StemRIM Inc.

The development of prescription pharmaceuticals requires substantial R&D investment and long development periods, and there is a risk that development may be extended or discontinued if clinical trials fail to demonstrate meaningful efficacy or if regulatory approval is not obtained. The Company's flagship pipeline asset, Redasemtide, is currently undergoing multiple clinical trials, including a global late-stage Phase II trial for acute cerebral infarction, and if the desired results are not obtained, this could have a material impact on the Company's business performance and financial condition. While the Company aims to reduce its dependence on any specific development project through pipeline diversification, the monetization of subsequent pipeline assets also remains uncertain, being dependent on development progress.

The Company's business revenue is heavily dependent on the license agreement concerning Redasemtide entered into with Shionogi & Co., Ltd. in November 2014 (total amount received to date: ¥4,046 million). This agreement may be terminated prior to its expiration due to circumstances beyond the Company's control, such as changes in the counterparty's business policy or deterioration in its business environment, and if this occurs, it could have a material impact on the Company's business performance and financial condition. Since the timing of milestone revenue also depends on development progress, there is also a risk that the timing of revenue recognition may be delayed.

As a research-and-development-oriented company, the Company requires substantial R&D funding, and recorded operating losses and net losses in the 16th, 17th, 19th, and 20th fiscal years (FY2025, ended July 2025); operating cash flow was also negative in the current fiscal year. The Company does not have a stable revenue source such as continuous royalty income, and future revenue generation will be significantly affected by the progress of Redasemtide's development and the outcome of licensing negotiations for other pipeline assets. If the Company is unable to raise funds from the capital markets at the necessary timing, material concerns regarding the continuation of its business may arise.

Laws and regulations relating to the Regenerative Inducing Medicine® may be subject to ongoing amendment and revision in response to technological innovation, giving rise to risks such as prohibition of the use of raw materials and delays in or failure to obtain pharmaceutical approval. In addition, amid the global trend toward containing healthcare costs, drug pricing or insurance reimbursement prices may be set lower than the product value anticipated by the Company. Such regulatory changes could have a material impact on the Company's business strategy and business performance.

In the field of regenerative medicine, academic knowledge and technology are advancing rapidly, giving rise to the risk that the Company's Regenerative Inducing Medicine® could be overtaken by a wave of rapid technological innovation, as well as the risk of unexpected side effects. The pharmaceutical industry is characterized by intense competition among numerous domestic and international companies and research institutions, including major global corporations, and there is no guarantee that the Company will be able to continuously maintain its competitive advantage. Furthermore, if a third party develops superior technology not covered by the scope of the Company's patent rights, this could have a material impact on the Company's business performance and financial condition.

Pharmaceutical products carry the risk of unexpected side effects occurring at any stage from clinical trials through post-marketing use, which may give rise to various liabilities, including product liability. Although the Company plans to obtain appropriate insurance coverage, there is no guarantee that insurance proceeds will cover the full amount of any eventual damages. Furthermore, even if a damages claim is not upheld, the negative image arising from the mere fact that a claim was made could adversely affect trust in the Company and its products.

Because the Company's business revenue is heavily affected by upfront license payments and milestone income tied to development progress, its business revenue and net income/loss have fluctuated unstably over past fiscal years. This trend is expected to continue until the pipeline currently under development is launched and becomes a stable revenue base, making it difficult for investors to forecast business performance going forward. If the period during which retained earnings remain negative is prolonged, the timing of shareholder returns such as dividends may also be significantly delayed.

The Company may flexibly raise funds, primarily through capital increases, in connection with the future expansion of its R&D activities, and an increase in the number of shares issued could dilute the value per share. In addition, similar dilution may occur through the issuance of new shares or the exercise of stock acquisition rights under the restricted stock compensation plan and stock option plan. The Company may continue to implement similar incentive plans going forward in order to secure talented personnel, and the risk of dilution will therefore continue to exist.

The Company is a small organization comprising 4 directors and 68 employees (including executive officers and temporary employees, as of the end of July 2025), and its business activities are highly dependent on the current management team, department heads, and a small number of R&D personnel. If the Company is unable to successfully secure and develop personnel, or if personnel turnover occurs, this could disrupt business activities and have a material impact on the Company's business performance and financial condition. The Company intends to continuously strive to secure and develop talented personnel while expanding its internal management system in line with the growth of its business.

The Company conducts joint research with Osaka University (a national university corporation) and has been granted an exclusive license for jointly-owned patents relating to Redasemtide, under an agreement whereby a certain percentage of the income received from Shionogi & Co., Ltd. and others is paid to Osaka University. If, for any reason, it becomes difficult to renew these agreements, or if transactions become difficult due to termination or other reasons, this could have a material impact on the Company's business development. In addition, if a situation arises in which transactions with Osaka University are suspected of involving improper benefit provision, this could damage the Company's profits and social reputation.