Carna Biosciences, Inc.

Cash and deposits at the end of the fiscal year under review stood at only ¥516 million, and it has been determined that an event exists that raises material doubt about the going concern assumption, as internal funds may be insufficient to cover the research and development funds required for conducting clinical trials in the subsequent fiscal year and beyond. As a countermeasure, on February 17, 2026, the Company effectively raised ¥1,496 million through the issuance of the 2nd unsecured straight bonds (total amount ¥1,850 million), stock acquisition rights with exercise price adjustment provisions, and new shares; however, if the exercise of the stock acquisition rights does not proceed as planned due to share price trends, a funding shortfall may occur. The Company is concurrently pursuing the acquisition of upfront payments through license agreements and securing operating cash flow from the Drug Discovery Support Business, but these funding inflows remain uncertain, and material uncertainty continues to exist.

Research and development of new drugs requires a long period and substantial investment, and there is a risk that development may be discontinued or postponed from the standpoint of efficacy and safety. Manufacturing and marketing approval must be obtained through strict review by regulatory authorities in each country, and if approval is not obtained or the product cannot be launched on schedule, the Company may be unable to recoup its research and development investment, which could have a material impact on business performance and financial condition. The same risk applies to pipelines out-licensed by the Company.

Because the business model involves substantial upfront investment in research and development funds, if revenue from the Drug Discovery Support Business and the Drug Discovery Business is insufficient, the Company may raise funds through the issuance of new shares or similar means. If the stock acquisition rights with exercise price adjustment provisions issued on February 17, 2026 (potential shares of 7,698,300) are exercised, the value per share will be diluted. The exercise price is adjusted in line with 90% of the share price level, and in a share price decline scenario, it may fall to the lower limit exercise price of ¥216.5.

Under the model in which drug discovery pipelines out-licensed to pharmaceutical companies and others are developed by the licensee, with the Company receiving milestone and royalty income, if the licensee changes its management strategy resulting in a change to the development schedule or a discontinuation of development, this may affect the Company Group's business results. In addition, if a competing product equal to or superior to the drug candidate compound under out-licensing negotiation is created by another company, or if the counterparty's evaluation falls short of expectations, the out-licensing schedule and the success of the negotiations may be affected.

The Drug Discovery Support Business specializes in products and services related to kinase proteins, and if research and development of kinase inhibitors by pharmaceutical companies and others declines, or if the outsourcing market does not expand as the Company expects, the Company may be forced to change its business policy or its business performance may be affected. In addition, because pharmaceutical companies' research departments are the main customers, there is also a risk that orders may not be placed as scheduled due to changes in customers' research themes and other factors.

If difficulties arise in procuring the measurement equipment used for the Profiling Service and screening services (SCIEX's BioPhase 8800), consumables, Promega's assay kits, and other items, the provision of services may be affected. The LabChip® EZ Reader from Revvity, previously used, ended support at the end of 2024, and an alternative service using the BioPhase 8800 was already launched in May 2024. In addition, if the partnership relationships with Oncolines, SARomics, IniXium, and AssayQuant change, business performance may also be affected.

The overseas sales ratio remained high, at 68.8% in FY2024 (ending December 2024) and 70.8% in FY2025 (ending December 2025), with both revenue and expenses recorded in foreign currencies such as the US dollar and euro. In addition, since operations related to clinical trials are outsourced to overseas CDMOs and CROs, significant fluctuations in exchange rates may affect business performance.

In the Drug Discovery Business, if the Company Group is unable to obtain patents as expected due to prior patent applications by third parties, or if patent infringement lawsuits are filed against the Company, its business policy and business performance may be affected. In the Drug Discovery Support Business as well, if technical know-how becomes obsolete due to technological innovation or is preemptively secured as rights by third parties, the Company's competitive advantage may be undermined; furthermore, if patent infringement lawsuits are filed regarding products sold or services provided, the Company may be required to halt sales or pay substantial damages.

The Company's headquarters and research and development functions are concentrated at the Kobe Biomedical Center (BMA) on Port Island in Kobe City, and if the Company sustains severe damage from a large-scale earthquake, typhoon, storm or flood damage, or other natural disaster, the destruction of research and development facilities and the disruption of business activities could have a material impact on business results and financial condition. As countermeasures, the Company implements dual storage of kinase genes and backups at a separate location, distributes protein product inventory to the US subsidiary CarnaBio USA, Inc., and maintains casualty insurance coverage; however, the risk remains that, in the event of a prolonged power outage, kinase proteins in frozen storage could be inactivated or service delivery could be delayed.

Since business operations are conducted by a limited number of personnel, the Company relies heavily on the specialized knowledge, skills, and experience possessed by its directors and employees, and the departure of such personnel may affect operations. In addition, if kinase protein manufacturing technology, assay development technology, or other technical information leaks outside the Company due to personnel turnover, the Company's technological advantage may be undermined by the emergence of imitation products, and if customer compound information entrusted to the Company for the Profiling Service and screening services is leaked, this could lead to a loss of trust. Furthermore, the fact that the Company itself conducts drug discovery research may raise concerns among customers regarding the assurance of confidentiality, which could result in deteriorating service profitability or force the Company to spin off certain operations.