SHIN NIPPON BIOMEDICAL LABORATORIES, LTD.

If stable procurement of laboratory animals, particularly non-human primates (NHP), becomes difficult in the CRO non-clinical business, this would result in revisions to study plans or reductions in the number of studies conducted. The Company is the only CRO that has established an NHP breeding and supply system within its own group, thereby ensuring a stable procurement structure; however, the risk that supply could be disrupted due to changes in the external environment remains.

Advances in in vitro testing technologies such as Microphysiological Systems (MPS) may reduce the advantage of non-clinical testing using NHP. If the Company is unable to sufficiently differentiate itself from competitors, its market advantage may decline. The Company has newly launched MPS contract services and is responding to alternative technologies, but the risk that changes in technology trends will affect the business continues.

If an infectious disease outbreak occurs at a testing facility, study plans may need to be revised or studies may be temporarily suspended. The Company has established safety and hygiene management systems, including entry/exit control based on GLP standards, at facilities both in Japan and overseas; however, the risk of a sudden outbreak of infectious disease cannot be eliminated.

In the TR business, if the expected efficacy or usefulness of a pipeline product cannot be confirmed and R&D is discontinued, the substantial costs already incurred would become unrecoverable. In addition, if commercialization of a developed product or the establishment of partnerships does not proceed as planned, the timing of expected revenue realization may be delayed and additional costs may be incurred. The current development pipeline consists of new formulations using already-approved active ingredients, and while the efficacy of the active ingredients themselves is assured, the risk regarding confirmation of efficacy as a new formulation remains.

Geopolitical risks and tightening supply-demand conditions for raw materials and energy may make it difficult to procure research reagents, laboratory consumables, and research equipment components. If procurement delays or price increases occur, this may result in revisions to study plans, delays in the start or progress of studies, and increased costs. The Company has implemented measures such as BCP formulation, securing safety stock of critical materials, and diversifying suppliers, but there are limits to countering sudden changes in the external environment.

In the power generation segment of the Medipolis business, there is a risk that steam output from production wells may decay, the hot water reinjection capacity of reinjection wells may decline, power generation equipment may malfunction, or natural disasters such as earthquakes, volcanic activity, and typhoons may occur, resulting in a decrease in power generation or a complete stoppage. The Company implements measures such as regular inspections, preventive maintenance, and scale removal work, but natural disasters and fluctuations in underground resources are difficult to control, and the occurrence of repair costs is also anticipated.

In the event of a cyberattack, ransomware infection, information leakage, or system failure, there are concerns regarding leakage of personal information or trade secrets, restricted access to study data, impacts on study progress due to business system outages, loss of customer trust, and the occurrence of damages liability. The Company has implemented measures such as the introduction of EDR products and a shift to a zero-trust security model, but the risk associated with increasingly sophisticated cyber threats continues.

As the Group has overseas operations, fluctuations in foreign exchange rates—particularly a strengthening of the yen against the US dollar—may adversely affect operating results. In addition, there is a risk that increases in market interest rates could raise interest expense and worsen the financial balance. The Company seeks to mitigate these risks through the use of forward foreign exchange contracts and by procuring the majority of long-term borrowings at fixed interest rates.

If actions are taken in violation of applicable laws and regulations such as animal welfare laws, GLP standards, and GCP standards, this could result in legal penalties, litigation, and social sanctions, leading to a loss of customer trust. The Company thoroughly disseminates its code of ethics and compliance action guidelines to all officers and employees and conducts monthly e-learning training; however, compliance risk remains ever-present given the Company's business operations under diverse regulatory environments globally.

If DX initiatives do not progress, improvements in operational productivity and the creation of added value may be delayed, resulting in a decline in market competitiveness. In addition, if the securing and development of DX personnel does not progress, the DX promotion initiatives themselves will be delayed. The Company has established a dedicated AI team and conducts e-learning-based DX personnel development training, but competition in the market for digital talent is intense, making it highly challenging to secure such personnel.