SEIKAGAKU CORPORATION

The Group is subject to legal regulations in Japan and overseas countries concerning the quality, efficacy, and safety of pharmaceuticals and other products, and trends in the healthcare system and administrative policies, including revisions to related laws and drug price standard revisions, may have a material impact on business performance. While the Group continuously monitors regulatory trends and strives for early detection and response, the content and timing of amendments are not something the Group can determine, and it recognizes that estimating the impact in advance is difficult.

The development of prescription pharmaceuticals requires a long period from basic research to manufacturing approval and substantial research and development expenses, but there is a risk that products may not reach market launch, and there is a possibility that revenue commensurate with previously recorded research and development expenses may not be recovered. The Group strives to diversify risk by advancing multiple development pipelines, but recognizes that uncertainty in new product development may have a material impact on business performance.

Since the Group's core products, prescription pharmaceuticals and medical devices, are sold through exclusive distribution agreements with sales partners, limiting the sales channels, changes in transaction terms due to changing circumstances may have a material impact on business performance. The Group recognizes that it is difficult to estimate the impact should this risk materialize, and the risk of sales channel concentration exists constantly.

Prescription pharmaceuticals and medical devices carry the risk of unexpected side effects occurring from the clinical trial stage through post-marketing, and this could lead to delays or discontinuation of clinical trials for products under development, or discontinuation of sales or product recalls for already approved products, potentially having a material impact on business performance. Regarding the joint function improving agent Joicle, multiple cases of shock and anaphylaxis have been reported, and a safety alert has already been issued; if further confirmation of serious side effects occurs in the future, sales revenue may decline. The Group continues safety monitoring activities and the collection and analysis of adverse events, but recognizes that quantitative estimation of the impact is difficult.

The manufacturing of prescription pharmaceuticals and medical devices requires raw materials that need regulatory approval, and some of these are sourced from a single supplier, creating a risk of disruption to product manufacturing if procurement becomes difficult due to changing circumstances. While the Group seeks to minimize impact by maintaining appropriate raw material and product inventories, the degree of impact varies greatly depending on the availability of alternative sourcing and procurement lead times, making advance estimation difficult.

Many of the Group's products use animal-derived ingredients such as chicken, shark, and horseshoe crab as raw materials, and business performance may be affected if usage restrictions or procurement difficulties arise. At the CITES international conference in November 2022, a species of shark became subject to regulation, requiring permits for overseas exports; however, there is currently no impact on transactions with existing customers, and the Group strives to minimize risk through supplier diversification, inventory holding, and the launch and development of products using fermentation-derived raw materials and genetically modified organisms.

In the fiscal year under review, the ratio of overseas sales was 61.7% (excluding royalties), and since many transactions are denominated in foreign currencies such as the U.S. dollar, sharp fluctuations in exchange rates may affect business performance. The Group seeks to mitigate risk by allocating foreign currency to research and development expense payments such as overseas clinical trials and through forward exchange contracts, but recognizes that it is difficult to avoid all risks, including the impact of translating the local currency-denominated financial statements of overseas consolidated subsidiaries into yen.

If patent rights and other intellectual property cannot be obtained, if their validity or exclusivity is denied, or if they expire, this may have a material impact on business performance. The Group also conducts investigations to prevent infringement of third-party intellectual property rights, but disputes related to intellectual property rights may also affect business performance, and the Group recognizes that it is difficult to quantitatively estimate the impact of any future materialization of this risk.

The Group holds a large amount of confidential information, including personal information, and business performance may be affected if system failures, external cyberattacks, or negligence by employees or third parties result in system outages, data tampering, or information leaks. The Group addresses this through appropriate investment in strengthening information systems and internal education and email drills to raise information security awareness, but complete elimination of the risk remains difficult.

The increasing frequency and severity of weather-related disasters due to climate change may affect business activities, and future introduction of carbon taxes and other measures due to rising average temperatures may increase raw material costs, affecting business performance. The Group identifies risks, response measures, and impact assessments based on TCFD and discloses this information, but in the event of a large-scale natural disaster, substantial costs for facility repairs and disruptions to product supply may occur, and the Group recognizes that quantitative estimation of the impact is difficult.