Pharmarise Holdings Corporation

Dispensing sales are governed by drug pricing standards and dispensing fee schedules under the Health Insurance Act, with annual drug price revisions implemented every year since Reiwa 1 (2019). The most recent revision rate was -4.67% (on a drug cost basis) as of April Reiwa 6 (2024), and future revision content could directly affect earnings. The Group is working to diversify its revenue structure by promoting the acquisition of the interpersonal service fee add-on and the regional support system fee add-on, but it is difficult to completely avoid risks arising from institutional changes.

Healthcare systems, including the Health Insurance Act, are frequently revised, and revisions unfavorable to chain pharmacies have continued, including reviews of evaluations for pharmacies located in front of medical institutions, reductions in the basic dispensing fee for large chain pharmacies, and tightening of regulations on on-site pharmacies. In May Reiwa 7 (2025), a partial amendment to the Act on Pharmaceuticals and Medical Devices was promulgated, and institutional changes are also planned to promote business model transformation, such as partial outsourcing of dispensing operations and remote management and sale of over-the-counter drugs. Depending on these developments, the Group's business model and financial results could be affected.

Operating the Dispensing Pharmacy business requires numerous licenses and permits, including pharmacy establishment permits and designation as an insurance pharmacy, as well as a narcotics retailer license and a license to sell highly controlled medical devices. There is a risk of revocation due to failure to renew licenses by their expiration dates or violations of laws and regulations. The Group has not been subject to business suspension or revocation to date, but given its scale of 401 stores (as of May 31, Reiwa 7 (2025)), thorough license management is required across all stores. Should such a disposition be imposed, the resulting suspension of operations at the affected store would directly affect financial results.

With active M&A activity, the balance of interest-bearing debt expanded from ¥9,140 million in FY2023 (ending May 2023) to ¥14,280 million in FY2025 (ending May 2025), and the ratio of interest-bearing debt to total assets reached 44.7%. Six loan agreements with financial institutions include financial covenants related to maintenance of net assets, ordinary income/loss, EBITDA multiples, and net leverage ratios, and breach of these covenants could make it difficult to continue financing. The Company currently believes the risk of breaching these covenants is low, but there is a risk that future interest rate increases or deteriorating business conditions could materialize an impact on the Company's financial position.

The Group is actively pursuing M&A to secure economies of scale, having executed 48 M&A transactions in FY2024 (ending May 2024) and 56 in FY2025 (ending May 2025), rapidly expanding the number of stores. Although due diligence is conducted prior to acquisitions, if unexpected problems arise after an acquisition, or if plans are not achieved due to changes in the business environment, impairment of goodwill may become necessary, which could affect financial results and financial position.

Under the Act on Pharmaceuticals and Medical Devices, all dispensing pharmacies are required to have pharmacists assigned, and securing pharmacists and registered sales clerks is a common challenge across the industry. If the Group is unable to secure necessary personnel when needed, it could delay new store opening plans or hinder the operation of existing stores. The Group currently meets staffing standards at all stores, but with the rapid expansion of stores through M&A (a total of 104 transactions in FY2024 and FY2025, ending May 2024 and May 2025), demand for personnel has increased, raising the risk of difficulty in securing staff.

The majority of the Group's fixed assets are used in store operations, and there are some unprofitable stores and partially idle assets. The Group verifies recoverability through future cash flows based on the "Accounting Standard for Impairment of Fixed Assets," but if measures such as revenue enhancement efforts, cost reductions, closures, and sales do not progress as planned, additional impairment losses may be recognized. As the scale of target assets increases with the expansion of store numbers through M&A, the risk of a larger impact on financial results is also increasing.

Dispensing errors pose a risk directly linked to patients' lives and health. The Group has implemented countermeasures including the introduction of error prevention systems at all stores, multi-person checking systems, establishment of an "Error Prevention Committee," and enrollment of all stores in pharmacist liability insurance. However, should a serious dispensing error occur, it could damage the Group's social credibility and lead to litigation and damages, thereby affecting financial results.

In its dispensing operations, the Group acquires and stores large amounts of patients' personal information, and the group company Kotobuki Data Bank Co., Ltd. also manages medical records such as patient charts. The Company has established a Personal Information Protection Committee, obtained pledges from all employees, and developed guidelines, while Kotobuki Data Bank has obtained Privacy Mark and ISMS certifications. Should personal information be leaked due to an accident or criminal act, it could damage the Group's social credibility and result in damages, thereby affecting financial results.

The separation of dispensing from prescribing has been promoted as national policy, but the growth rate of this separation has slowed in recent years, and a future decline could lead to a shrinking market for the Dispensing Pharmacy business. In addition, intensifying competition for new store locations may make it difficult to secure sites that meet the Company's store-opening criteria, and there is also a risk that relocation or closure of the primary referring medical institution after opening a store could prevent achievement of planned sales. The Group has executed a total of 104 M&A transactions in FY2024 and FY2025 (ending May 2024 and May 2025), expanding the number of stores to 401, but a deterioration in market conditions would directly affect financial results.