Innovacell Inc.

Development of cell therapy products requires substantial investment and extended periods of time, and if efficacy and safety data obtained in clinical trials are insufficient, there is a risk that the planned launch timing could be delayed or the product abandoned. The core pipeline products ICEF15, ICES13, and ICEF16 all share a common technology platform using autogeneic skeletal muscle-derived cells, providing a certain degree of risk diversification; however, development delays at licensing-out partners could also have a material impact on business results. Strict approval reviews by regulatory authorities in Japan and overseas are required, and there is a risk that delays in regulatory response could have ripple effects across the entire development schedule.

As a research and development-oriented company, the Group continues to make substantial upfront investments. Consolidated operating loss for FY2025 (ending December 2025) was ¥2,231,686 thousand, and operating cash flow was ¥(1,995,296) thousand, reflecting a chronic loss-making structure. The Group is compelled to rely on external fundraising, and there are circumstances that give rise to material doubt about its ability to continue as a going concern. As countermeasures, the Group raised ¥4,280,328 thousand through the issuance of shares and share subscription rights in FY2025 (ending December 2025), and conducted additional fundraising through its listing on the Tokyo Stock Exchange Growth Market in February 2026, securing a cash and deposits balance of ¥4,101,476 thousand as of December 31, 2025.

The Group is at the research and development stage without a stable revenue source, and as shown by the consolidated operating loss of ¥2,231,686 thousand and operating cash flow of ¥(1,995,296) thousand for FY2025 (ending December 2025), continuous cash outflows persist. If the Group is unable to raise funds at the necessary timing, significant concerns regarding business continuity could arise. At present, cash and deposits of ¥4,101,476 thousand as of December 31, 2025, together with additional fundraising from the listing, are said to secure funds for the foreseeable future (more than one year), but the risk of deterioration in the future fundraising environment remains.

Business revenue is heavily dependent on upfront payments from new partnership agreements, milestone income, and product sales, creating a risk that business results could fluctuate unstably due to development delays or discrepancies in partners' sales performance. The timing of milestone income is uncertain, dependent on development and sales progress, and any delays could have a material impact on the financial position. Currently, revenue dependence on ICEF15 is high, and the risk of revenue concentration is expected to continue if commercialization of other pipeline products does not progress.

The main research and development base is the Austrian subsidiary (Innovacell GmbH), which transacts in euros and prepares its financial statements in euros. Since conversion into yen is required when preparing consolidated financial statements, significant foreign exchange fluctuations could cause increases or decreases in development costs and revenue, potentially having a material impact on business results and financial position. At present, no specific hedging measures are described, and the response to foreign exchange risk appears limited.

Manufacturing and logistics of cell therapy products require a wide variety of technologies, and if it becomes difficult to establish a commercial production system and post-launch logistics structure, this could have a material impact on business development. The Group is proceeding with sales and marketing partnership negotiations in Japan, Europe, and the United States, and is entering into confidentiality agreements with multiple contract manufacturing companies, but risks remain if negotiations do not proceed as expected or if problems arise with partners. In-house manufacturing is planned for several years following launch, but the structure depends on the GMP manufacturing facility of the subsidiary Innovacell GmbH, which also carries operational risk of the facility itself.

As of the end of December 2025, the Group is a small organization with 13 employees on a standalone basis (48 on a group-wide basis), and business activities are heavily dependent on a small number of executives and research and development personnel, including Representative Director and Co-CEO Colin Novick and Jason Sieger. If personnel turnover occurs or securing talent becomes difficult, this could hinder the promotion of research and development and the establishment of external partnerships, potentially having a material impact on business results and financial position. While the Group has a policy of strengthening personnel and expanding its internal management structure in line with business growth, this does not guarantee that personnel will be secured as planned.

The Group has a policy of flexibly conducting capital increases to fund research and development, creating a risk of dilution of per-share value due to an increase in the number of shares issued. As a result of the conversion of ratchet-type share subscription rights at the time of listing, 2,352,942 shares (5.64% dilution) have already been issued, and further dilution is expected going forward due to the granting and exercise of stock options and share-based compensation (resolved at the Annual General Meeting of Shareholders in March 2026). Since continuous external fundraising is necessary until stable earnings are established, dilution pressure is expected to continue over the medium to long term.

A licensing agreement within the Group (between the subsidiary Innovacell GmbH and the Company) has not yet been concluded, and if discussions cannot be finalized at an appropriate timing before commercialization, this could affect business operations and results. Furthermore, there is no guarantee that all pending patent applications will be granted, and there is a risk that the Company's patented technology could be superseded by superior technology developed by third parties, as well as a risk of intellectual property infringement litigation with third parties. While no infringement litigation with third parties has occurred at present, the securities report explicitly states that as a research and development-oriented company, complete avoidance of intellectual property infringement is difficult.

Pharmaceutical regulations concerning medicines, including cell therapy products, may be continuously revised in response to technological innovation and unforeseen circumstances, and regulatory changes could necessitate raising quality control standards, changing research and development plans, delaying schedules, or requiring substantial capital investment. In addition to Japan's Pharmaceuticals and Medical Devices Act, since the Group is conducting the ICEF15 Phase III international joint clinical trial covering 11 European countries, it is simultaneously exposed to the risk of regulatory changes in multiple countries. The Group strives to establish appropriate systems, but depending on the content of regulatory amendments, response costs could increase significantly.