Kubota Pharmaceutical Holdings Co., Ltd.

Cash and cash equivalents have continuously declined from ¥4,049 million at the end of FY2022 (ending December 2022) to ¥1,919 million at the end of FY2025 (ending December 2025), and the Company itself recognizes that, given the continuation of operating losses and negative operating cash flow, conditions exist that raise material doubt about the going concern assumption. Delays in the overseas sales ramp-up of Kubota Glass® and the failure to secure a partner for eyeMO® are increasing the risk of funds depletion. As countermeasures, the Company is promoting fundraising through expansion of the sales network, personnel cost reductions, and capital and business alliances, and judges that funds necessary for business operations in the following consolidated fiscal year have been secured; however, uncertainty remains as to the results of each of these measures.

Obtaining approval for pharmaceuticals and medical devices requires strict efficacy and safety reviews by the relevant regulatory authorities, and if requirements are determined not to be met, development may be discontinued or additional trials may be required. Emixustat Hydrochloride requires re-conducting Phase 3 trials for regulatory approval in Japan and the United States, and eyeMO® continues to lack a licensing-out partner. As countermeasures, the Company is diversifying its pipeline (adding medical devices) and concentrating management resources on late-stage products, but there is a risk of material impact on business continuity, including inability to recover development costs and impairment of pipeline value.

As a research and development-oriented venture company, substantial upfront investment is required, while net loss for FY2025 (ending December 2025) reached ¥676 million and accumulated losses (negative retained earnings) reached ¥25,733 million. If delays in the launch of development products or in concluding partnership agreements make it difficult to raise funds through the issuance of securities or other means, the Company may be forced to scale back its pipeline, potentially resulting in the loss of future expected revenue. As countermeasures, the Company has set cash usage limit guidance for the next three to four years and is seeking to reduce risk by concentrating on late-stage products and focusing on medical device development.

The number of potential shares underlying stock acquisition rights issued as stock options reached 12,475,000 shares (9.76% of the total of issued shares and potential shares) as of the end of FY2025 (ending December 2025), and per-share value will be diluted upon exercise of these rights. In addition, there is a possibility of further issuance of shares or stock acquisition rights for the purpose of securing R&D expenses and working capital; in FY2025 (ending December 2025), ¥772 million was paid in through exercise of stock acquisition rights and ¥315 million through a third-party allotment capital increase. While the Board of Directors, including independent outside directors, intends to conduct careful deliberation, dilution pressure is expected to continue as long as funding needs persist.

The corporate value of the Group depends on its intellectual property rights, including patents and trade secrets, and if the Group fails to obtain patents, faces narrowing of the scope of rights, or is subject to infringement by third parties, it may lose expected revenue. Conversely, if the Group's products are found to infringe on third-party intellectual property rights, there is a risk of injunctions against manufacture and sale, claims for damages, and substantial litigation costs. As a countermeasure, the Company has established a continuous monitoring, evaluation, and analysis system utilizing external experts.

If unexpected side effects are identified during clinical trials, it may become necessary to discontinue the trials or revise the development plan, and there is a possibility of monetary, legal, and reputational damage arising from product liability. If serious side effects are identified after launch, the Company may be forced to discontinue sales or recall products. As countermeasures, the Company continuously monitors safety information, thoroughly ensures prior explanation and written consent from trial subjects, and has taken out product liability insurance covering an annual total of US$10 million.

The Group does not own manufacturing facilities and outsources all manufacturing of pharmaceuticals for clinical trials and medical devices under development to external partners, and plans to continue this policy after launch. If delays occur in selecting manufacturing contractors, or if technical or regulatory issues, raw material shortages, disasters, or infectious diseases disrupt product supply, this may cause delays in development plans and launch timing, and adversely affect business performance, financial condition, and social credibility. As countermeasures, the Company has set policies for selecting alternative manufacturing contractors, establishing crisis management systems, and developing quality assurance systems.

When a development product obtains manufacturing and marketing approval, a new sales and marketing system must be established, but as a venture company, the management resources available are limited, and if building such a system takes longer than expected, this may delay product launch and affect business performance and financial condition. Regarding the expansion of Kubota Glass® into China, Taiwan, and Singapore, the full-scale ramp-up of business revenue is also expected to be pushed back to the following consolidated fiscal year or later. As a countermeasure, the Company's policy is to achieve early market penetration through alliances with external partners possessing relevant experience and know-how.

Due to the headquarters function relocation transaction conducted in the second consolidated fiscal year, the Company holds dual status as both a U.S. corporation and a Japanese corporation, and if tax authorities raise objections, substantial additional corporate taxes could be imposed. In addition, if the Company becomes an acquisition target, the acquirer would be required to succeed to this dual status, creating a risk of lower valuation in M&A transactions and a reduced likelihood of being an acquisition target. When dividends are paid, shareholders in both the United States and Japan may face double taxation, and there is also an inherent risk of increased tax burden if foreign tax credits are not recognized.

As the Group operates its global organization with a small, elite workforce, it is highly dependent on specific personnel such as management and departmental heads, and amid intense competition for talented individuals, if the Group is unable to retain or hire the necessary personnel, execution of its business plan may become difficult, potentially affecting business performance and financial condition. As a venture company, cash compensation the Company can offer is limited compared to major corporations, so stock options are positioned as an important incentive measure. Every year, the Company reviews its compensation packages by referring to competitor analysis conducted by specialized human resources consultants.