Kidswell Bio Corporation

R&D investment in the cell therapy business has led to preceding consolidated operating losses, giving rise to material doubt about the going concern assumption. The company is addressing this through securing operating profit in the biosimilar business and fundraising via syndicated loans and other means; however, if consolidated operating profitability is not achieved in the following consolidated fiscal year, it may have a material impact on business continuity. Although the company has determined that no material uncertainty exists, the risk of failing to achieve the plan remains.

With the expansion of demand in the biosimilar business, payments to CDMOs and others precede, increasing manufacturing working capital requirements, while R&D investment also precedes in the cell therapy business. If additional fundraising becomes necessary, expanding borrowings may require capital increases from a financial soundness perspective, creating a risk of dilution of per-share value due to an increase in the total number of issued shares. The company is addressing this through syndicated loan agreements and changes to payment terms with partner companies, but the risk of deteriorating cash flow during the business expansion phase continues.

If the company breaches financial covenants attached to the syndicated loan, it may lose the benefit of term and affect its financial position and operating results. Given the current continuation of consolidated operating losses, the risk of covenant breach cannot be ignored. The company aims to strengthen its revenue base and achieve profitability, but a serious financial impact could arise if the plan is not achieved.

The majority of net sales come from the supply of biosimilar APIs and other products, with a very high degree of dependence on Santen Pharmaceutical, the partner for the Ranibizumab biosimilar, and Mochida Pharmaceutical, the partner for the Pegfilgrastim biosimilar. If contract termination or a change in sales policy occurs with these sales partners, it could have a material impact on operating results. The company aims to reduce dependence through the development of new biosimilars and cell therapy products, but there is also a risk that development may not proceed as expected.

Since January 2026, in the anti-VEGF agent market for the ophthalmology field targeted by GBS-007 (Ranibizumab), the bio-AG and biosimilar of the competing originator product Eylea (aflibercept) have been listed on the drug price list and launched, and the impact is currently being examined. While the FY2026 drug pricing system revision is expected to institutionally suppress price-based competition for bio-AGs, entry of competing biosimilars or changes in prescription trends could have a material impact on the business plan and operating results.

If unexpected side effects occur or the expected therapeutic effect cannot be confirmed in nonclinical or clinical trials, R&D of the development candidate may be discontinued. In addition, if there are delays in the start or completion of trials or problems in the manufacturing of investigational drugs, marketing approval may be delayed, potentially having a material impact on the business plan as well as financial position, operating results, and cash flows. The company appropriately evaluates and manages the progress of development candidates and, as necessary, takes measures such as allocating additional management resources.

Because the business model relies on partner pharmaceutical companies to lead the process from clinical development onward, if an appropriate partner cannot be found, or if an existing partner changes its management policy or terminates a contract, this could result in delays or discontinuation of development or have a material impact on business strategy. In addition, if a partner's change in sales policy leads to a significant downward revision of demand forecasts, adjustment of manufacturing plans with CDMOs may not proceed smoothly, resulting in excess inventory, which could have a material impact on operating results and cash flow. The company addresses this by building a broad network through regular meetings with domestic and overseas pharmaceutical companies.

In the biosimilar business, API manufacturing costs are paid in foreign currency to overseas CDMOs, and as foreign currency-denominated payments increase with business expansion, the impact of exchange rate fluctuations on profitability is increasing. In the cell therapy business as well, R&D expenses are affected by exchange rate fluctuations due to outsourcing to overseas CROs. The company aims to partially offset this through price adjustment agreements with partner companies and by acquiring foreign currency-denominated sales through overseas market expansion, but the exchange rate fluctuation risk associated with foreign currency-denominated transactions overall remains.

In the biopharmaceutical and cell therapy fields, multiple third parties hold patent rights and other intellectual property, and if third-party patents are discovered during development or if there are changes in the interpretation of existing patents, it may become necessary to respond through delays or discontinuation of development, license negotiations, or responses to damage claims. There is also no guarantee that the company's own patent applications will be granted, and the scope of protection may be limited. The company conducts ongoing patent investigations at each stage of development, starting from the candidate selection stage, and strives to avoid infringement; as of now, no disputes with third parties have occurred.

As a small organization premised on a virtual R&D structure, the number of specialized personnel with experience in biopharmaceutical and cell therapy product R&D is limited, resulting in a high degree of dependence on specific personnel; if personnel turnover occurs or securing personnel becomes difficult, it could hinder the promotion of R&D and the establishment and maintenance of external partnership relationships. There is also a risk that, in response to the need to strengthen internal management systems accompanying business expansion, securing personnel and developing systems for the administrative department may be delayed. If these risks materialize, they could adversely affect the business plan and operating results and lead to a decline in social credibility.