PeptiDream Inc.

As a result of recording an operating loss in the fiscal year under review, the Company is in breach of the financial covenants of syndicated loan agreements (balance of ¥17,100,000 million) entered into with multiple financial institutions. As a refinancing agreement was concluded on March 16, 2026, the Company has determined that there is no material uncertainty regarding the going concern assumption; however, if business performance continues to deteriorate, an obligation for early repayment may arise, which could have a material impact on the Company's financial position.

Drug development requires substantial R&D investment and more than ten years to complete, and even promising compounds may need to have their development extended or discontinued depending on the results of preclinical and clinical trials. Even after completion of clinical trials, there is a risk that products will not be approved for launch due to regulatory authorities' efficacy and safety reviews, which could have a material impact on the Group's business strategy and operating results. In addition to cyclic peptide drugs utilizing PDPS, the Group is expanding into diverse modalities such as PDC and MPC, all of which carry similar uncertainties.

A significant portion of the Drug Discovery Development Business's revenue depends on joint R&D agreements with partners, and in particular, development milestone fees, sales royalties, and sales milestone fees are heavily influenced by the progress of partners' R&D and business activities. If the Group is unable to be involved in a partner's changes to R&D policy or resource allocation decisions, there is a risk that revenue recognition will be delayed or eliminated. Similarly, for out-licensing and joint development of the Group's in-house pipeline, revenue is affected by the progress of partners' clinical development and commercialization.

The Group recognizes that its PDPS® (Peptide Discovery Platform System) has a competitive advantage in peptide drug discovery technology; however, there is a possibility that third parties may develop superior, non-patent-infringing drug discovery technologies, including AI and computational chemistry (in silico technology). If the Group's competitive advantage declines due to the emergence of competing technologies, it may become difficult to secure new contracts with partners, affecting business strategy and operating results. The Group is actively engaged in R&D to improve and enhance its technology, but it cannot fully control the pace of technological innovation.

PDPS technology and drug candidate compounds/products are protected by multiple patents, including substance, manufacturing process, formulation, and use patents; however, there is a risk that appropriate protection may not be achieved due to patent infringement by third parties or invalidation trials. Conversely, if the Group's products or technologies infringe on third-party intellectual property rights, litigation, damages, and other consequences could affect business strategy and operating results. The Group strives to avoid and mitigate such risks through continuous monitoring, but complete elimination is difficult.

Revenue arising from joint research and joint development agreements with partners is recognized in accordance with IFRS revenue recognition standards, but as a result of discussions with the auditing firm, revenue recognition different from the Company's expectations may become necessary. For example, if revenue that was expected to be recognized as a lump sum needs to be recognized in installments over an extended period, annual revenue amounts may fluctuate significantly, affecting operating results. If changes or corrections to revenue recognition affect business revenue beyond a certain level, this could also affect investors' confidence in performance forecasts.

The radioisotopes that form the core of radiopharmaceuticals are manufactured using specialized equipment such as nuclear reactors and accelerators, and the Group depends on specific supply sources, mainly overseas suppliers. If business partners' or the Group's own facilities are damaged due to natural disasters, fires, nuclear power plant accidents, war, terrorism, or other events, stable supply may become difficult, affecting business strategy and operating results. Manufacturing and transportation are also limited to licensed factories and operators, which structurally constrains the securing of alternative means.

The Group has recorded goodwill and intangible assets acquired through corporate acquisitions, and if their value declines due to a gap between plans and actual results or other factors, an impairment loss will need to be recorded. Recording an impairment loss would have a direct impact on the Group's operating results and financial position. Given the current situation of recording an operating loss, particular attention is needed regarding the risk that continued deterioration in the performance of acquired businesses could pose.

Recruiting, developing, and retaining highly specialized personnel with global capabilities is essential for promoting joint R&D with partners both domestically and internationally, but not having overseas offices constrains the recruitment of global talent amid increasing mobility of talented personnel. If talent attrition, unsuccessful recruitment, or delays in developing successors for executives and core positions occur, human resources and functions could be impaired, affecting business strategy and operating results. The Group is addressing this through measures such as raising wage levels, improving employee engagement, and establishing its "Values & behaviors," but there is no guarantee of their effectiveness.

The Group handles important confidential information, including personal information of subjects and patients as well as partners' technology and intellectual property information, and is exposed to the risk of information leakage and tampering due to cyberattacks that are becoming increasingly sophisticated and elaborate year by year. If information leakage occurs, it could cause significant damage to stakeholders, damage to social credibility, and a decline in competitiveness, affecting business strategy and operating results. The Group continuously strengthens countermeasures such as establishing security policies, introducing technologies and services, network monitoring, and employee training, but complete protection is not guaranteed.