The risks that may affect Nippon Shinyaku’s financial situation and business results include the following. The future projections included in the descriptions below are based on the company’s situation at the end of the current term.
①Risks 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.
②Risks 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).
③Risks 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.
④Risks 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.
⑤Risks 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.
⑥Risks 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.
⑦Risks 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.
⑧Risks 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.
⑨Risks 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.
⑩Risks 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 can also stagnate business activities. In these cases, the company’s business results can be affected.
We try to minimize such disaster-related risks by putting in place systems that protect personnel’s safety and ensure a stable supply of pharmaceutical products, including a business continuity plan (BCP), disaster reduction drills, anti-seismic measures, and the maintenance of a safety stock.
In the face of the ongoing COVID-19 pandemic, the company has set up a crisis center in compliance with the company’s Basic Risk Management Rules, determining the orientation of damage minimization and adopting necessary measures.
There are many other risks; the above is not an exhaustive list of risks to which the company is exposed.