Business Risks

Statutory Regulations

Fuji Pharma is subject to stringent rules based on the Pharmaceutical Affairs Law and associated laws and regulations and must acquire the licenses and approvals noted below to engage in pharmaceutical-related business activities. The Company emphasizes compliance with associated laws and regulations and miscellaneous provisions pursuant to these licenses and approvals, and at the current time management has no knowledge of any facts that would warrant licenses or approvals now held to be revoked. However, if Fuji Pharma were to violate the law or for any other reason fail to conform to prevailing rules and subsequently have certain licenses or approvals revoked, the Company might be required to recall products that are affected by the loss of license or approval and halt production as well as sale of the affected products. This could have a significant impact on the business activities of the Company.
In addition, the Company is permitted under the Pharmaceutical Affairs Law and related regulations to manufacture and market pharmaceutical products. Future amendments to laws and regulations governing the pharmaceutical industry in Japan could impact the Company's financial position and its business results.

Status of Key Licenses and Approvals

Pharmaceutical Product R&D

Not only issues in the research and development of our group, such as lack of results expected from clinical trials or revision of development plans pointed out by administrative authorities, but also problems caused by external parties, such as joint development partners, partners, and consignees, may lead to a rise in costs associated with the plan changes, or an extension of the development period or discontinuation or discontinuation of development due to new development products and other R&D without proceeding as planned. This may affect the result of our group. As one of the countermeasures, we strive to minimize the risk of damage by including countermeasures in the contract clause in contracts with outside companies.

Industry Competition

It is a policy at Fuji Pharma to sell products at reasonable prices, while keeping profitability in mind. However, significant downward pressure on market prices due to competition from numerous rival manufacturers might force the Company to reduce prices on some of its products. Aggressive strategies by pioneer drug manufacturers in Japan to preserve market share might also squeeze the Company's sales. These situations could prevent the Company from achieving its performance targets. Measures are implemented across divisions to ensure clustering, such as reducing the cost of procuring raw materials and reducing costs by reviewing manufacturing methods.

Raw Material Procurement

Fuji Pharma group procures raw materials from both domestic and overseas, and we are progressively increasing the number of supply chains for raw materials for important products. However, if rising raw material prices affect the cost of products, or if changes in the supply-demand balance of raw materials, domestic and overseas regulations or quality problems arise by raw material manufacturers, it may become difficult for us to obtain raw materials in the long term and we may be unable to manufacture and sell products. This may impact our Group's business results.

Adverse Drug Reactions and Product Quality

Due to unexpected side effects after marketing, accidents such as contamination of products with impurities, changes in quality due to changes in raw materials and manufacturing methods, and regulatory changes in the administrative authorities, there is a possibility that the recovery, manufacture, or sale of products may be discontinued. In such cases, our Group's performance may be affected. Quality management and review for quality control was introduced as a countermeasure. In addition, a specialized unit established in the Quality Assurance Department monitors and confirms the possibility of unexpected quality problems.

Delayed or Suspended Product Supply

In the event of a suspension of operation or disruption in a manufacturing facility, warehouse, etc. that manufactures a product due to technical and regulatory problems, or water damage, fires, earthquakes, or other human or natural disasters, the supply of the product may be suspended, which may impact our Group's business results. As a countermeasure, the Risk Management Committee has been set up within the company to formulate a plan for replacing the supply in the event of a disaster and a procedure for restoring the supply.

Reliance on Specific Product

Iopamidol injection, a urinary tract and angiographic agent, is a major product for the Company. Sales of this product accounted to approximately 20% of net sales in the fiscal year ended September 30, 2022. The Company's business results might be affected if for some unexpected reason sales of this product were to stop, or if sales decreased significantly. Fuji Pharma has placed SCM Department under the direct control of the president in order to strengthen the control of the supply chain so as not to lead to the discontinuation of sales, etc. We have also introduced "quality management reviews" for quality control and other measures. In addition, we believe that our reliance on specific products will decrease as we expand our product portfolio, including new products that we plan to bring to market in the future.

Revisions to Official Price List for Medicines in Japan

The National Health Insurance Drug Price List is a list of prices established by the Ministry of Health, Labour and Welfare under provisions of the Health Insurance Law for pharmaceutical products used in medical services, that is, ethical pharmaceuticals, and used in the calculation of medication costs as a drug price standard. The prices on this official price list are not necessarily those paid by medical institutions to drug manufacturers, causing a price discrepancy. To narrow the difference between the purchase price paid by medical institutions to drug manufacturers and the reimbursement price on the official National Health Insurance Drug Price List, which stipulates the amount insurance programs pay to medical institutions for drugs used in providing medical services to patients, the Ministry of Health, Labour and Welfare revises listed prices. The NHI drug price will be revised annually from April 2021, and the impact of the April 2022 revision on the NHI drug price of our products is 6.5%. As a countermeasure, we will continue to reduce costs in conjunction with sales at an appropriate price considering profitability.

Litigation

When generic drugs are approved, lawsuits may be brought by new drug manufacturers for violation of manufacturing method patents, etc. In addition, lawsuits related to product liability, environment-related, labor-related, and others may be filed after sale. The outcome of these lawsuits may impact our Group's business results. As a countermeasure, the intellectual property division conducts preliminary check of litigation risks by the intellectual property division, and the legal division conducts preliminary check of litigation risks to reduce the likelihood that risks will emerge.

Difference in elimination of investments in the consolidated balance sheets (Goodwill)

On October 1, 2012, Fuji Pharma made OLIC(Thailand) Limited a consolidated subsidiary through the purchase of shares from existing shareholders. As a result, Fuji Pharma recorded "Goodwill." The Company's policy is to amortize goodwill on a straight-line basis over 12 years.
The amount of "Goodwill" in the consolidated balance sheet at the end of the current fiscal year is 691 million yen. Goodwill is subject to impairment accounting as is the case with other fixed assets. If the profitability of OLIC(Thailand) Limited declines due to significant changes in the business environment or business, the incidence of an impairment loss on goodwill may have an impact on the Group's operating results and financial position.
Fuji Pharma has established the Corporate Planning Department as the department in charge of related companies to discuss issues based on regular reports, and are working to maintain and improve the profitability of our OLIC(Thailand) Limited.

For new coronavirus infections

At the time of submission of this report, there is no prospect for the termination of a new type of coronavirus infection, and the future is unclear. As disclosed in our disclosure since March 2020, we have made the following arrangements and implemented our response policies.
・Establish an information communication meeting where the president will participate, and take measures after gathering the necessary information.
・Visitors to medical institutions by employees of branches and business offices shall be comprehensively judged on the propriety and extent of implementation based on the status of the location of the branches and business offices and the intention of the medical institutions, etc.
・The establishment of opportunities for the gathering of large numbers of people and their participation in such opportunities will be avoided as much as possible. For example, the self-restraint of domestic and overseas trips, the implementation of at-home work and time difference work, as well as internal and external meetings, training and seminars, etc., are based on the principle of remote participation.
・Sanitation management (alcohol disinfection at the entrance, etc.) and daily test temperature shall be thoroughly performed. If the body temperature is 37 degrees or higher, the person shall be at home or waiting at home.
・If the patient is suspected of being infected, consult a medical institution who has been instructed in accordance with the policy of the Ministry of Health, Labour and Welfare.
・If an employee (including a family member living with the employee) is found to be infected, the employee shall not come to the office.
In the future, if a new type of coronavirus infection is found in our group employees, it may affect research and production activities. As for clinical trials, there is no manifest risk at the time of submission of this report. Fuji Pharma will continue to pay attention to the situation. There are no risks that have materialized as of the filing of this report because we have secured inventories necessary for the manufacture of products, raw materials, and materials for manufacturing in the foreseeable future. In the future, the expansion of new coronavirus infections may impact our Group's business results.

IT security and information-management risks

Since Fuji Pharma uses various information systems, the business may be hindered by system failures, computer viruses, or cyber attacks. In addition, Fuji Pharma hold a large amount of confidential information, including personal information. If these information leaks outside the company, it may have a material impact on our operating results and financial position due to compensation for damages, administrative sanctions, loss of social trust, etc. As a countermeasure, we conduct regular information security training for all of our employees.

Risks Related to Securing Human Resources

Fuji Pharma believes it is necessary to secure appropriate personnel for the future expansion of our business. On the other hand, if it becomes difficult to secure human resources or if the development of human resources does not proceed smoothly, our Group's business results and financial condition may be impacted.
Since our inception, Fuji Pharma has nurtured a company culture that emphasizes human resources. Our focus is on securing and nurturing human resources based on this company culture.

Risk related to digitization

Fuji Pharma is proceeding with digitization, but if the response is delayed or the cost is high in comparison with the competition, and information security measures are delayed, the business may be impacted.
In order to promote digitization in our medium-term management plan, Fuji Pharma is advancing specific initiatives in three areas: the Sales Division, the Toyama Plant and Research & Development Center, and the Head Office Corporate Functions.

Risk related to prepaid money related to exclusive sales right and exclusive sales right

Fuji Pharma records upfront payments related to exclusive distribution rights and exclusive distribution rights under the agreements, which require us to evaluate whether there are indicators of impairment on a regular basis, similar to goodwill. If it is determined that an impairment loss has occurred, the recording of the impairment loss may have an impact on our Group's results of operations and financial condition.
Fuji Pharma records prepaid for exclusive sales under the contract as "long-term prepaid." When recording long-term advances, the Company conducts appropriate evaluations by external experts as necessary. After recording the long-term advances, the Company conducts appropriate evaluations each fiscal year.
In addition, the business development department serves as the department in charge of the relevant business and provides opportunities for consultation on the basis of periodic reports, and evaluates and verifies the progress of development and the sales plan.

Risks Related to Investment by Partners

With regard to investments in alliance partners, there is a possibility that the Group will record a loss on valuation of investment securities due to a decline in the standard price for listed stocks and derivative receivables, and for unlisted stocks, a loss on valuation of investment securities due to the impairment of corporate value assumed at the time of acquisition due to changes in the business environment and other factors, which may affect the our Group's business results and financial position.
When recording unlisted shares, we conduct an appropriate evaluation by outside experts as necessary. After recording the shares, we conduct an appropriate evaluation every fiscal year.
In addition, the Planning Department has set up an opportunity for consultation based on periodic reports, and is making efforts to contribute to maintaining and improving the profitability of the target company.