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.
1. Risks related to 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. KYORIN Pharmaceutical Co., Ltd. has clarified its priority research areas and has been making efforts to expand its pipeline, by engaging in proprietary drug discovery, in addition to R&D based on open innovation with pharmaceutical companies, academic institutions, and venture start-ups in Japan and overseas.
However, should development be delayed or terminated due to the emergence of unforeseeable side effects, a failure to achieve intended clinical results, or other reasons, our business performance and financial condition could be materially affected.
2. Risks related to Healthcare System Reforms
Japan’s healthcare system, including NHI drug prices, is being revised. In terms of sales, the Group is working to increase the ratio of new pharmaceuticals by maximizing their availability, while in terms of production, it is engaged in initiatives including reforms of the cost structure through a consolidation of its production functions and Groupwide optimization.
However, should greater-than-expected NHI drug price revisions be made or changes to the NHI system occur, our business performance and financial condition could be materially affected.
3. Risks associated with stable supply
The supply of certain products and raw materials to the Group depends on having specific business partners. The Group has secured a certain amount of products and raw materials to ensure a stable supply of its products, and has been striving to secure multiple suppliers of its essential raw materials. However, 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 quality-related or other problems occur, and recalling our products become necessary, our business performance and financial condition could be materially affected.
4. Risks related to competition from other drugs
In the new drugs business, the Group has been concentrating its management resources in the specific fields of respiratory, otolaryngology, and urology, and working to enhance its presence there by giving priority to activities that provide information to doctors specializing in these fields. In addition, in the generic drugs business, the Group has been engaged in business development that makes the most of its characteristics by proactively pursuing the market launch of authorized generics.
However, should competition from peer products in these fields intensify and the entry of generic drugs after the patent expiration of the original drugs increase, our business performance and financial condition could be materially affected.
5. Risks related to IT security and information management
Given that numerous IT systems are utilized in business operations, the Group strives to establish IT security measures and a framework for information management by implementing security software and periodic data back-ups, and establishing various information management rules and thoroughly communicating them to our employees.
However, should unforeseeable business disruptions or leakages of information occur due to factors such as system faults, computer viruses, or cyberattacks, and society’s trust in the Group become seriously weakened, our business performance and financial condition could be materially affected.
6. Risks associated with intellectual property rights
The Group strictly manages its intellectual property rights and continuously pays close attention to any infringements by third parties. However, should a third party exploit the Group’s technologies and infringe on our intellectual property rights in our market or in a related market, or should the Group’s business activities infringe on the patents of another company or otherwise violate its intellectual property rights, the Group could become involved in legal disputes and have to terminate some business operations, and our business performance and financial condition could be materially affected.
7. Risks associated with lawsuits
The Group, on the advice of experts, manages the litigation risks that occur 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.
However, should such lawsuits be brought against the Group, our business performance and financial condition could be materially affected.
8. 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, the subsidiary allocates sales rights for some of its products and collaborates in sales, R&D, and other activities. In addition, the Group strives to maintain and develop ongoing alliance relationships, enhancing these relationships in light of the sales strategies and R&D trends of the tie-up partners.
However, should these alliance relationships be ended, our business performance and financial condition could be materially affected.
9. 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 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.
10. Risks Associated with Large-Scale Disasters
The Group prepares various manuals and conducts drills to prepare for large-scale and other disasters. However, should natural disasters beyond our expectations 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. While the Group has secured a certain amount of inventory to ensure a stable supply, should such plant closings or suspensions extend for a lengthy period, our business performance and financial condition could be materially affected.
11. Risks Associated with Volatility in the Financial Markets
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. The Group recognize that climate change adaption is the one of most important issue, so the group conducts its business operations with due regard for their impact on the global environment, like reduce of environmentally harmful material.
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.
12. Risks Associated with Volatility in the Financial Markets
The Group’s business performance and financial condition could be materially affected during import and export transactions due to fluctuations in exchange rates. In addition, should fluctuations occur in the amounts of pension assets, retirement benefit obligations, the valuation of shares held, etc., due to fluctuations in exchange rates, in interest rate levels, or on the stock market, our business performance and financial condition could be materially affected.
(Impact of the COVID-19 pandemic)
The Group's operating results and financial condition may be materially affected by various impacts, such as restraints on medical institutions and restrictions on information provision activities associated with the further expansion of the COVID-19 pandemic. While taking health-conscious measures for our employees, we are promoting reforms to working styles such as working from home or on a time difference. In our sales activities, we are refraining from MR activities to medical institutions, while actively utilizing digital channels to provide information.
However, if the COVID-19 expands beyond our assumptions, it could have a material impact on our Group's operation results and financial condition. In addition, even if the outbreak of COVID-19 converges, it may have an impact for a certain period of time.