SAWAI GROUP HOLDINGS Co., Ltd.

The Group is subject to regulation under the "Pharmaceuticals and Medical Devices Act" and related laws and regulations, and requires permits, registrations, licenses, and notifications from each prefecture. In the event of a violation of laws or regulations, there is a risk that the Group may receive administrative dispositions such as business suspension or revocation of permits from the relevant supervisory authorities. Although the Group has established a sufficient compliance framework, if such dispositions are imposed, they could have a material impact on the Group's financial position and operating results.

The sale of prescription drugs requires listing on the drug price list, and periodic drug price revisions based on market price surveys result in price reductions for many products. Discussions on reforming the drug pricing system and health insurance system aimed at rationalizing rising medical costs continue, and depending on the rate of price reductions or the content of system changes, revenue could decline significantly. Although the Group reflects these trends in its management policies and strategies, it is difficult to completely avoid the impact of system changes.

Even after the expiration of substance and use patents on branded drugs that serve as the basis for generic drugs, patents related to manufacturing processes, crystal forms, dosage, administration, and formulation often remain in effect, creating a risk of litigation based on such patents. Although the Group conducts thorough investigations of intellectual property rights and gives due consideration to the Unfair Competition Prevention Act, if litigation occurs, it could affect the Group's financial position and operating results. Depending on the outcome of litigation, product sales may be suspended or damages may be incurred.

As numerous manufacturers enter the generic drug market, price competition intensifies, and combined with drug price reductions, there is a risk that products may become unprofitable, forcing discontinuation of sales. Measures such as the introduction of authorized generics by branded drug manufacturers may make it difficult to secure market share after patent expiration. Improvements in the R&D capabilities of competitors also heighten competitive risk, and there is a possibility that planned revenue may not be achieved.

If unexpected side effects occur, impurities are found in products, or new or stricter testing standards are established, the Group may be forced to recall products or discontinue sales. Although the efficacy and safety of generic drugs are confirmed based on the usage history of the original branded drugs, and the risk of unknown serious side effects is considered extremely low, the Group may bear product liability depending on the nature of an incident. If a product recall occurs, it will have a direct impact on the Group's financial position and operating results.

If operations at a production site are suspended due to natural disasters such as earthquakes or storms and floods, or pandemics, the supply of products manufactured at that site will stop, potentially affecting operating results. The Group has diversified its production sites across Fukuoka, Hyogo, Chiba, Ibaraki, and Fukui prefectures and works to reduce risk by standardizing manufacturing equipment, but if the supply of raw materials from a specific supplier is suspended and difficult to replace, this could also affect the Group's financial position and operating results. The Group strives to manage supply chain risk through the development and operation of BCP and crisis management regulations, as well as multi-source procurement.

In anticipation of slowing growth in the domestic market, the Group is considering new business development through overseas expansion, capital alliances, and M&A, but there is a risk that changes in circumstances beyond initial assumptions may occur or that expected investment returns may not be achieved. Although the Group conducts thorough research including relevant laws and regulations and political and economic conditions, it is difficult to completely eliminate unforeseen risks, which could affect the Group's financial position and operating results. Geopolitical risks and changes in local regulations may also affect business expansion.

The Group holds a large amount of important information, including personal information and trade secrets, and there is a risk that information could be leaked, tampered with, or lost due to system failures, accidents, or unauthorized external access. Although the Group has implemented measures such as establishing internal regulations, IT security measures, data storage at multiple sites, and education and awareness activities by the Group Information Security Committee, there is a possibility that these measures may not keep pace with the increasing sophistication of cyberattacks. If an information leak or similar incident occurs, it could affect the Group's financial position and operating results through loss of trust and legal liability.

The transfer of the U.S. generic drug business of subsidiary USL to Bora Pharmaceutical Holdings, Inc. was completed on April 2, 2024, significantly reducing risks related to the U.S. business. However, the Group bears an obligation to compensate Bora, within certain limits, for losses arising from antitrust litigation related to the U.S. business that occur within a certain period after the transfer, and has recorded an estimated amount for this. If losses exceeding the estimated amount arise due to rulings or other outcomes, this could affect the Group's financial position and operating results.

There is a risk that fluctuations in financial markets and foreign exchange rates could affect the Group's financial condition, and environmental issue risks such as climate change and geopolitical risks may also affect business operations. Medium- to long-term labor shortages associated with the declining birthrate and aging population may also affect the Group's business operations. The Group Risk Management Committee meets twice a year to narrow down key risks based on frequency of occurrence and impact on business, and works to develop countermeasures.