TAIKO PHARMACEUTICAL CO.,LTD.

The majority of net sales consists of three products: Seirogan, Seirogan Toui A, and Cleverin Placement Type. If a quality issue arises, the Company may be forced to discontinue sales or conduct a recall, which could have a material impact on its business performance and financial position. As countermeasures, the Company maintains a robust quality control and quality assurance system based on accumulated know-how, and is expanding its product lineup while avoiding dispersion of research and marketing resources.

The top three customers—Alfresa Healthcare Corporation and PALTAC Corporation in Japan, and Yick Tak Trading Company Limited (Hong Kong) overseas—accounted for approximately 79% of consolidated net sales for the fiscal year under review. Changes in these customers' management policies or deterioration in their financial condition could result in the loss of sales opportunities. As countermeasures, the Company conducts customer management, including regular credit investigations, and continuously considers developing new business partners and new sales channels.

The Company sells Seirogan, Seirogan Toui A, and other products in overseas markets centered on mainland China, Hong Kong, and Taiwan, and is exposed to various country risks including political, economic, legal, cultural, business practice, competitive, and foreign exchange factors. If unforeseeable events occur, this could affect business performance and financial position. As a countermeasure, the Company continuously gathers risk information for each region and takes a cautious and prompt approach to further business expansion.

Seirogan and Seirogan Toui A are manufactured and sold by other companies under identical or similar names, and similar products also exist for Cleverin, so the possibility of consumers mistakenly purchasing similar products cannot be ruled out. Furthermore, if a quality issue arises with a similar product, it could damage the image of the Company's products or cause reputational harm. As countermeasures, the Company is pursuing differentiation through strengthening brand power, continuous launch of new products, and the accumulation and disclosure of evidence.

The Infection Control Business is highly dependent on the infection control market environment, and product demand can change rapidly due to the spread of new infectious diseases or trends in preventive awareness. If demand fluctuates beyond expectations, the Company may temporarily face product supply shortages, excess production capacity, or excess inventory. As countermeasures, the Company is strengthening its supply chain management system to flexibly respond to sudden demand changes, and reinforcing its investment decision-making framework based on long-term demand analysis.

If raw material prices rise sharply, or if the supply of certain raw materials is disrupted and alternative procurement sources cannot be secured, this could lead to deteriorating product profit margins and lost business opportunities, potentially affecting business performance and financial position. As countermeasures, the Company is strengthening and stabilizing its supply system by securing multiple suppliers and engaging in transactions with suppliers with high supply capacity.

Although the Company has established a quality control system and strives to ensure high quality standards, if a serious quality issue leading to a large-scale recall or product liability claim occurs due to unforeseen circumstances, this could affect business performance and financial position. As a countermeasure, the Company has taken out appropriate insurance to prepare for damages arising from product liability attributable to the Company.

In the Pharmaceuticals Business, the Company secures stable earnings centered on Seirogan and Seirogan Toui A, but the emergence of superior products from other companies or price reductions of competing products could affect business performance and financial position. In the Infection Control Business, patented technology and accumulated evidence serve as barriers to entry, limiting competition, but as countermeasures the Company aims to maintain and enhance its competitiveness through strengthening brand power, continuous launch of new products, and the accumulation and disclosure of evidence.

The Pharmaceuticals Business is subject to strict regulation under the Pharmaceuticals and Medical Devices Act, GMP ministerial ordinances, and other laws domestically, as well as equivalent laws overseas (mainland China, Hong Kong, Taiwan), and the Company has obtained the necessary licenses and permits to conduct each business activity. If licenses or permits are revoked due to unexpected violations of laws and regulations, or cannot be renewed, this could have a material impact on business activities. Although no grounds for revocation currently exist, continued maintenance of a legal compliance system is required.

The Company is promoting the use of digital technology and IT to improve business efficiency, and systems handling highly confidential information and personal data are exposed to the risk of unauthorized access and cyberattacks from both inside and outside the Company. If a business operation suspension occurs due to data leakage or system downtime, this could affect business performance and financial position. As countermeasures, the Company selects appropriate security services, establishes regulations concerning information security and confidential information, and conducts regular security training for employees.