HEALIOS K.K.

Cash and cash equivalents at the end of the current consolidated fiscal year were ¥5,679 million, but the Group recorded an operating loss of ¥3,340 million and cash flow from operating activities of negative ¥3,165 million, giving rise to a condition that raises material doubt about the going concern assumption. As countermeasures, the Group completed payment for new shares and the 27th series stock acquisition rights through a third-party allotment on February 13, 2026, and plans to prepare for the approval application for the ARDS treatment drug, promote licensing-out, and reduce fixed costs, among other measures. If these measures do not prove effective, the Group states that it will implement further cost reductions, such as pipeline reviews and personnel cost reductions.

Because somatic stem cell/iPSC regenerative medicine products require a long research and development period before launch, the Group is expected to continue recording losses without generating revenue until actual product launch, and may require substantial additional fundraising. Unexpected costs or difficulties in fundraising could materially affect business performance and business development. The Group is pursuing a strategy of allocating revenue from the earlier launch of HLCM051 (invimestrocel) to fund development in the iPSC field, and continues discussions with regulatory authorities.

Reliable prediction of the analysis and evaluation results of clinical trial data is difficult, and unexpected results may occur. Depending on the progress of consultations with the PMDA, there is also a risk that approval applications will not proceed according to the assumed schedule, and development may be discontinued if unacceptable safety issues arise or the expected efficacy cannot be confirmed. The Group formulates detailed plans while conducting prior consultations with the PMDA and FDA, and continues to make preparations toward manufacturing and marketing approval applications.

Laws and regulations relating to regenerative medicine products, such as the amended Pharmaceuticals and Medical Devices Act enacted in May 2025, may continue to be revised. Depending on the content of legal amendments, substantial capital expenditure and additional development costs may be required due to the sophistication of quality control standards, creating a risk of significant delays in the development schedule. The Group strives to gather information, consult with regulatory authorities, and strengthen its internal systems in order to respond promptly to such revisions.

The somatic stem cell/iPSC regenerative medicine field is a research area attracting attention both domestically and internationally, and if competitors acquire superior new technologies or related patents, or launch products ahead of the Group, the Group's competitive advantage may be lost. Development of various treatment methods, including ES cell-derived products, is also progressing, and inadequate response to industry trends could materially affect business performance and business development. The Group continues to work on cutting-edge technology development in collaboration with universities and public research institutions.

Manufacturing pharmaceuticals requires a wide variety of technologies, and if establishing manufacturing methods or manufacturing systems becomes difficult, this could materially affect business development. Regarding the sales system, the policy of whether to build it in-house or partner with a pharmaceutical company has not yet been decided, and if obstacles arise in establishing the system, there is a risk that plans will be delayed. The Group is focusing on developing mass culture technology together with partner companies, and is making preparations toward the start of sales, including concluding contracts with major domestic pharmaceutical wholesalers.

The Group has issued stock acquisition rights for the purpose of providing incentives to officers and employees and raising funds for pipeline development, and as of December 31, 2025, the number of potential shares reached 24,404,700 shares (equivalent to 21.1% of total shares issued). If these stock acquisition rights are exercised, the share value and voting ratio of existing shareholders may be diluted. Given that additional issuance of stock acquisition rights is expected depending on funding needs, dilution risk continues to exist.

Disputes over third parties' intellectual property rights may arise, and there is also a risk that the Group's own intellectual property rights may be infringed by third parties. If the Group decides not to take legal action, taking into account cost-effectiveness and the possibility of a patent invalidation trial, it cannot be ruled out that such third parties may pursue competing businesses. The Group conducts investigations, deliberations, and evaluations as needed, enters into license agreements where necessary, and is strengthening its intellectual property rights management system.

Tadanao Kagimoto, Representative Executive Officer and CEO, plays a critical role in research and development, management policy, strategic decision-making, and building relationships with partners, and if he becomes unable to continue his duties, this could materially affect business performance and business development. The Group is a small organization and is also highly dependent on the specialized knowledge, technology, and experience of other officers and employees. The Group is working to strengthen its organizational management system to avoid excessive dependence on specific individuals, but risks also exist if securing human resources does not proceed as planned or if there is an outflow of personnel.

Because somatic stem cell/iPSC regenerative medicine products use human cells and tissues as raw materials and are transplanted or administered into the human body, there are safety risks related to raw materials and the possibility of unexpected side effects or medical accidents, and strict regulations are imposed under the legal system. It is difficult to completely prevent unexpected events from occurring, and if an accident occurs, the Group may bear product liability, which could materially affect business performance and business development. The Group is implementing measures to prevent accidents, such as involving personnel with expertise in the regenerative medicine field and experts in pharmaceutical regulatory affairs.