Mochida Pharmaceutical Co.,Ltd.

Research and development of pharmaceuticals and other products requires substantial funds and long periods of time, and development may be interrupted or delayed due to unproven efficacy or the emergence of unexpected side effects. This poses a risk that revenue may fall short of initial expectations due to factors such as the occurrence of additional trials and the loss of future sales opportunities. The Group strives to reduce this risk by conducting necessary tests, investigations, and evaluations, as well as implementing appropriate manufacturing and quality control.

If quality issues arise due to manufacturing defects at factories, or if delays or stoppages in raw materials occur due to dependence on supply from specific business partners, this could lead to product recalls, shipment suspensions, stockouts, revocation of licenses, business suspension, or other administrative dispositions. These could have a material impact on operating results and financial condition through decreased sales. The Group seeks to reduce this risk by establishing a quality assurance system that includes requirements for the supply chain and by setting up a procurement management department.

If unexpected side effects occur after products are marketed, this could result in product recalls, discontinuation of manufacturing and marketing, litigation responses, damages, and decreased sales due to loss of credibility, which could have a material impact on operating results and financial condition. The Group works to ensure the reliability of clinical trials and product quality assurance under strict regulations based on pharmaceutical-related laws and regulations, and has taken out insurance covering compensation for side-effect damages.

In the pharmaceutical business, sales of certain core products account for a high proportion of total sales. If sales decline due to the launch and growth of competing or generic products, or if core products are discontinued or recalled due to unexpected side effects, product defects, or supply disruptions, this could have a material impact on operating results and financial condition. The Group seeks to reduce this risk by enhancing the value of its core products based on the latest information regarding drug pricing systems and competitive conditions.

Competition from other companies' products, including generic drugs, is a factor that could reduce sales and profits. In addition, because sales destinations are concentrated among specific wholesalers, there is a risk that receivables may become uncollectible if these wholesalers default. These factors could have a material impact on operating results and financial condition. The Group seeks to reduce this risk by maintaining and enhancing product value and by conducting appropriate credit management.

Business alliances such as joint research, development, and sales, or in-licensing and out-licensing of products, may be terminated for various reasons. Additionally, if invested companies or acquired companies fail to achieve expected results due to poor sales performance or shipment suspensions, revenue may fall short of initial expectations due to the loss of sales opportunities. The Group strives to maintain relationships with alliance partners and to conclude contracts that include risk-mitigating clauses.

The research and development, manufacturing, and sale of pharmaceuticals are subject to regulations under pharmaceutical-related laws and regulations. Tightening of regulations, including measures to promote the appropriate use of healthcare expenditures (such as promoting the use of generic drugs and lowering drug price standards), could have a material impact on operating results and financial condition. In addition, non-compliance with regulations carries the risk of administrative dispositions such as product recalls, revocation of licenses, and business suspension, as well as claims for damages. The Group strives to maintain profitability by establishing a regulatory compliance system and by identifying regulatory changes at an early stage.

If confidential information, personal information, or other data is leaked outside the company due to unauthorized system intrusion or system failure, this could result in litigation responses, damages, decreased sales due to loss of credibility, and loss of future sales opportunities, which could have a material impact on operating results and financial condition. The Group has implemented safety management measures for information protection, including organizational, personnel, physical, and technical measures, and is working to enhance information security.

A deterioration in financial market conditions could result in valuation losses or losses on the sale of held securities, and depending on interest rate trends, retirement benefit obligations could increase. In addition, foreign exchange fluctuations in foreign-currency-denominated transactions, such as the import of products and raw materials, could have a material impact on operating results and financial condition. The Group seeks to reduce this risk through hedging transactions such as forward exchange contracts on some foreign-currency-denominated receivables and payables, and by partially passing on the risk of sudden exchange rate fluctuations through contractual arrangements.

If large-scale natural disasters, accidents, the spread of infectious diseases, or similar events seriously affect factories, research laboratories, branch offices, and other sites, resulting in disruption of business activities—including the suspension or failure of information systems—or the suspension of factory operations or stockouts, this could have a material impact on operating results and financial condition. The Group promotes various measures at each site, including the formulation of business continuity plans that include the stable supply of products to the market, and, in response to pandemics, works to prevent infection among employees and business partners while maintaining a stable product supply system.