GNI Group Ltd.

The successful development of drug candidate compounds in the clinical trial stage and the obtaining of approval from government authorities are prerequisites for the Group's generation of revenue and achievement of sustained profitability. There is no guarantee that approval will be obtained, and regulatory requirements and the content of required clinical trial data may change during the course of clinical development. The Group has committed substantial human and financial resources to the development of its existing candidate compounds, and failure in development would have a material impact on the continuity of its business.

Because major consolidated subsidiaries GYRE Pharmaceuticals, Cullgen, BAB, and BB are based in China and the United States, the Group is subject to country risk, foreign exchange risk, and political risk. Changes in the policies, regulations, and laws of these two countries could impose constraints on management strategy and business activities. There is also a risk that disruptions to the international supply chain could impede the manufacture, sale, and distribution of pharmaceuticals and medical devices.

Ongoing new drug development and technological advancement in the pharmaceutical industry could render the Group's existing products obsolete or less competitive. If the Group's research and development is found to lag behind that of competitors, this could result in decreased revenue, weak selling prices, and reduced market share, materially and adversely affecting operating results and profit margins. Future development is highly dependent on the improvement of existing products and the development and market acceptance of novel, price-competitive products.

The Group operates globally and may become subject to litigation, legal proceedings, and investigations by authorities in various countries. If large monetary compensation orders or unfavorable decisions are rendered, this could have a material impact on the Group's financial position and operating results. In addition, China's pharmaceutical industry is subject to strict government oversight and control, and regulatory changes could constrain business activities.

Patents and other intellectual property rights related to the Group's products may become subject to opposition or invalidation. Disputes over patent infringement or trade secret leaks are costly regardless of the outcome, and if the Group's intellectual property rights are infringed, this could have a material adverse effect on individual products, product lines, or the entire business. Although the Group files patent applications with due care in accordance with its fiduciary duties, litigation risk cannot be entirely eliminated.

Product quality issues can arise from factors beyond the Group's control, including manufacturing equipment failures, human error, misconduct by third parties, and raw material quality issues. Although quality control management systems and standard operating procedures have been established, it is difficult to completely eliminate mistakes, defects, or breakdowns. When manufacturing capacity is expanded in the future, ensuring quality consistency between existing and new facilities will be a challenge, and resolving quality issues could incur substantial costs.

Following M&A transactions undertaken to expand business and enhance corporate value, changes in the business environment or deterioration of the competitive landscape may prevent the Group from achieving the profitability and synergies originally anticipated. As a result, the Group may need to recognize impairment losses on goodwill or intangible assets recorded through acquisitions, or the deterioration of the acquired business's performance could affect the Group's operating results and financial position.

When raising external funds necessary for growth investments such as research and development spending and M&A, changes in market conditions or a decline in creditworthiness could make it difficult to secure timely and sufficient financing terms. Issuance of new shares or bonds with stock acquisition rights would dilute existing shareholders' interests, while financing through interest-bearing debt carries the risk of increased interest expenses due to rising interest rates. Failure to raise funds would directly impede the execution of the Group's business plans.

CEO Dr. Luo Yin plays a central role in devising and executing corporate strategy and R&D strategy, and the loss of his contributions, along with those of other management and key personnel, would have a material adverse effect on the Group's business, financial position, and operating results. The Tokyo head office is small in scale and relies on a limited number of key employees for day-to-day operations, creating organizational vulnerability. In addition, competition for talent with pharmaceutical companies, universities, and research institutions could lead to rising personnel costs and difficulty securing the specialized human resources needed.

As the Group expands globally, it faces cyber threats such as hackers, malware, and viruses, and the leakage, misuse, or deletion of confidential information could result in business disruption, financial losses, reputational damage, legal sanctions, and other adverse effects. Inaccuracy or incompleteness in the large volumes of data handled in research and development poses a risk of leading to erroneous decisions, and there is also a risk of unauthorized access to personal information. Although measures such as firewalls and multi-factor authentication have been implemented, there is no guarantee that all cyberattacks can be prevented, and compliance with data management regulations in each region remains an ongoing challenge.