Solasia Pharma K.K.

Due to insufficient market penetration of launched products (SP-01, SP-02, SP-03), the Group continues to record losses on a profit-and-loss basis not attributable to failures in R&D activities, and continues to generate negative operating cash flow. In the 18th fiscal period (fiscal year ended December 2025), consolidated revenue was ¥429 million and loss before income taxes was ¥876 million, reflecting the Group's continued upfront investment stage. In the event of a funding shortfall, the Group intends to respond through securing new alliance agreements or issuing new shares, but depending on timing, there is a possibility that continuation of development activities could become difficult.

There are multiple compound risks, including uncertainty regarding clinical trial results concerning the efficacy and safety of pharmaceuticals, uncertainty in the management of development activities, and uncertainty regarding investment amounts and required timeframes. If development products are discontinued or similar events occur, this could result in valuation losses on inventory (¥112 million as of the end of the 18th fiscal period) and impairment of intangible assets, thereby reducing retained earnings and total equity. Although the Group has prepared for situations involving changes, delays, or discontinuation of development policy, these risks cannot be entirely eliminated.

In addition to issuing share subscription rights for fundraising purposes, the Company has adopted a stock option system, and as of December 31, 2025, the number of shares underlying outstanding share subscription rights, etc., reached 11,751,899 shares. The Group continues to consider fundraising centered on capital increases going forward, and if share subscription rights are exercised or additional issuances occur, the value per share may be diluted. There is also a risk that, if agile fundraising becomes difficult due to deterioration in market supply-demand conditions or similar factors, the Group may be forced to review its R&D structure and plans.

The pharmaceutical industry is subject to strict regulation under each country's Pharmaceuticals and Medical Devices Act, pharmaceutical administrative guidance, medical insurance systems, and similar frameworks. If quality, efficacy, and safety data are insufficient, approval may not be obtained as planned. Even after obtaining approval, there is a risk that products may not be listed for insurance coverage, or that the planned insurance price may not be assigned, which also carries the risk of changes to or termination of out-licensing agreements. Because laws and regulations are subject to periodic and non-periodic changes and revisions, this could have a material impact on the Group's financial position and results of operations.

The Group's principal business regions are Japan and China, and in China, the Group promotes sales of SP-01 and SP-03 and development activities for SP-02 and SP-04 through a consolidated subsidiary (established in 2014). Changes in policies, regulations, and laws under the strict supervision and control of the Chinese government could constrain the Group's business strategy and operations. In addition, since China's labor environment and social systems differ from those in Japan, if labor management issues such as personnel affairs, compensation, or misconduct become apparent, resolving them may require a long period of time and substantial expense.

In monetizing its development products, the Group adopts a business model of out-licensing to other companies at an intermediate stage of development, receiving upfront payments and revenue linked to sales. If out-licensing cannot be achieved on the planned schedule due to development delays or other reasons, or if the terms of an out-licensing agreement are changed or terminated, this could have a material impact on the Group's financial position and results of operations. In addition, in acquiring promising development candidates in the oncology field, the Group expects intense competition with global pharmaceutical companies, resulting in high uncertainty regarding in-licensing activities as well.

In the pharmaceutical industry, many domestic and international companies and research institutions, including major global corporations, compete fiercely across research, development, manufacturing, and sales, and the Group's development pipeline includes competing products under development for the same indications. Depending on the development progress and results of competing products, the Group may be unable to demonstrate the superiority of its products, and product development and sales may not proceed as planned. This situation applies equally to future development products and could have a material impact on the Group's financial position and results of operations.

Pharmaceuticals have both therapeutic effects and side effects, and low-frequency side effects that were not detected in small-scale clinical trials may be detected after product launch. Although the Group has taken out clinical trial insurance and product liability insurance, the possibility of being held liable for damages outside the scope of coverage cannot be denied. The occurrence of serious side effects or fatal cases could lead to product recalls, discontinuation of manufacturing and sales, drug-related litigation, product liability claims, and similar consequences, potentially affecting businesses beyond the product in question.

The Group is a small organization for a company handling pharmaceuticals and related products, with each officer and employee responsible for a broad range of duties, and the environment does not have sufficient replacement personnel to respond to resignations, leaves of absence, and similar situations. Business activities are heavily dependent on the current management team and the officers and members responsible for each department, and if the Group is unable to secure and develop the necessary personnel as planned, this could have a material impact on its financial position and results of operations. The Company, founded in 2006, has a short operating history, which also limits its capacity to respond to unforeseeable business issues.

The Group conducts foreign-currency-denominated transactions in connection with license agreements with overseas companies, procurement of products from overseas, and R&D activities conducted overseas, resulting in foreign-currency-denominated receivables and payables. While the Group takes hedging measures within a reasonable range against sharp exchange rate fluctuations, complete risk avoidance is difficult, and if foreign exchange fluctuation risk materializes, this could have a material impact on the Group's financial position and results of operations. In particular, in its global expansion centered on Asia, including its business in China, the Group is exposed to fluctuation risk across multiple currencies.