Qol Holdings Co., Ltd.

The pharmacy business and pharmaceutical business are subject to a wide range of laws and regulations, including the Pharmaceuticals and Medical Devices Act, the Health Insurance Act, and the Worker Dispatching Act. If the Company is unable to obtain required permits, registrations, designations, or licenses, or if legal violations or amendments to laws occur, business performance may be affected. Because the scope of regulation is extensive, there is a risk that a single legal amendment could impact multiple business segments simultaneously.

Dispensing sales consist of drug ingredient fee revenue and technical fee revenue, both of which depend on dispensing fees and drug prices set by the Ministry of Health, Labour and Welfare. Ongoing phased revisions aimed at curbing national medical expenditure continue, and reductions in fee points or amounts directly affect the profitability of the pharmacy and pharmaceutical businesses. If a consumption tax rate revision is not reflected in drug prices, the profitability of the pharmacy business subsidiaries, which ultimately bear the consumption tax on purchases, would be further squeezed.

Under Article 19 of the Pharmacists Act, dispensing operations are restricted to licensed pharmacists, and ministerial ordinances require the assignment of one pharmacist per average of 40 prescriptions handled per day. If the Company is unable to secure the necessary headcount due to a decline in new hires or an increase in resignations, store operations may be disrupted, potentially affecting business performance. The tight supply-demand balance for pharmacists is a structural issue across the industry, and recruitment competition is expected to intensify.

Fixed assets, goodwill, and business rights acquired through new store openings, M&A, and the acquisition of pharmaceutical sales rights may become subject to impairment losses if expected returns are not achieved as planned, which could materially affect business performance. As the Company continues its business expansion strategy, the balance of these assets tends to increase, heightening the risk from changes in the economic environment or competitive landscape.

The Company relies in part on borrowings from financial institutions to fund its operations, and factors such as an economic downturn, deterioration in financial markets, rising interest rates, a decline in creditworthiness, or worsening business performance could make it difficult to raise funds on desired terms. If fundraising is constrained, it could hinder the execution of growth investments, including new store openings and M&A, affecting business performance and expansion plans.

Given the nature of the pharmacy business, the Company holds large volumes of personal information including patients' prescription data, and any leakage could lead to a loss of social trust and liability for damages. While the Company is advancing the construction of a zero-trust model to counter cyberattacks, the increasing sophistication of threats makes complete defense difficult. The Company has established a personal information protection policy and basic personal information protection regulations to develop its management framework.

If a dispensing error occurs, it could result in substantial damages from litigation and damage to social credibility, potentially affecting business performance. While the Company has implemented measures such as thorough internal training, the introduction of dispensing error prevention systems, and the collection of case data via its internal intranet, eliminating risk entirely remains difficult. As the number of pharmacy stores expands, the volume of dispensing transactions requiring oversight also increases.

In the pharmaceutical business, the occurrence of unexpected side effects or quality defects could lead to sales suspensions or product recalls, potentially affecting business performance. In addition to the cost burden associated with product recalls, the loss of sales opportunities due to brand damage is also anticipated. While the Company states that it takes thorough care in managing pharmaceuticals, specific details of countermeasures have not been disclosed.

Delays or stoppages in the procurement of raw materials and goods or in manufacturing activities, or changes in contractual terms with manufacturing subcontractors, could make product supply difficult, potentially affecting business performance. For pharmaceuticals whose manufacturing and sales are outsourced, there is also a risk dependent on the financial condition and quality control of the outsourcing partner. Supply chain disruption due to external factors such as geopolitical risk or the spread of infectious diseases is also anticipated.

If trends in the separation of medical and pharmaceutical practice, which has been promoted as national policy, were to change, it could affect the number of prescriptions received, which forms the foundation of the pharmacy business. In addition, if the spread of a serious infectious disease causes patients to avoid medical visits or leads medical institutions to restrict outpatient care, this could also reduce the number of prescriptions and affect business performance. These risks stem from the external environment, and there are limits to what the Group can address on its own.