MEDIPAL HOLDINGS CORPORATION

As a healthcare cost containment measure, drug price standards are periodically revised based on actual market prices, with continuous reductions implemented at ▲6.69% in FY2022, ▲4.67% in FY2024, and ▲4.02% in FY2026. Mid-year revisions were also introduced starting FY2021, increasing the frequency of revisions. If the selling price to medical institutions and others declines as a result, this could affect the business performance and financial condition of the Prescription Pharmaceuticals Wholesale Business.

The core Prescription Pharmaceuticals Wholesale Business is closely tied to the social security system and healthcare policy, and healthcare system reforms are underway against the backdrop of rising social security benefit expenditures due to demographic changes. If unforeseeable major system changes occur that affect the business structure, this could have a material impact on business performance and financial condition.

Each business site operates under licenses and permits granted by prefectural governors based on the Pharmaceuticals and Medical Devices Act, and changes in licensing status affect business performance. In addition, if future deregulation allows entry by operators from other industries, it may become difficult to maintain and expand the existing business model and competitive advantage.

Prescription pharmaceuticals have a unique trading practice in which products are delivered to medical institutions and others with prices undetermined, followed by subsequent price negotiations; when negotiations are prolonged, sales are recorded at estimated prices. In FY2026 (ending March 2026), the ratio of determined transaction prices was 99.7% (on a value basis), a high level, but if a discrepancy arises between the determined price and the estimated price, this could affect business performance and financial condition.

Trading practices such as rebates and allowances exist between the company and its pharmaceutical company suppliers, with the unsettled amount reaching ¥20,434 million in FY2026 (ending March 2026). If pharmaceutical companies significantly change their sales strategies and these trading practices are altered, this could affect the business performance and financial condition of the Prescription Pharmaceuticals Wholesale Business.

In the Cosmetics, Daily Necessities & OTC Pharmaceuticals Wholesale Business industry, intensifying competition across industry types and business formats, as well as scale expansion through M&A, continues. If competition intensifies further or trading terms are significantly changed due to reorganization of business partners, this could affect business performance and financial condition.

Business operations rely on computer network systems, and while measures such as server redundancy, seismic isolation and disaster prevention, data backup, and unauthorized access countermeasures have been implemented, if the system were to become inoperable, this would cause major disruption to sales and logistics. In the event of an information leak, a decline in social credibility could also lead to reduced sales and increased countermeasure costs.

The company is actively pursuing investments in logistics infrastructure, new drug development, investments in life science ventures, and partnerships in the digital logistics field, but if investment costs increase or expected investment returns are not achieved, or if unexpected changes in the environment cause a major deviation from the business plan, impairment losses and other costs may occur. New drug development takes time and also carries the risk of discontinuation.

Due to population decline and the aging society with fewer children, securing labor in the distribution sector is becoming increasingly difficult; while labor-saving measures at logistics centers, delivery efficiency improvements, and work-style reforms are being promoted, business performance could be affected if sufficient personnel cannot be secured. Financial condition could also be affected if employee-related costs increase significantly due to legal and regulatory changes or price fluctuations.

Business continuity plans (BCP) have been formulated and a mutual cooperation system among logistics centers nationwide has been established in preparation for natural disasters such as earthquakes and typhoons and infectious disease outbreaks, but if logistics functions are halted due to a large-scale disaster or the spread of infection, stable supply of pharmaceuticals and other products could become difficult. In addition, business performance and financial condition could also be affected by costs arising from climate change measures such as carbon taxes, or by facility damage and operational shutdowns caused by intensifying wind and flood damage.