Delta-Fly Pharma,Inc.

The development of prescription pharmaceuticals requires substantial R&D investment and a long time horizon. If useful efficacy cannot be confirmed in clinical trials or regulatory approval cannot be obtained, development may be extended or discontinued, making it difficult to recover the originally planned investment. If additional trials become necessary, unplanned additional fundraising may be required, and if milestones under license agreements cannot be achieved, the Company may be unable to recover the invested amount. While the Company strives to avoid such occurrences and respond appropriately, not all development projects are guaranteed to succeed.

The Company's business revenue depends on upfront payments, milestone payments, and development cooperation fees under license agreements with domestic and overseas pharmaceutical companies, but partnerships may not be concluded at the timing the Company expects, depending on the partner's evaluation and management decisions. Global or domestic licensing partners for DFP-10917, DFP-11207, DFP-14927, and DFP-10825 have not yet been determined, and failure to conclude agreements could have a material impact on the Company's business performance and financial position. The Company aims to reduce dependence on specific partners by increasing the number of pipelines, but concluding new agreements is expected to take a long time.

The Company's revenue is highly dependent on the domestic exclusive license agreement with Nippon Shinyaku Co., Ltd. for DFP-10917, and with Nippon Chemiphar Co., Ltd. for DFP-17729 and DFP-14323. If these agreements are terminated or cancelled due to changes in the partner's management policy, breach of contract, development delays, or other reasons, this could have a material impact on the Company's business performance and financial position. The Company aims to reduce dependence by concluding new license agreements, but dependence on specific partners is expected to continue for the time being.

The Company continues to bear R&D expenses over a long-term period of upfront investment, tending to record ongoing operating losses and negative cash flow. If the Company is unable to secure necessary funds at the required timing before achieving stable revenue through product commercialization, serious concerns about business continuity could arise. The Company intends to raise funds at appropriate times to strengthen its financial base, but retained earnings have remained negative since the Company's founding.

The Company may flexibly raise funds through capital increases or other new share issuances in connection with future expansion of R&D activities. In such cases, an increase in the number of shares outstanding may dilute the per-share value of the Company's stock. The Company currently plans to allocate proceeds from the exercise of stock acquisition rights to clinical trial expenses for DFP-10917 and DFP-14323, among others, and an ongoing dilution risk exists.

If domestic or overseas pharmaceutical companies or drug discovery ventures succeed in bringing drugs to market earlier in the same disease area, or in developing drugs with superior advantages, this could cause delays in subject enrollment or failure to meet targets in the Company's clinical trials for its products under development, requiring more development funds than planned or forcing discontinuation of development. In addition, if a competing product is launched first, a licensing partner may decide to terminate its agreement, which could have a severe impact on the Company's business performance and financial position.

The Company is subject to regulations such as pharmaceutical affairs laws and healthcare insurance systems of various countries in its research, development, manufacturing, and sales activities, and obtaining approval becomes difficult if regulatory authorities do not recognize the usefulness of a product under development. In the United States, pressure to lower prices for branded pharmaceuticals and to promote the use of generic drugs has advanced under healthcare insurance reform legislation, while in Japan, periodic drug price reductions and special price reductions through market expansion re-pricing are being implemented. Future trends in laws, regulations, and healthcare insurance systems could have a material impact on the Company's business performance and financial position.

The Company holds patents relating to multiple anticancer drug candidate compounds, but there is no guarantee that all pending patent applications will be granted, and if superior technology is developed outside the scope of the Company's patent rights, the Company could lose its competitive advantage. In addition, if litigation over intellectual property infringement arises with third parties, or if disputes arise with inventors regarding compensation for employee inventions, this could have a material impact on the Company's business performance and financial position. The Company conducts patent searches, and to date there have been no instances of litigation with third parties.

The Company outsources important operations such as active pharmaceutical ingredient and formulation manufacturing, preclinical trials, and clinical trial monitoring to specialized institutions. If contracts with outsourcing partners are terminated or if difficulties arise in the performance of outsourced operations, this could cause significant disruption to the Company's business activities. In addition, if operations are suspended for an extended period due to unforeseen circumstances such as natural disasters or security concerns at the outsourcing partner, the Company may be unable to receive services in a timely manner. The Company carefully selects outsourcing partners and builds relationships with them, but it is difficult to completely eliminate this risk.

Because the Company's business revenue depends on upfront payments, milestone payments, and development cooperation fees under license agreements, revenue tends to fluctuate unstably depending on development progress. Pharmaceutical R&D requires substantial upfront investment and a long investment recovery period, and losses are expected to precede the establishment of a stable revenue base until products under development are launched. There is also foreign exchange risk, and if exchange rate fluctuations beyond expectations occur in foreign-currency-denominated transactions with overseas outsourcing partners, this could have a material impact on the Company's business performance and financial position.