KISSEI PHARMACEUTICAL CO., LTD.

The research and development of new drugs, from discovery through approval and launch, requires substantial expense and a long time horizon, and it is not possible to reliably predict the discovery of useful compounds, the demonstration of efficacy for drugs under development, or the timing of regulatory approval. In addition, for compounds and products licensed out overseas, progress may not proceed as expected due to the business condition or portfolio changes of the licensee, or regulatory requirements in the licensed territory. Should these risks materialize, they may have a material impact on medium- to long-term business performance.

In Japan, drug cost containment measures, including annual drug price revisions, continue to be implemented to address the declining birthrate and aging population, constituting a structural risk that directly pressures pharmaceutical manufacturers' earnings. Should fundamental reform of the healthcare insurance system or stricter regulation proceed in the future, this may further affect business performance and financial condition. The Company continuously monitors regulatory trends under the Risk Management Committee.

Marketed pharmaceuticals face competition from other companies' drugs with similar indications, as well as price competition from generic drugs launched after the patent expiration of originator products. Generic entry may substantially reduce sales of existing products, and the patent status of core products directly affects business performance. This competitive pressure poses a risk of continuously eroding the earnings base of existing products.

Unknown adverse reactions that could not be identified during the development stage may emerge after a drug is marketed, and if unexpected side effects or serious adverse events are confirmed, this may lead to restrictions on use or discontinuation of sales. If sales are discontinued, this would result not only in the loss of sales for the product concerned but also in a decline in corporate credibility. The Company has established a post-marketing safety management system and strives for early detection of such risks.

Although the Company has established a manufacturing and quality control system compliant with the latest laws, regulations, and guidelines, if a quality issue occurs, product recall and other responses may be required, which could affect business performance and financial condition. Product recalls entail not only direct costs but also brand damage and lost sales opportunities.

If the Group is unable to adequately protect its intellectual property rights, its competitive advantage may be undermined by unauthorized use of its technology by third parties. Conversely, if the Group's business activities infringe on the intellectual property rights of third parties, there is a risk of disputes, damages claims, or business suspension. Patent-related disputes have a particularly significant impact in the pharmaceutical industry and can become an issue affecting business continuity.

If cyberattacks or other incidents disrupt information systems, or if personal information or confidential information is leaked or disclosed, this may affect business performance and financial condition through a decline in social trust. The Company works to prevent information leaks through the establishment of internal regulations and employee education and training, but unexpected incidents cannot be entirely eliminated.

If the Group's business locations or business partners are affected by natural disasters such as earthquakes or typhoons, pandemics, regional conflicts, or other events, disruption of the supply chain may cause business activities to contract or stagnate, resulting in losses of time and money. The Company implements measures prioritizing the safety of employees and the stable supply of products in accordance with its risk management regulations, but the impact of a widespread disaster could be severe.

For business-use assets, an impairment loss may be recognized if future investment recovery is no longer expected, and for investment securities and similar assets, an impairment loss may arise due to fluctuations in market price or deterioration in the net assets or business plans of unlisted companies. The Group conducts evaluations each quarter in accordance with Group accounting policies, but there is a risk that the impact on business performance may become apparent in the event of a sudden change in market conditions.

If chemical substances used in the research and manufacturing processes of pharmaceuticals are determined to be a cause of surrounding environmental pollution, this may affect business performance and financial condition due to legal action or costs incurred for environmental restoration and improvement. The Company actively pursues environmental conservation activities, including promoting the ISO14001 environmental management system and reducing CO2 emissions through the use of 100% renewable energy electricity, but this also entails the risk of increased costs to comply with tightening regulations.