Techno Medica Co., Ltd.

Combined sales of the Blood Collection Tube Preparation Equipment & Systems business and related consumables account for approximately 70% of total net sales. If profitability declines due to tightening of medical finances or failure to capture market needs for next-generation equipment, this could have a material impact on business performance. With cumulative domestic installations exceeding 2,500 facilities and a market share of approximately 90%, the number of new installations at large hospitals with 200 or more beds—the primary target segment—may stagnate or decline going forward. While the Company is pursuing expansion into compact equipment and smaller hospitals, there is a risk that sufficient profitability may be difficult to secure, as unit sales prices are lower while sales costs remain at levels comparable to those for large equipment.

Although the statutory useful life of blood collection tube preparation equipment is five years, third- and fourth-generation units have been in service for more than 10 years, and the Company plans to capture replacement demand to offset the decline in genuinely new demand. However, the final decision on replacement rests with users, and there is a tendency for replacement to be postponed due to circumstances at medical institutions, creating a risk that sales may not be recorded as planned. In addition, moves by other manufacturers to sell non-genuine consumables at discounted prices may hinder the expansion of continuous transactions.

Although the Company holds an approximately 90% share of the domestic market, sales may be affected by the specifications and pricing of competitors' new products. The Company's products are priced at a higher band than competitors' offerings, making it essential to continuously appeal to high-value-added features such as contactless operation, labor savings, and reduced waiting times, as well as to maintain ongoing product differentiation and brand value in order to sustain sales prices. Deterioration in the management environment of medical institutions may also lead to cancellation or postponement of new equipment installations or downgrading of specifications, and the success of strategies to increase unit prices through package sales of optional products will have a significant bearing on business performance.

National medical expenditures rose to ¥48,091.5 billion in fiscal 2023 and continue to trend upward, while deterioration in medical insurance finances has resulted in chronic deficits at many hospitals, with a majority continuing to operate in the red. The 2026 revision of medical service fees included a +3.09% increase in the base portion, but this has not reached a level sufficient to underpin the overall management of medical institutions, and restraint in capital investment by medical facilities may adversely affect demand for the Company's products. Tightening of medical finances is a risk factor that directly constrains the purchasing power of medical institutions, the Company's primary customers.

Sales of mainstay products tend to be concentrated in the second half and fourth quarter due to the timing of orders and delivery requests from medical institutions, creating a structure prone to period-by-period fluctuations in performance. If the introduction of upper-level systems by medical institutions is delayed beyond initial expectations, sales may be recorded in the following fiscal period, potentially having a significant impact on operating results for a specific period. This seasonality and concentration structure makes short-term performance evaluation difficult and also affects the accuracy of investors' performance forecasts.

The Company outsources the majority of the manufacturing process for blood collection tube preparation equipment and Specimen Testing Equipment to partner companies, and if a serious problem occurs at a manufacturing subcontractor, product supply may be disrupted. Although blood collection tube preparation equipment is not classified as a medical device under the relevant legal system, it is medical-related equipment, and in the event of a product defect, the Company would face a risk of loss of credibility. The Company seeks to ensure quality through strengthened collaboration with manufacturing subcontractors and enhanced incoming inspections, but risks arising from this outsourcing-dependent structure cannot be entirely eliminated.

Research and development themes are generally set with a development period of two to five years, but if a clear product concept cannot be established due to technical hurdles or changes in the market, development may be forced to be suspended, potentially affecting future R&D plans. It is uncertain whether the research, development, commercialization, and sales plans for new products will expand as the Company anticipates, creating a risk that dependence on the Blood Collection Tube Preparation Equipment & Systems business may continue into the future. As a research and development-oriented company, the long lead time required to bring products to market constrains the speed of response to changes in the market.

The manufacture and sale of medical devices and in-vitro diagnostic products are subject to regulation under the Pharmaceutical Affairs Law, the QMS Ministerial Ordinance, and other relevant laws, and the Company operates under the supervision of the Ministry of Health, Labour and Welfare and Kanagawa Prefecture, holding a Type 2 Medical Device Marketing Business License, a Medical Device Manufacturing Business Registration, and an In-Vitro Diagnostic Product Manufacturing Business License. Changes in regulatory content resulting from legal amendments, or any violation of regulations, could have a material impact on business activities. Licenses must be renewed at intervals specified by government ordinance of not less than five years, making continuous maintenance of a compliance framework essential.

Plastic materials are used in various products and materials, including Consumables, etc., and the rise in crude oil prices due to instability in the Middle East, as well as shortages of raw materials and supplies, have become factors increasing procurement costs. If difficulties in procuring raw materials and materials or supply shortages occur, this could disrupt the manufacturing and supply of consumables for medical institutions, adversely affecting production activities and profitability. The Company is working to review its procurement sources, but supply constraints or prolonged price increases beyond current expectations may affect business performance.

The Company exports Blood Collection Tube Preparation Equipment & Systems to regions such as Asia, Europe, and Latin America via distributors, and operates local sales activities through a branch office in Taiwan, but may face risks such as international disputes in destination countries and regions, contractual risks with overseas distributors, and risks related to maintenance and management. Overseas sales are generally based on exclusive distribution agreements with distributors contacted through trade shows and similar events, resulting in a structure with a high degree of dependence on distributors. If the deterioration of medical finances or intensifying price competition for medical devices leads to a worsening of the financial condition of overseas business partners, this could also affect the Company's business activities.