MEDINET Co., Ltd.

In addition to insufficient recovery following the sharp decline in sales of the cell processing business due to changes in the immune cell therapy market environment, cumulative development expenditures for the regenerative medicine products business have resulted in continuing operating losses and negative operating cash flow, creating a risk of doubt about the company's ability to continue as a going concern. At fiscal year-end, cash on hand (on a current-asset basis including cash and deposits and securities) stood at ¥3,170,097 million (sic, per the original in thousand-yen units: ¥3,170,097 thousand), and the company judges that there is no near-term concern regarding cash flow; however, if operating cash flow does not improve, additional fundraising will be required. The company has identified expansion of contract processing and acquisition of CDMO projects in the cell processing business, optimization of the manufacturing structure to restore profitability, and early approval of regenerative medicine products as countermeasures.

Of net sales of ¥810,291 thousand in FY2025 (ending September 2025), sales to Iryo Hojin Shadan Koshikai accounted for ¥446,859 thousand (55.1% of net sales), indicating an extremely high degree of dependence on a single client. If the relationship with this medical corporation deteriorates, or if there is a decrease in the number of patients or closure of the facility, this could have a direct and material impact on the company's business results. The company currently states that the two parties maintain a close and stable relationship, but disclosure of specific measures to reduce this dependence is limited.

The company positions obtaining manufacturing and marketing approval for regenerative medicine products as its next earnings pillar, and continues to make upfront investments substantially exceeding net sales, with R&D expenses reaching ¥452,488 thousand (55.8% of net sales) in FY2025 (ending September 2025). If clinical trials fail to produce the expected results, or if manufacturing and marketing approval cannot be obtained, the company may be unable to recover its substantial investments, which could materially affect its business results. The company has adopted a policy of prioritizing development of promising and highly probable seeds, but the success or failure of R&D is inherently uncertain.

The establishment of the Act on the Safety of Regenerative Medicine and the Act on Pharmaceuticals and Medical Devices has led multiple companies to enter the regenerative medicine field with similar business models, intensifying competition. In addition, if insurance-covered new drugs developed by major pharmaceutical companies, such as immune checkpoint inhibitors, molecularly targeted drugs, and gene therapies, become widespread, demand for immune cell therapy could be substituted. Loss of competitive advantage or substitution of the core business could affect the company's business results.

The company operates its business having obtained a license as a specified cell processing product manufacturer under the Act on the Safety of Regenerative Medicine and a manufacturing license for regenerative medicine products under the Act on Pharmaceuticals and Medical Devices; however, if there are unexpected regulatory tightening or changes in the stance of relevant authorities, response costs could arise and affect business results. In addition, if new countermeasures are required in the course of the operation of the Act on the Safety of Regenerative Medicine, the very form of compensation for cell processing manufacturing could change. Enactment of new laws or regulations poses a similar risk factor.

While the company ensures quality in the cell processing process based on standard operating procedures (SOPs), if processed products failing to meet quality standards are shipped due to human error, equipment failure, contamination or deterioration of culture media or reagents, this could damage the company's credibility. There is also a risk that disasters such as earthquakes or fires could develop into serious accidents. If the specified cell processing product manufacturer license and the regenerative medicine product manufacturing license held by the Shinagawa CPF are revoked, this would directly hinder business continuity.

Amid a succession of new entrants into the regenerative medicine field, if competition for talent within the industry intensifies, it may become difficult to secure cell processing engineers. The company has its own system for developing cell processing engineers, but if outflow of skilled personnel occurs, maintaining the quality control system could become difficult, affecting business results. Loss of personnel also poses a risk to the maintenance of licenses for cell culture processing facilities.

Immune cell therapy is not covered by health insurance, and the total treatment cost for one course is approximately ¥2 million, a high amount; however, since a standard price level has not been established, processing fees may be revised in line with changes in treatment cost levels. If intensified competition due to numerous new entrants into the regenerative medicine field triggers price competition, this could affect the company's business results. There is also a risk that changes in the operation of the Act on the Safety of Regenerative Medicine could change the very form of compensation for cell processing manufacturing.

The company faces the risk of cyberattacks causing suspension of internal network and system operations, as well as the risk of leakage of employee and business partner information and confidential technical and business information. While the company has strengthened its detection functions, monitoring systems, and information security incident response systems, and implemented measures such as internal regulations and employee training, it recognizes that complete prevention is difficult. If an information leak occurs, this could lead to loss of credibility and affect business results.

Since regenerative medicine is a new technology, if serious side effects or other damages occur at other companies or institutions, the image of regenerative medicine as a whole could deteriorate, potentially leading to a decrease in the number of patients. Even if the issue is not the company's own, it could suffer reputational damage affecting the entire industry, and a decrease in the number of patients would directly affect business results through a decline in the number of contracted cell processing cases. While the company does not necessarily consider this a business risk, it discloses this proactively from the perspective of providing information to investors.