TMS Co., Ltd.

Development of prescription pharmaceuticals requires substantial R&D investment and a long time horizon, and success in preclinical and clinical trials does not guarantee success in subsequent stages. If development is extended or discontinued due to delays in reaching agreement with regulatory authorities or failure to obtain approval, there is a risk of losing the entire investment made in that development. As countermeasures, the Company is working to expand its pipeline and target diseases and to obtain appropriate advice through prior consultations with regulatory authorities.

For TMS-007, a treatment for cerebral infarction and the Company's lead pipeline asset, there are multiple competing products, including Tenecteplase (already approved in the U.S.), Sovateltide (approved in India, Phase III initiated in the U.S.), LT3001 (intent to advance to Phase III announced), and HRS-7450 (a TMS-007 analog, Phase II initiated in China). If competing new drugs are launched ahead of TMS-007 and its competitive advantage declines, the partner company may suspend or delay development, which would have a severe impact on the Company's milestone and royalty income. There is also a possibility of biosimilar entrants.

The Company's revenue is heavily dependent on milestone and royalty income from its partner (CORXEL) for TMS-007, and there is a risk that revenue could fluctuate significantly due to changes in the partner's strategy, portfolio reviews, or discontinuation of development. Because the partner solely owns the TMS-007-related patents and controls most of the clinical trials, the Company's access to information is limited, making it difficult to accurately forecast future revenue. The next milestone is expected to be triggered upon completion of dosing of the fifth patient in the Phase III clinical trial for TMS-007 in regions outside Japan.

As an R&D-focused company, the Company has continuously recorded operating losses and negative operating cash flow, and as of the end of the fiscal year ended December 2025, it has accumulated a deficit carried forward of ¥3,763 million. The Company's policy is to raise funds at appropriate times until a stable revenue source is secured; however, if it is unable to secure funding at the necessary timing or on necessary terms, this could raise material concern about the Company's ability to continue as a going concern. In March 2025, the Company issued the 10th Series Stock Acquisition Rights with an exercise price adjustment clause (potential shares of 2,870,000, equivalent to 6.3% of total shares issued) to raise funds.

The term of the key granted patent for TMS-007 is expected to expire in 2030, and even if the pending patent application is granted, it is expected to expire only as late as 2042. The granted patents for TMS-008 and TMS-009 have short remaining terms, expected to expire in 2027, and if additional patents cannot be obtained, this could adversely affect the Company's ability to develop and commercialize its product candidates. In addition, the partner holds the authority to exclusively exercise the intellectual property rights related to SMTP compounds, and if the partner does not appropriately exercise this authority, the Company's development capabilities may be constrained.

In Japan, drug price suppression is progressing through continuous drug price standard revisions and generic drug promotion measures, while in the U.S., there are moves to strengthen drug price regulation under the Inflation Reduction Act of 2022, enacted in August 2023. In Europe as well, there is downward pressure on drug prices due to competition from parallel imports and generics and increased use of cost-effectiveness assessments. These administrative policies could reduce the royalty income the Company receives from sales of its product candidates.

The Company does not own manufacturing facilities and depends on third-party contract manufacturing organizations, such as Nihon MicroBioPharma Co., Ltd., for the manufacture and supply of its product candidates. If a contract with an outsourcing partner that would be difficult to replace is terminated for unforeseen reasons, or if outsourced operations are disrupted due to natural disasters, regulatory crackdowns, or other causes, this would seriously impede business activities. The manufacturing of TMS-007 and TMS-008 is concentrated with a common contract manufacturer, and if manufacturing schedules overlap, this could also affect the development schedule of either product.

As of the end of the current fiscal year, the Company is a small organization with 18 full-time employees, and its business activities are heavily dependent on a small number of key personnel, including the Representative Director and President, the Chairman of the Board (a founding researcher), and the Director in charge of development. If key personnel leave, or if the Company is unable to smoothly secure and develop personnel, this could impede business activities and have a material impact on business performance and financial condition. While the Company is working to cultivate its organizational culture and strengthen its internal structure, including through new hires, the vulnerability inherent in its small size remains an ongoing risk.

The Company's policy is to flexibly raise funds through the issuance of new shares to secure R&D funding, and the potential shares from the 10th Series Stock Acquisition Rights (with an exercise price adjustment clause) issued in March 2025 amount to 2,870,000 shares (equivalent to 6.3% of the 45,485,767 total shares issued). There are also 2,372,380 potential shares from stock options and other stock acquisition rights, and if these are exercised, the value per share would be diluted, affecting share price formation. In addition, venture capital firms and others hold 19.1% of total shares issued, raising concerns about the impact on the share price from supply-demand fluctuations if these shares are sold.

The Company holds confidential information related to R&D and personal information, but it has not currently obtained cybersecurity insurance, and there is a risk of information leakage due to negligence or intentional acts by officers and employees, or cyberattacks. If important confidential information is leaked, in addition to the impact on business development and operating results, the Company could become subject to regulatory measures, sanctions, or litigation, including business suspension, for violating rapidly changing data privacy regulations. The Company addresses this risk by establishing information security management regulations and personal information protection management regulations, and by entering into confidentiality agreements with partners and business counterparties.