The Group promotes its operations within the framework of pharmaceutical administration, in compliance with legal regulations regarding pharmaceutical development, production, and distribution in Japan, such as the Pharmaceutical and Medical Device Act, as well as various regulatory frameworks of other countries. However, we are aware of the existence of risks that could materially affect our business performance and financial condition, due to various factors including substantial changes in relevant laws, healthcare system reforms, drastic changes in the market environment, and large-scale natural disasters.
Among such risks, those that could materially affect the decisions of investors are described below. Although the Group has taken organizational and systematic measures to minimize risk, the outline does not include every risk or variable that could affect its business.
Risks Associated with Value Creation
1. Risks Associated with R&D
Ethical drug development requires substantial R&D investment over lengthy periods, and the success rate for bringing a drug development candidate to market as a pharmaceutical product is low. Should development be delayed or terminated due to safety issues or a failure to confirm the expected efficacy of a drug development candidate, our business performance and financial condition could be materially affected.
The Group is working to expand our development pipeline by enhancing our ability to create high-value new drugs that meet medical needs and by significantly strengthening in-licensing capabilities.
2. Risks Associated with Stable Supply
The supply of certain products and raw materials to the Group depends on having specified business partners. Should manufacturing activities or procurement be delayed or terminated due to unforeseeable circumstances, the stable supply of our products could be adversely affected. Furthermore, while our pharmaceutical products are manufactured within various regulatory frameworks, should problems such as those related to quality control at suppliers occur and recalling our products become necessary, our business performance and financial condition could be materially affected.
To ensure a stable supply of products, the Group strives to secure a certain amount of products and raw materials, make production plans and inventory adjustments with subcontractors, and develop multiple and alternative suppliers. In addition, we have built a new plant in Takaoka to strengthen our production capacity for drugs. Regarding quality control, we are quickly and accurately addressing aspects involving reliability assurance for the environment and are working to strengthen our pharmaceutical-related legal and regulatory compliance structure.
3. Risks Associated with Healthcare System Reforms
Japan’s healthcare system, including NHI drug prices, is being revised. Should greater-than-expected NHI drug price revisions be made or should changes to the NHI system occur, our business performance and financial condition could be materially affected.
The Group is working to increase profitability by maximizing the ratio of new drugs and to improve cost competitiveness by reducing the cost of manufacturing drugs and optimizing costs Groupwide.
4. Risks Associated with Alliances
The Group promotes strategic alliances to make efficient use of external capital. Through tie-up agreements with other pharmaceutical companies inside and outside Japan, we license technology, allocate sales rights for some products, and collaborate in sales, R&D, and other activities. Should these alliances be terminated or should significant changes in business strategy or the business environment occur at a business partner, our business performance and financial condition could be materially affected.
The Group strives to maintain and develop ongoing alliance relationships, enhancing these relationships in light of the business strategies and R&D trends of business partners.
5. Risks Associated with Competition from Other Drugs
The competitive landscape in the pharmaceutical market is severe. Should competition from peer products in the same fields intensify, the entry of generic drugs after the patent expiry of the original drugs increase, or entry from other industries utilizing advanced technological capabilities intensify, our business performance and financial condition could be materially affected.
Following our FC (franchise customer) strategy, the Group is actively engaged in activities aimed at maximizing the expansion of sales growth in new drugs through solution-based marketing (proposing solutions to problems) as one of the priority strategies of our medium-term business plan. In the generic drugs business, we are focusing on the manufacture and sale of authorized generics and working to develop businesses that utilize the unique characteristics of the Group.
6. Risks Associated with Side Effects
Clinical trials in the development phase of ethical drugs are conducted on only a limited number of subjects. Therefore, should unforeseeable and severe side effects occur after the launch of a drug, its usage could be restricted or, in some cases, its sale could be discontinued, and our business performance and financial condition could be materially affected.
The Group collects and analyzes a wide range of safety information after the launch of a pharmaceutical product and promptly provides appropriate information to the medical field.
7. Risks Associated with Intellectual Property Rights
Should the Group’s business activities infringe on the intellectual property rights of another company or should a third party infringe on our intellectual property rights, the Group could encounter issues such as business discontinuation or legal disputes, which could materially affect our business performance and financial condition.
The Group strictly manages its intellectual property rights and continuously and carefully watches out for any infringements by third parties.
Risks Associated with Our Foundation to Support Value Creation
1. Risks Associated with IT Security and Information Management
The Group utilizes numerous IT systems in its business operations and handles highly confidential and personal information. Therefore, we face the risk of operations being suspended or information being leaked due to factors such as system faults, computer viruses, or cyberattacks. Should society’s trust in the Group become seriously weakened due to unforeseeable business disruptions or leakages of information, our business performance and financial condition could be materially affected.
The Group strives to establish IT security measures and a framework for information management systems by introducing IT security services, regularly backing up data, establishing various information management regulations, and providing employee training on those regulations.
2. Risks Associated with Human Resources
The Group believes that the growth of human resources serves as the driving force behind the strengthening of our business and considers enhancing human resources an important issue for executing business strategies and realizing results. However, should we become unable to secure talented personnel and diversity in our workforce, including women, mainly due to intensifying competition for human resources and significant changes in the work environment, the growth of our business activities may stagnate, which could materially affect our business performance and financial condition.
Committed to the basic idea that the Company and its employees are partners that realize mutual benefits, the Group is working to appropriately operate its human resources management system. We are also actively promoting work-style reforms that respect diverse values through initiatives such as promoting women’s active participation.
3. Risks Associated with Lawsuits
The Group faces litigation risks in its business activities both in Japan and overseas, including those associated with intellectual property rights such as patents, violations of the Product Liability Act, environmental protection issues, and labor disputes. Should lawsuits involving such risks be brought against the Group, our business performance and financial condition could be materially affected.
While conducting business activities, the Group takes appropriate measures based on the advice of experts.
4. Risks Associated with Environmental Issues
The Group conducts business activities with consideration for the environment. However, should a violation of relevant laws or regulations occur due to unexpected accidents or other events in business operations, our business performance and financial condition could be materially affected.
The Group strives to not only comply with relevant laws and regulations but also to achieve even higher voluntary standards in terms of the environment, health, and safety. It also promotes Groupwide EHS activities that integrate the environmental management system and the industrial safety and hygiene management system. In particular, the Group views climate change countermeasures as one of its critical issues. As a result, it has established the Environmental Committee to consider the impact of Groupwide business activities on the environment.
5. Risks Associated with Large-Scale Disasters
Should natural disasters such as earthquakes or typhoons, accidents such as fires, or pandemics such as influenza or COVID-19 occur, these events could result in the closure of plants and the suspension of operations at KYORIN Pharmaceutical Group Facilities Co., Ltd., the Company’s production subsidiary, the Group’s suppliers, or other locations. Should such plant closings or suspensions extend for a lengthy period, our business performance and financial condition could be materially affected.
The Group prepares various manuals and conducts drills to prepare for large-scale disasters. We also secure a certain amount of inventory to ensure a stable supply of products.
6. Risks Associated with Volatility in the Financial Markets
The Group’s business performance and financial condition could be affected during import and export transactions due to fluctuations in exchange rates. Should greater-than-expected fluctuations in financial markets or surging purchase prices and fluctuations in the amounts of pension assets, retirement benefit obligations, the valuation of shares held, etc., occur, our business performance and financial condition could be materially affected.
The Group responds to fluctuations in financial markets by confirming trends in these markets when drafting the business plan, then revising our assumptions for exchange rates and interest rate levels accordingly.