MEDIKIT CO.,LTD.

The Ministry of Health, Labour and Welfare basically revises reimbursement prices for specified medical materials once every two years, and insurance reimbursement prices have generally been on a downward trend. In conjunction with this, selling prices to medical institutions also decline, which may affect the Group's business performance. As countermeasures, the Group continually works to reduce costs through the sophistication of production facilities, curb selling costs, focus on high-value-added products, and take appropriate measures to prevent unprofitable products from arising.

The development, manufacturing, and sale of medical devices are subject to regulation under the laws of each country of sale, and the trend toward stricter regulation continues in each country. If licenses and approvals cannot be obtained, are revoked, or cannot be obtained in a timely manner, delays or revisions to business plans may occur, potentially affecting business performance. The Group has established a regulatory affairs department that collects information on regulations in each country and works to respond appropriately.

Because the Group handles medical devices requiring advanced technology, it is not possible to completely eliminate the occurrence of defective products during manufacturing and transportation, or improper handling in medical settings. If a medical accident occurs, disputes over product liability and product recalls may arise, and litigation costs, recall costs, and other expenses may affect business performance. The Group has established a quality control system based on the ISO quality management system and has taken measures through appropriate insurance coverage.

Plastics and stainless steel account for the majority of the raw materials used in the Group's products, and procurement prices for plastics generally move in tandem with crude oil and naphtha prices. If raw material prices surge due to changes in the external environment such as the situation in the Middle East, or if supply disruptions occur due to circumstances at suppliers, delays in production and shipment or increases in costs may affect business performance. The Group works to purchase from multiple suppliers, develop new supply routes, and reduce procurement costs.

The Group offers three product categories: Dialysis Products (Happy Cath ProFlex Series), IV Catheters (Super Cath Series), and Intervention Products (AbRoad Series, etc.), and within each category, flagship products account for a high proportion of sales. If flagship products become subject to excessive price competition, or if their competitiveness declines significantly due to product obsolescence, the Group's business and performance may be affected. The Group works to maintain competitiveness through continuous improvement of products, and to develop new high-value-added products and expand its product lineup.

Most of the products sold by the Group are manufactured by its consolidated subsidiary, TOGO MEDIKIT CO., LTD., and the main manufacturing plants are concentrated in Hyuga City, Miyazaki Prefecture. If a manufacturing plant is damaged by a disaster such as an earthquake, tsunami, typhoon, flood, or fire, production stoppages or delays in recovery may affect product shipments and worsen business performance. The Group is promoting risk diversification through expanded production at Medikit Vietnam Co., Ltd., development of the inland Hyuga No. 2 and No. 3 plants, and maintaining product inventory at the Sakura distribution warehouse, among other measures.

Technological progress in the healthcare-related industry is extremely rapid, and if new technologies that revolutionize testing and treatment methods are developed, the Group's products may become obsolete, potentially leading to a decline in market share and selling prices. The Group's basic policy is to provide products that respond to market changes and customer needs through a collaborative structure in which the Company, as the sales company, explores customer needs, and its manufacturing subsidiary, TOGO MEDIKIT CO., LTD., conducts development based on those needs.

With the acceleration of digital innovation, the threat of cyberattacks on information systems is increasing, which may adversely affect business operations. If information leaks or system failures occur, business performance may be affected due to business interruption or loss of trust, among other factors. The Group addresses cybersecurity as a management issue by appropriately managing information, information systems, and information and communication networks, implementing preventive measures against leaks and losses, and taking measures to minimize the impact in the event of an incident.

Sales channels consist of two types: direct sales to hospitals and wholesale to medical device distributors, and the management of business partners may become difficult due to declining selling prices and intensifying competition. If a customer's credit situation deteriorates significantly, or if there is a major change in the relationship with a customer, business performance may be affected due to the inability to collect trade receivables, among other factors. The Group continuously monitors the credit status of its customers and pays close attention to trade receivable management, including requesting the provision of collateral as necessary.

Manufacturing and sales overseas are important for the Group's further growth, and the Group's policy is to actively pursue overseas expansion. However, due to trends in the overseas environment, such as unexpected changes in political conditions or rising raw material prices resulting from surging resource prices such as crude oil, overseas business may not develop as planned. In addition, new businesses may also encounter circumstances that differ from forecasts and may not proceed as planned. The Group carefully advances the establishment of sales routes in new markets while conducting business with consideration of various risks that may arise.