Nxera Pharma Co., Ltd.

Pharmaceutical research and development requires long-term, substantial investment from basic research through to obtaining approval, while the probability of success is extremely low compared to other industries, and this may have a material impact on the Group's financial position and business results. As countermeasures, the Group is creating multiple candidate compounds using its proprietary platform technology, expanding its pipeline through joint research with other companies and in-licensing of development compounds, and diversifying risk through partner diversification.

The Group is subject to regulation at each stage of research, development, manufacturing, and sales under the pharmaceutical affairs laws and administrative guidance of each country, and if safety and efficacy data are not obtained as expected, regulatory approval may not be obtained as planned, making it difficult to launch products or out-license technology. Major future changes in pharmaceutical regulations could also have a material impact on the Group's financial position and business results. As a countermeasure, the Group has established a governance structure to identify trends in regulatory revisions at an early stage in cooperation with partners and to make rapid decisions.

The Group has adopted M&A as one of its business expansion management policies, and if the expected effects are not achieved, this may have a material impact on the Group's financial position and business results, including the recognition of impairment losses of up to ¥25,838 million in goodwill and ¥49,230 million in intangible assets. As a countermeasure, the Group conducts due diligence using external experts and comprehensively verifies consistency with its medium-term business strategy, business value, and synergies.

The pharmaceutical business requires substantial research and development expenses, and if agile fundraising cannot be achieved due to deterioration in market conditions or other factors, the Group may be forced to review its research and development structure and plans, which may have a material impact on its financial position and business results. As of the end of the fiscal year under review, the balance of cash and cash equivalents was ¥20,365 million, and the Group aims to reduce this risk by regularly reviewing multiple fundraising methods, including new share issuance, bond issuance, establishment of commitment lines, and trade receivables factoring agreements.

Major pharmaceutical and biopharmaceutical companies regularly review their business strategies in order to maintain competitiveness, and the impact of such reviews may have a material impact on the Group's financial position and business results. Intensifying competition in research, development, manufacturing, and sales also poses similar risks. As a countermeasure, the Group strives to maintain good relationships with partners and conclude appropriate contracts, while minimizing the impact on business results in the event of termination of a partnership by researching and developing multiple profitable products.

There is a risk that pharmaceutical products may cause side effects from the clinical trial stage through to post-marketing, and if this develops into product recalls, discontinuation of manufacturing and sales, or drug-related litigation, it may have a material impact on the Group's financial position and business results. Product liability in cases where products do not meet quality and safety standards could also have a serious impact. As a countermeasure, the Group has established a system for collecting and evaluating safety management information domestically and internationally in cooperation with partner companies and sales agents, as well as a system for reporting to regulatory authorities, and mitigates risk through appropriate insurance coverage.

Due to the Group's global business operations, foreign currency-denominated transactions exist in connection with licensing transactions with overseas companies and overseas research and development activities, and if sharp exchange rate fluctuations materialize, this may have a material impact on the Group's financial position and business results. As a countermeasure, the Group has established a monitoring system that reports currency-denominated deposit balances and foreign exchange gain/loss analysis to the Board of Directors monthly, and manages fluctuation risk through the appropriate purchase of settlement currencies or the conclusion of forward exchange contracts.

If the out-licensing of development compounds cannot be carried out on the planned schedule or becomes difficult, or if appropriate sales channels cannot be secured domestically and internationally, or if price reductions occur due to drug price revisions, this may have a material impact on the Group's financial position and business results through a decline in revenue. As a countermeasure, the Group utilizes external experts and develops internal personnel, has established a compliance department, and monitors domestic and international healthcare policy and market trends.

In July 2023, the Group acquired subsidiaries in Japan and the APAC region (excluding China) from Idorsia, expanding the scale and scope of its business, and if problems occur in the transition measures, integration activities, or execution of the business plan, this may have a material impact on the Group's financial position and business results. As a countermeasure, the Group has established a management structure in which multiple executive officers are appointed as directors of the subsidiaries, and the Board of Directors and Audit Committee regularly monitor, guide, and advise on the management situation; integration activities are largely complete.

The Group's business activities depend on management, department heads, and other personnel, and if the Group is unable to secure and develop human resources as planned due to a tight labor market, this may affect business activities and business results. As a countermeasure, the Group is working to improve its working environment and enhance employee training by introducing flexible working arrangements such as a super-flex system and remote work, conducting exchanges and training with internal and external experts, and maintaining a comfortable office environment.