CHUGAI PHARMACEUTICAL CO., LTD.

Policies to reduce drug prices are being strengthened both domestically and internationally. The FY2026 drug pricing system reform, annual interim-year price revisions, and expanded biosimilar promotion policies pose risks of declining revenue and constrained R&D investment. In addition, changes to U.S. pharmaceutical tariffs and most-favored-nation pricing policies could trigger industry-wide supply chain reviews and exacerbate drug lag/drug loss issues in Japan. In response, the company is continuously developing next-generation products, strengthening intellectual property measures, enhancing product portfolio management, and reinforcing global intelligence functions.

The Group's business is founded on its strategic alliance with Roche, adopting a unique business model that relies on Roche for the sale of Roche products in the Japanese market and for the global expansion of its own in-house products. Changes to the terms of the alliance agreement, a decline in revenue from in-licensed products due to underperformance of Roche's drug discovery and global network, or delays in global market penetration of out-licensed products could have a material impact on business performance. In response, the company is pursuing continuous creation of innovative pharmaceuticals, jointly promoting global development and marketing plans with Roche, and exploring in-licensing opportunities from third parties.

Pharmaceutical R&D always entails uncertainty, including delays or failures in in-house drug discovery and technology development. As the company promotes the use of digital technologies including middle-molecule technology and generative AI, there is a risk that the emergence of disruptive new technologies or innovative competing products could reduce the value of the company's own technologies and projects and necessitate revisions to development plans. There are also risks of intellectual property infringement (both by and against the company), as well as risks of trade secret leakage due to increased external collaboration, which could have a material impact on strategy execution through manufacturing/sales injunctions or large damages claims. In response, the company is pursuing a multi-modality strategy, strengthening external collaboration through Chugai Venture Fund, and reinforcing its intellectual property strategy and information management.

In addition to accelerating penetration of competing products and biosimilars, advances in new modalities such as regenerative medicine, cell/gene therapy, and nucleic acid drugs are changing the value of "treatment," posing a risk of declining market position and product competitiveness, leading to deteriorating revenue. There is also a possibility that rapid changes in customer touchpoints could necessitate a fundamental overhaul of the drug information provision system. In response, the company aims to achieve continuous new drug creation and diversification of its product lineup, efficiency gains through DX promotion, and the establishment of a flexible organizational structure.

Rising tensions between countries, changes in economic security policies, and international conflicts could give rise to risks such as business restrictions or withdrawal in affected regions (loss of production, R&D, and sales sites), supply chain disruptions and delivery delays, and constraints on R&D activities and procurement. Tightening regulations on advanced technologies, sensitive data, strategic materials, and human rights are also increasing the impact on corporate activities. In response, the company is strengthening its systems for timely acquisition of external information and business impact analysis, formulating BCPs, securing safety stock, and reinforcing supply backup systems (dual-site setups).

If concerns arise regarding product quality, this could not only affect patients but also lead to sales suspensions, product recalls, litigation, damages claims, and a loss of social trust, potentially having a material impact on business performance. Furthermore, even with thorough safety measures in place, it is difficult to completely prevent health damage from adverse reactions, and if new serious adverse reactions emerge, measures such as revisions to precautions for use or sales suspension may become necessary. In response, the company is strengthening quality assurance activities across the entire supply chain, including partner companies, expanding continuous post-approval safety monitoring activities, and enhancing information provision systems to promote appropriate use.

If system failures, service disruptions, or data tampering occur due to negligence or intentional acts by employees or outsourcing companies, or due to cyberattacks, this could result in the suspension or delay of business activities and unexpected response costs. In particular, if trade secrets related to R&D or personal information are leaked externally, this could have a material impact on business performance through loss of competitive advantage, loss of social trust, and damages claims. In response, the company is building a monitoring and incident response system through its SOC and CSIRT, formulating a cyber BCP, strengthening access management for confidential information, and establishing a global privacy governance system.

There are risks of delays due to competition for highly specialized talent such as science and digital talent, talent mismatches or shortages/surpluses arising from environmental changes, and impeded innovation creation due to failure to cultivate the desired organizational culture. The company-wide rollout of the job-based personnel system introduced in 2025 is accelerating the placement of the right talent in the right positions, but there is also an anticipated risk of confusion during the system transition period. In response, the company is clarifying and externally disclosing talent requirements, visualizing its talent portfolio and strengthening skill management, implementing strategic recruitment plans, and promoting organizational culture reform to foster innovation.

If natural disasters such as earthquakes, typhoons, or floods, or fire accidents, cause severe damage to buildings and equipment at business sites or business partners, this could have a material impact on business performance through suspension of pharmaceutical supply, equipment repair costs, and reduced revenue due to restricted business activities. In addition, damage to suppliers or delayed response to compliance violations or environmental issues within the supply chain could make it difficult to secure raw materials or continue production, potentially leading to a loss of social trust and a decline in sales and market share. In response, the company has established BCPs and conducts training, secures safety stock, implements earthquake resistance measures, and has introduced a comprehensive third-party risk assessment system for centralized risk management.

Further tightening of environmental regulations could lead to revisions or delays in capital investment plans, increased environmental investment including additional cost recognition, and reviews of the supply chain. Furthermore, if unexpected contamination from hazardous substances becomes apparent, the company could be held liable for remediation costs and damages, potentially having a material impact on business performance. In response, the company is conducting scenario analysis and risk management based on the TCFD and TNFD recommendations, promoting its SBT-certified greenhouse gas reduction targets, and advancing initiatives for climate change, resource circulation, and biodiversity conservation based on its "Mid-Term Environmental Targets 2030."