indirect expenses exceed revenue from collaborative development, resulting in continuous operating losses and negative operating cash flow. If the Company is unable to secure funding at the necessary time or on appropriate terms, there is a risk of material concern regarding business continuity. As countermeasures, the Company is considering adjusting up-front investments, executing early fundraising, and diversifying funding methods including financial institution loans and commitment lines.

As the market for the Company's peptidomimetic small-molecule technology expands, the competitive environment may intensify due to increased entry by major domestic and overseas pharmaceutical companies and biotech ventures. If competitors, backed by abundant management resources, advance their R&D ahead of the Company, the Company's competitive advantage may decline, potentially requiring more funding than anticipated. The Company strives to expand new partnerships through regular communication with multiple prospective partners.

The Company's basic business model is to out-license new drug candidate compounds to major pharmaceutical companies and others to earn milestone and royalty income, and it has concluded out-licensing agreements with Eisai and Ohara Pharmaceutical. If clinical trial results are unfavorable or the cooperative relationship with partner companies is impaired, initially planned revenue may decrease, and expected returns may not be realized. As a countermeasure, the Company strives to expand new partnerships through regular communication with multiple prospective partners.

The Company's revenue model is based fundamentally on upfront payments, milestone income, and royalty income. Because pharmaceutical development takes a long time and income from pharmaceutical companies depends heavily on research and development progress, revenue recognition tends to be irregular and unstable. Delays in R&D progress or changes in the development policy of licensing partners could affect the Company's business results and financial position. As a countermeasure, the Company aims to smooth out revenue through a hybrid business model combining in-house development and collaborative development.

Although the Company has synthesized numerous scaffolds mimicking helical structures and implemented extensive patent measures, it cannot be ruled out that well-funded major pharmaceutical companies may in the future synthesize compounds with novel structures or similar compounds that fall outside the scope of patents. Should this occur, it could affect the Company's business strategy and business results. The Company seeks to reduce this risk by continuing to file extensive patent applications.

In Japan, healthcare cost containment measures such as biennial drug price reductions and the promotion of generic drug use are typically implemented, and pressure to reduce drug costs is increasing year by year in Europe, the United States, Asia, and elsewhere. If the drug prices for the Company's products fall below expectations or demand declines, this could have a material adverse effect on the Company's business, financial position, and business results. The Company is examining its business strategy while closely monitoring drug price trends.

The pharmaceutical business is subject to various regulations including pharmaceutical affairs laws and product liability rules, and the enactment or revision of such regulations could materially affect business results. The current pipeline is at the research and development stage, and approvals from the Ministry of Health, Labour and Welfare, the FDA, the EMA, and other authorities have not yet been obtained. Failure to comply with regulations could result in risks such as administrative sanctions, product recalls, revocation of licenses, and claims for damages. As a countermeasure, the Company is securing personnel with experience in pharmaceutical development and commercialization, both internally and externally, and is working to establish a framework for advancing its programs.

As of the end of the fiscal year under review, the Company has a small-scale organization with fewer than 50 employees, and its business activities are highly dependent on a small number of key personnel, including Representative Director Dai Takehara and Director and Head of R&D Heeman Park. If the Company is unable to secure and develop personnel smoothly, or if key personnel leave, this could disrupt business activities and materially affect the Company's business results and financial position. As countermeasures, the Company is working to strengthen its internal structure through instilling its corporate philosophy, fostering an open and dynamic organizational culture, and new hiring.

As of the end of the month preceding the filing date, the number of potential shares from stock acquisition rights was 3,489,900 shares (equivalent to 9.5% of the total issued shares of 36,916,000 shares), and the exercise of these rights could dilute the share value and voting ratio of existing shareholders. In addition, the Company may flexibly raise funds through capital increases or other new share issuances in connection with future expansion of R&D activities, which poses a risk of further dilution of per-share value. The Company may continue to issue and grant stock acquisition rights in the future to secure talented personnel.