RaQualia Pharma Inc.

Pharmaceutical research and development requires a long period of time and substantial expense from exploratory research through to obtaining approval, while the probability of success is extremely low compared to other industries. If sufficient efficacy or safety data cannot be obtained, or if approval requirements change due to regulatory revisions, this may result in increased development costs and delays in the timing of approval acquisition. These risks apply equally to development products already out-licensed to other companies.

The Group must continue to make upfront investments in substantial research and development expenses, and if sales and R&D plans do not progress as expected, losses may continue to be recorded beyond what is anticipated. The annual securities report explicitly states that, depending on circumstances, continuation of business could become difficult, indicating high financial vulnerability. As a research-and-development-driven drug discovery venture, there is also a risk that business continuity could become difficult if timely and appropriate fundraising cannot be achieved.

Given the ongoing funding needs for R&D investment, working capital, and capital expenditures, if timely and appropriate fundraising cannot be achieved, business continuity may become difficult. As a drug discovery venture without a stable revenue base, changes in the external environment or deterioration in market conditions directly affect fundraising capability. The annual securities report explicitly refers to the possibility that business continuity could become difficult.

Since out-licensing of development compounds and conclusion of joint research agreements with pharmaceutical companies and others depend on the counterparty's evaluation and decisions, there is a possibility that agreements may not be concluded at the intended timing, or that contract terms may differ significantly from the Group's expectations. Out-licensing revenue is a major source of income for the Group, and failure to conclude agreements or deterioration of terms would have a direct impact on business results. The existence of competing products and the progress of R&D also affect out-licensing activities.

Numerous pharmaceutical companies and drug discovery ventures are conducting R&D activities in the same fields, and the existence of competing products and their development progress may affect the Group's out-licensing of development compounds, among other activities. Intensifying competition narrows the range of potential out-licensing partners and carries the risk of deteriorating contract terms or loss of out-licensing opportunities. The Group is a small organization and faces resource-related competitive constraints compared with major pharmaceutical companies.

There is no guarantee that all patent applications will be granted, and it is difficult to completely avoid disputes arising from third parties establishing superior intellectual property rights or from rights infringement. Depending on patent-related laws and regulations in each country and how they are interpreted by authorities, competitors may be able to use the Group's technology to develop and sell pharmaceuticals without compensation. There also remains a risk of disputes related to employee inventions, and while the Group has established an

With 6 officers and 85 employees (as of December 31, 2025), the Group is a small organization, and its internal control system remains commensurate with this scale. Securing personnel with advanced specialized knowledge and skills is fundamental to business activities, and if personnel attrition occurs or replacement personnel are unavailable, it could seriously impede R&D activities. Although the Group strives to secure and develop personnel, competition to recruit specialized talent is intense, and it is difficult to completely eliminate this risk.

Technology, know-how in R&D, and information shared with out-licensing partner pharmaceutical companies and others require a high degree of confidentiality, and the annual securities report explicitly states that it is difficult to completely prevent leakage of important confidential information. If information leakage occurs, it could result in loss of competitive advantage, damage to trust relationships with out-licensing partners, and even legal risks such as claims for damages. The Group strives to strengthen its information management system, but states that complete prevention is difficult.

Because foreign-currency-denominated transactions exist in overseas R&D activities and licensing agreements with overseas companies, sudden fluctuations in exchange rates may give rise to foreign exchange risk. In particular, since license income mainly consists of foreign-currency-denominated revenue such as milestones and royalties, there is a risk that yen-translated revenue could decline significantly during periods of yen appreciation. As the Group pursues global business expansion, the annual securities report contains no specific description of countermeasures such as foreign exchange hedging.

There is a possibility that important contracts related to the Group's business management may, in the future, expire, be terminated, suspended, or postponed, or be unfavorably revised at the time of renewal. Out-licensing agreements and joint research agreements are a major source of revenue for the Group, and if these contracts lapse or are changed to unfavorable terms, it would have a material impact on business results and financial condition. There is also a risk that rights relating to joint research with universities and public research institutions could be unfavorably altered due to changes in laws and regulations or organizational restructuring.