NIPPON CHEMIPHAR CO., LTD.

Since fiscal year 2021, drug price revisions have come to be implemented even in the interim years between regular revisions, causing drug price reductions for the products handled to proceed at a faster pace than before. Reviews of the medical insurance system aimed at containing healthcare costs are also being carried out in parallel, and depending on the content of such system changes, there is a possibility of a direct impact on the business results of the Group. The Company has indicated a policy of closely monitoring trends in drug pricing system reform and the medical insurance system and reflecting them in its management strategy.

If the expected efficacy or safety is not obtained in clinical trials for new drugs, the development period may be extended, suspended, or discontinued. Even when clinical trials are successful, subsequent out-licensing negotiations may be prolonged or fail to reach agreement, raising concerns about the impact on business results. For Generic Drugs as well, since development investment is made several years prior to the planned launch date, if the products cannot be launched and monetized as expected, this may affect the Company's financial results and other matters.

Amid difficulty in securing profits due to annual drug price reductions, there are cases where the market prices of competitors' products are reflected in the following year's drug prices, and there are also cases in which competition with medical institutions and dispensing pharmacies forces down the prices of the Company's products. Although the Company strives to sell its products while securing an appropriate profit margin, price declines resulting from intensifying competition may affect the Group's business results.

The diagnostic reagent market is highly competitive and the pace of technological innovation is rapid, creating a risk that the Group's in-vitro diagnostic reagents could lose market competitiveness due to the launch of new products by competitors. If such a decline in competitiveness occurs, it may affect the Group's business results.

If a deficiency in the manufacturing process—including at raw material suppliers or contract manufacturers—causes a quality problem in the final product, this could result in suspension of manufacturing, product recall, or discontinuation of sales, making it difficult to provide appropriate medical care to patients. Although the Company conducts periodic audits based on GQP and GMP ministerial ordinances and annually checks the consistency between approval documents and actual manufacturing conditions, should a problem occur, it could give rise to a risk to social trust and affect business results.

There is a risk of unexpected side effects or health hazards occurring with proprietary (brand-name) pharmaceuticals, in-vitro diagnostic reagents, and quasi-drugs, which could necessitate suspension of manufacturing, product recall, or discontinuation of sales. Although the Company strives to properly implement safety assurance measures in accordance with the GVP and GPSP ministerial ordinances, should a problem occur, it could give rise to a risk to social trust and affect business results.

In addition to regulatory issues, manufacturing troubles, disasters, and transportation accidents at suppliers or in manufacturing countries, heightened geopolitical risk in the Middle East region—raising raw material prices, tightening energy supply, and disrupting transportation routes—may affect procurement and logistics. Since it may be difficult to procure substitute products, this could impact business results; the Company strives to manage supply chain risk through appropriate inventory control of critical raw materials and multi-sourcing of active pharmaceutical ingredients.

If product manufacturing is halted or delayed due to equipment failure, technical or regulatory issues, fire, earthquake, or other disasters, this may affect the Group's business results. The Company operates two domestic plants and one overseas plant and works to diversify risk by standardizing manufacturing equipment and establishing a backup system across multiple plants, although complete substitution in the event of an emergency is not guaranteed.

The Group is subject to regulation under the Act on Pharmaceuticals and Medical Devices, etc. and related laws and regulations. If a violation of laws occurs with respect to manufacturing and marketing licenses or other matters, the relevant regulatory authority may impose administrative dispositions such as business suspension or license revocation, which could affect business results. Furthermore, if a legal violation occurs, it could lead to a decline in social trust and brand image and give rise to damages claims; accordingly, the Company has taken measures such as establishing the "Nippon Chemiphar Group Code of Conduct for Compliance" and strengthening compliance education and internal audits.

In addition to the possibility of litigation being filed concerning product quality, side effects, environmental matters, or labor issues, there is a risk that patent litigation may be filed by manufacturers of proprietary (brand-name) products in connection with the sale of Generic Drugs and in-vitro diagnostic reagents. Although the Company sells its products after conducting thorough investigations regarding patents and other matters, if litigation arises, it may affect the Group's business results and other matters.