Tsubota Laboratory Incorporated

In the current fiscal year, the Company recorded a significant operating loss, and there are events or conditions that raise material doubt about the going concern assumption. Due to the nature of the business, in which R&D expenses are incurred ahead of revenue, period profit/loss and operating cash flow tend to fluctuate significantly. The Company expects to achieve operating profitability in the following fiscal year and states that, as of the end of the current fiscal year, it has secured the funds necessary to continue operations for the next year; however, if the plan is not achieved, additional fundraising may become necessary.

The development of pharmaceuticals and medical devices requires substantial R&D investment and lengthy timeframes. If efficacy cannot be demonstrated in clinical trials or unexpected adverse events occur, the Company may be forced to delay or discontinue development. Similar risks exist even after out-licensing to other companies, and any delay or discontinuation of market launch could have a material impact on the Company's business performance and financial condition. The Company addresses this risk through building a portfolio of multiple pipelines and diversifying development risk.

The manufacture and sale of pharmaceuticals and medical devices require rigorous review and approval by regulatory authorities in each country, and revisions to legal regulations may make it difficult to obtain approval as planned, hindering market launch. There is also the possibility that products will not be covered by insurance or that the insurance price set will not be as planned. Similar risks apply to out-licensed products, which could lead to changes in contract terms or contract termination.

The Company's basic business model is to obtain upfront payments, milestone payments, and royalty income through joint research and development agreements and licensing agreements, and the status of new contract execution has a material impact on operating results. If a partner's management policy changes or an M&A transaction alters its development policy, or if a contract is terminated, this could materially affect the revenue plan. The Company addresses this through building a portfolio of multiple pipelines and multiple partners and reallocating research resources.

The Company's revenue consists of upfront payments, milestone payments, and royalties, which are recognized based on the occurrence of specific events, resulting in significant year-to-year fluctuations. Because revenue depends on factors outside the Company's control, such as partner companies' business strategies and regulatory authorities' decisions, revenue may not be recognized in the expected period or may fall short of the plan. In the current fiscal year, the Company recorded a significant operating loss, and there are events that raise material doubt about the going concern assumption.

Representative Director and President Kazuo Tsubota plays a critical role in the Company's R&D strategy, business strategy, and collaboration with university research institutions, and is also a major shareholder (directly holding 46.23%, and 60.92% including related parties combined). If Mr. Tsubota becomes unable to continue executing his duties or participating in R&D activities, this could have a material impact on R&D, business activities, and external credibility. The Company strives to reduce this dependence through strengthening its organizational structure, delegating authority, and developing human resources, but the likelihood of occurrence is assessed as medium and the impact as high.

The combined voting rights held by Kazuo Tsubota and related parties reach 60.92%, while the tradable share ratio remains at only 33.57%. If a major shareholder sells shares in the future, this could affect the market price and trading conditions. The Company's policy is to improve liquidity through a combination of secondary offerings by major shareholders, public offerings, and exercise of stock options.

Intellectual property rights are an important management resource underpinning the Company's business competitiveness; however, there is no guarantee that all pending patent applications will be granted, and even if granted, the scope of rights recognized may not be as broad as expected. If competitors develop alternative technologies or technologies that circumvent the scope of the Company's rights, the Company's competitive advantage may decline, potentially affecting the execution of new contracts and contract terms. If disputes over intellectual property rights arise with third parties, this could also hinder R&D and business activities.

The Company operates its business with a lean, elite organizational structure, and personnel with advanced expertise in fields such as R&D, intellectual property, business development, regulatory affairs, and clinical development play important roles. If the Company is unable to secure and develop necessary personnel in a timely manner, or if key officers or employees become unable to perform their duties due to resignation or leave of absence, this could affect R&D, business development, and the management structure. The Company strives to reduce this risk through strengthening its organizational structure, standardizing operations, and planned recruitment and development of personnel.

The Company conducts joint research with the Department of Ophthalmology at Keio University School of Medicine and jointly holds patents, with many of its outsourced researchers affiliated with the university. For certain patents not planned for commercialization, the Company has not acquired full ownership, and if an exclusive licensing agreement is concluded in the future, the Company will be obligated to pay a certain percentage of income to the university. If suspicion of improper benefit arises or if it becomes difficult to continue transactions with the university, this could harm the Company's profits and social reputation.