Fuso Pharmaceutical Industries, Ltd.

As part of healthcare cost containment measures, drug price reductions for prescription drugs and policies promoting the use of generic drugs continue, which may have a material impact on the Company's business performance. In addition, if authorizations or permits from the relevant regulatory authorities are revoked, product recalls or discontinuation of sales could occur. The Company strives to ensure legal compliance through regular training and the establishment of an internal whistleblowing system, but the risk cannot be completely eliminated.

The development of pharmaceuticals requires substantial management resources and a long period of time, but if efficacy or safety fails to reach the level required for approval, it may become difficult to recover invested capital due to abandonment of development or the need for additional trials. Delays in bringing products to market may also affect business performance. The Company seeks to improve efficiency through selection and concentration based on a multifaceted evaluation process, but the risks inherent in research and development cannot be completely eliminated.

Kindaly (Dialysis Solution for Artificial Kidney), the core product of the Pharmaceuticals Business, operates in a severely competitive market. Although the Company holds the top market share, if the market environment changes beyond expectations due to the emergence of innovative products or treatment technologies, this may have a material impact on business performance. The Company is promoting the development of new dialysis solutions, reduction of manufacturing costs, and expansion into new fields and new businesses, but the structural dependence on specific products continues.

If unexpected side effects are confirmed after a product is launched, product recalls or discontinuation of sales could result in decreased sales, the burden of recall costs, and significant damage to brand image. The Company has taken out insurance related to product liability, but there is no guarantee that insurance payments will be made in all cases. Because the Company mainly handles basic pharmaceuticals such as Kindaly (Dialysis Solution for Artificial Kidney) and Infusion Solutions & Injectables, the likelihood of this risk materializing is considered relatively low, but it is not zero.

If plant operations are suspended due to natural disasters such as earthquakes, pandemics, accidents, or other causes, this may seriously impede the stable supply of basic pharmaceuticals. The Company has implemented measures such as dispersing manufacturing bases between eastern and western Japan, establishing product storage warehouses in various regions, and setting up committees based on stable supply manuals, but events with a wide-ranging or long-term impact may not be fully addressed by these measures.

The Company may be subject to lawsuits related to intellectual property infringement, violations of the Product Liability Act, environmental pollution, labor issues, fair trade practices, and other matters. If the Company loses such lawsuits, substantial damages may arise, which could have a material impact on business performance and social trust.

Increasingly sophisticated cyberattacks, improper handling of information by officers and employees, and system deficiencies may result in the leakage of personal or confidential information or the shutdown of critical systems. Costs for investigating causes, restoring systems, and rebuilding security, as well as opportunity losses from business suspension and payment of damages, may have a material impact on business performance and financial condition, and there is also concern about damage to brand image and loss of social trust. The Company is advancing thorough information management and security measures through training and other initiatives, but the risk cannot be completely eliminated.

If the supply chain is disrupted due to accidents, disasters, geopolitical risks, or other factors, this may impede the manufacturing and sale of products, having a material impact on business performance and financial condition. The Company has secured multiple suppliers for major raw materials, and in October 2025 newly established a Supply Chain Management Office to optimize and strengthen management of the entire supply chain.

To fulfill its responsibility for stable supply, the Company maintains inventory levels sufficient to respond to unexpected demand, but if sales volume trends fluctuate, inventory valuation losses or disposal losses may occur. The Company strives for appropriate inventory management through production planning based on demand forecasts, but the risk cannot be completely eliminated.

The recoverable amount of certain investments is measured using value in use (the discounted present value of estimated future cash flows), and if key assumptions such as selling price, market size, market share, or discount rate change, impairment losses may occur. In addition, if the price of held securities declines, valuation losses on investment securities may also arise.