Chiome Bioscience Inc.

Because R&D expenses are recorded in advance of revenue, the Company continues to incur operating losses. Although the Company has formulated a funding plan anticipating cash inflows from alliance revenue with pharmaceutical companies and the exercise of stock acquisition rights, there is a possibility that failure to secure sufficient operating funds could affect business continuity. In addition, there is a risk that the negative retained earnings (deficit) may not be resolved as planned. As a means of financing, the Company intends to flexibly implement capital increases and the exercise of stock acquisition rights, but an increase in the total number of shares issued may dilute the value per share.

The Drug Discovery Business requires a long period from the start of basic research to launch, and the Company's basic model is to generate revenue through out-licensing at the preclinical or early clinical stage. However, there is a risk that development may be discontinued or delayed due to factors beyond the Company's control, such as changes in the management policies of the licensee pharmaceutical companies or development delays. Even if a product reaches launch, if market evaluation is low, the Company may not be able to recognize revenue such as sales milestones, and revenue may also be recognized in a different period than expected due to the timing of contract conclusion or delays in development progress. Although the Company seeks to diversify risk by securing a multi-stage pipeline, there is no guarantee that revenue will be generated as expected.

Pharmaceutical development requires substantial R&D investment and a long period of time, and the probability of success is extremely low. There is a risk that useful efficacy may not be confirmed during the preclinical or clinical development process, forcing extension or discontinuation of development. Clinical trials are a long, costly, and uncertain process, and delays in securing trial subjects or the fact that interim results do not guarantee final results may impair the Company's ability to out-license its pipeline. While the Company seeks to diversify risk through a business model that generates revenue from the R&D stage, increases in development costs and impacts on the business plan may in some cases be unavoidable.

The Company's net sales are highly dependent on the Chugai Pharmaceutical group (Chugai Pharmaceutical Co., Ltd. and Chugai Pharmabody Research Pte. Ltd.) and Ono Pharmaceutical Co., Ltd. If either company reduces the volume of outsourced work due to a change in management policy, changes contract terms, or terminates its contract, this could have a material impact on the Company's business and results of operations. The Company seeks to maintain and continue these business relationships while also generating revenue from other pharmaceutical companies by enhancing added value.

The pharmaceutical industry is subject to regulation under the pharmaceutical laws, administrative guidance, and other related laws and regulations of each country at every stage of research, development, manufacturing, and sales. The Company formulates its business plan based on the current Pharmaceuticals and Medical Devices Act and the trends in the medical insurance system and pricing. If significant changes occur in these regulations, systems, or pricing trends before an antibody is launched as a pharmaceutical product, this could affect the Company's business plan. There are limits to what an individual company can do to respond to regulatory changes, and changes in the global pharmaceutical regulatory environment constitute a business risk.

If a competitor creates a lead compound with superior functionality targeting the same target, it may become difficult for the Company to conduct out-licensing activities with pharmaceutical companies, and increased competition from other companies entering the field may intensify competition for alliances, reducing the Company's competitive advantage. In addition, if the Company's core strength—its antibody drug discovery technology and know-how—is replaced by other innovative or lower-cost technologies, or if the Company's competitive advantage cannot be maintained due to the expiration of patent terms, this could affect the business. The spread of regenerative medicine and gene therapy, as well as the development of molecular-targeted drugs and drug delivery systems, may also constrain growth in the antibody pharmaceuticals market.

There is a risk that third parties may infringe on intellectual property rights related to technologies created by the Company, or that the Company may infringe on the intellectual property rights of other companies. If a patent infringement lawsuit is filed against the Company, substantial litigation costs may be incurred, which could affect its business. The Company strives to secure exclusivity through active patent filings and to detect and respond early using patent information databases, and as of the present, is not aware of any lawsuits or claims by third parties relating to intellectual property infringement.

The Company is a small organization, and its business operations are highly dependent on the specialized knowledge, skills, and experience of its directors and executive employees. The departure of a specific individual could hinder business activities. The Company continues to rely heavily on its management and the heads and members of each department, and if it is unable to secure and develop excellent personnel as planned, this could have a material impact on its financial position and results of operations. Although the Company is strengthening its workforce and internal management systems in line with business expansion, the vulnerability inherent in being a small organization remains an ongoing risk.

The Company is entrusted with confidential information by its customers, such as pharmaceutical companies, and if customer information were to leak externally, this could affect the Company's business due to a decline in trust, among other factors. As countermeasures, the Company has executed confidentiality agreements with officers and employees (including upon retirement), manages customer information by coding antigen names into project codes, and restricts access to customer information. However, these measures cannot completely eliminate the risk of information leakage.

In the event of a natural disaster such as an earthquake, a large-scale accident, fire, terrorism or war, or an infectious disease pandemic, the Company's business could be affected due to the loss of its antibody libraries, loss of data, damage to facilities, restrictions on the supply of various infrastructure and research materials, or cluster infections within the Company or at business partners, all of which could impact the progress of R&D and business operations. The Company implements risk-reduction measures based on its risk management regulations, but there are limits to its ability to respond in the event of a large-scale incident with global impact. The antibody library is a core asset of the Company, and its loss could have a particularly serious impact on business continuity.