Otsuka Holdings Co., Ltd.

In Japan, periodic drug price reductions and the promotion of generic drug use are progressing, and in the U.S., a key market, attempts to introduce direct price negotiations for originator drugs and Most Favored Nation (MFN) pricing under the Inflation Reduction Act are underway; future trends in healthcare cost policy may materially affect business performance and financial condition. In response, the Group conducts ongoing monitoring of value demonstration for new drugs and administrative policy developments, while promoting the provision of products and services that address social issues under the concept of Total Healthcare.

The development of pharmaceuticals, medical devices, and similar products requires substantial R&D investment and a lengthy approval process; delays or discontinuation of development due to unconfirmed efficacy or safety in clinical trials may shorten the exclusive marketing period, result in failure to achieve revenue commensurate with R&D expenses, and lead to lower profit margins due to reduced facility utilization or impairment losses on assets. In response, the Group has designated psychiatric/neurological, oncology, cardiovascular/renal, and autoimmune areas as priority areas, and is reducing risk by enhancing its pipeline, improving the probability of development success, and expanding development items through external licensing, among other measures.

If unexpected serious side effects occur with pharmaceuticals, medical devices, or similar products, responses such as discontinuation of development, discontinuation of sales, revision of package inserts, or recalls may be required, potentially affecting revenue and overall development plans. In response, the Group has established a global safety management system compliant with the EMA's GVP, the ICH E2 series, and WHO guidance, and conducts the collection, evaluation, and prompt reporting of safety information under globally unified procedures.

If deficiencies occur in the manufacturing processes of raw material suppliers, in-house plants, or contract manufacturers, resulting in quality problems with final products or legal violations, this may destabilize product supply due to recalls or suspension of sales, make it difficult to provide appropriate medical care to patients, and materially affect business performance and financial condition through a decline in brand value and trust. In response, under the "Otsuka Group Quality Policy," the Group is strengthening its quality system based on ICH Q10 and conducting regular verification and evaluation of contract manufacturers and raw material suppliers based on strict audit standards.

If system failures, accidents, external cyberattacks, or negligence by employees or outsourcing partners cause business interruption or the alteration, misuse, or leakage of information, this may materially affect business performance, financial condition, and social credibility. In response, the Group has established the "Otsuka Group Global Information Security Policy," and is promoting improvement of security levels across the Group through Group-wide security assessments, the establishment of CSIRTs at each company, annual escalation drills, and the organization of a "Group Information Security Committee."

Heightened geopolitical tensions, including changes to economic security laws and tariff policies among countries and regions, and logistics restrictions caused by international conflicts, may impact profitability and the supply chain and cause sharp fluctuations in foreign exchange markets, potentially materially affecting business performance and financial condition. In response, the Group conducts close monitoring of political, economic, and social conditions in each region, diversifies procurement sources and supply bases for key raw materials, hedges using derivatives such as forward foreign exchange contracts, and continuously updates its BCP.

If the holding company's governance fails to sufficiently exercise effective allocation of management resources, Group strategy formulation, and monitoring and supervision of Group companies, or if fundraising cannot be carried out as planned or fundraising costs rise due to changes in the global economic environment, this may materially affect business performance and financial condition. In response, the Group has established a Group management framework based on the "Otsuka Group Global Code of Business Ethics" and the "Affiliated Company Management Regulations," and is working to maintain good relationships with financial institutions, diversify fundraising methods, and build a Group-wide cash pooling system.

If the business environment changes after the implementation of various business alliances and acquisitions, the originally anticipated business effects may not be achieved, potentially materially affecting business performance and financial condition through impairment losses on goodwill and intangible assets. In response, the Group conducts due diligence and valuation of target companies and assets, makes decisions following thorough deliberation by the Board of Directors, and conducts ongoing monitoring and utilizes external experts after alliances or acquisitions are implemented.

In the event of a large-scale natural disaster or pandemic, the suspension of operations at plants, laboratories, and other facilities, delays in new product development due to interruption of clinical trials, and decreased product sales may occur, and the entire supply chain may be affected, hindering the provision of products and services. In response, the Group formulates BCPs and BCM, conducts an annual Group-wide joint BCP drill, maintains a safety confirmation system, communication methods, and stockpiles, and strengthens multiple-sourcing and alternative production arrangements.

Insufficient penetration of corporate culture and philosophy, or an inadequate supply of talent to drive Group strategy, may affect long-term competitiveness and business performance; in particular, if the Group is unable to secure the advanced talent needed for overseas expansion, M&A, and DX promotion, growth in competitiveness and profitability may fall short of expectations, materially affecting business performance and financial condition. In response, the Group is rolling out systematic talent development programs led by management executives, strengthening the acquisition and development of R&D and digital talent, and working to improve engagement through the promotion of diversity and the establishment of flexible working arrangements.