Among the matters related to business status, accounting status, and other items described in the securities report, the major risks that management recognizes as having the potential to have a significant impact on the company’s consolidated financial condition, business results, and cash flow status are as follows.
The future projections included in the descriptions below are based on the company’s judgment as of the date of submission of the securities report.
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(1)Risks related to legal regulations
The company ’s main business activities in the pharmaceutical and functional food segments are subject to strict regulations under the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices; the Food Sanitation Act; and other applicable laws and regulations. Amendments to these laws and regulations pose the risk of product recall or sales suspension, affecting the company’s business results.
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(2)Risks related to intellectual property rights
In the event of third-party infringement or violation of the company’s IP rights, which can decrease its sales, it may lead to taking legal action to protect its interests. On the other hand, in the event of infringement or violation of third-party IP rights by the company, it can be involved in a legal dispute, having to shoulder the burden of possible resultant damage compensation or the suspension of the business activity concerned. These risks are likely to affect business results.
We have a system in place to devise the best possible response to identified IP-related risks in collaboration with legal attorneys (law firm) and/or patent attorneys (patent agency). -
(3)Risks related to litigation
The company has the possibility of being the target of litigation in connection with its business activities, adverse effects, product liability, pollution and other environmental problems, labor disputes, fair trade, and so on. Depending on the nature and development of litigation, its business results can be affected.
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(4)Risks related to research and development
The research and development of pharmaceutical products requires a huge amount of funds and a long period of time. Yet, the probability that such R&D efforts result in new product launches or licensing-out is not necessarily high. If a candidate drug turns out to be useless or an R&D project has to be aborted while in process due to safety concerns, the R&D investment made thus far cannot be recovered, and consequently the company’s overall business performance can be affected in some cases.
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(5)Risks related to adverse effects
The sales of pharmaceutical products are authorized only after complete safety tests and stringent review . However, unexpected adverse effects can still be detected after the launch, necessitating product recall and even sales suspension, which can seriously impact the pharmaceutical manufacturer’s business results.
The company is covered by appropriate insurance policies in anticipation of adverse effect-related risks and to prepare for compensation in the case of product liability or other litigation. The company also has a committee that sets operating rules and takes the lead in responding to identified risks, with related divisions working in collaboration. -
(6)Risks related to healthcare cost-cutting measures and other administrative trends
The pharmaceutical industry is regulated by the governmental policy on pharmaceutical affairs. Policy measures impact the pharmaceutical industry to varying degrees, as in the case of the lowering of prescription drug prices and the promotion of generic drugs for healthcare cost reduction. Public debate is still continuing on healthcare system reform. Depending on how the reform evolves, with different consequences such as stricter regulations applicable to the development, manufacturing, and sales of pharmaceutical drugs, the company’s business results can be affected.
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(7)Risks related to manufacturing and purchase
The company’s centralized manufacturing base ensures a high level of manufacturing efficiency. On the other hand, a major natural or other disaster, forcing the manufacturing center to suspend operation, thereby stopping product supply, can negatively impact the company’s business results. Likewise, the suspension of supply of some pharmaceutical ingredients, which come from specific suppliers, can affect the company’s business results.
With regard to disaster-related risks, we have put in place a business continuity plan (BCP) at our manufacturing center while conducting disaster reduction drills and maintaining a safety stock. To reduce risks related to raw material supply, we have established a system for stable supply of pharmaceuticals by securing multiple suppliers and reinforcing collaborative ties with related companies. -
(8)Risks related to financial market and exchange trends
Fluctuations in stock prices, interest rates, foreign exchange rates, and other financial market trends can significantly lower the market prices of the company’s assets and pension funds, exposing transactions in foreign currency to greater risks. These fluctuations can affect the company’s business results.
We try to minimize the risk of foreign exchange fluctuations related to foreign currency debts through the use of foreign exchange forward contracts and other such means. -
(9)Risks related to IT security and information management
For its use of information systems, the company’s operation can be disrupted by system failures and cyberattacks. Accidental leakage to external parties of confidential information in the company’s possession, including information enabling personal identification, can result in damage compensation and the loss of society’s trust in the company, which in turn can affect the company’s business results.
To prevent the possible development of these risks into incidents, we have formulated related rules, which are fully made known to related personnel; conduct security education for employees; and devise anti-cyberattack and system failure measures covering prevention, surveillance, response, and restoration preparedness. -
(10)Risks related to environmental conservation
The company uses various chemical substances for research and development and product manufacturing. In the event that a serious environmental problem occurs, business results may be affected due to suspension of operations, administrative penalties, damage to social trust, and other reasons.
Moreover, if environmental conservation-related costs increase due to the future tightening of environmental laws and regulations, additional obligations to reduce environmental impact, and other factors, the company’s business results may be affected.
Having expressed support for the recommendations of the Task Force on Climate-related Financial Disclosures (TCFD), the company promotes initiatives in line with the TCFD recommendations regarding risks and opportunities related to climate change and discloses the results as appropriate. The company will continue to promote preparations for climate change, including continuous dialogue with stakeholders. -
(11)Risks related to major disasters
Earthquakes, typhoons, and other natural disasters, as well as fires and other accidents, can seriously damage the company’s administrative and sales offices and suppliers’ facilities. The spread of new viral or other contagious diseases and the outbreak of conflict or terrorism can also stagnate business activities. In these cases, the company’s business results can be affected.
In preparation for the risks associated with these disasters, we put in place systems that protect our personnel’s safety and ensure a stable supply of pharmaceutical products, including formulating a business continuity plan (BCP), conducting disaster reduction drills, taking anti-seismic measures, and securing safety stocks. Thus, we strive to minimize disaster-related risks.
There are many other risks; the above is not an exhaustive list of risks to which the company is exposed.