Business Risk

Chugai’s corporate performance is subject to material impact from a range of possible future events. Below, we list what we consider the principal sources of risk to the development of our business. We recognize the possibility of these risk events actually occurring, and have prepared policies to forestall such events and take appropriate measures when they do occur.

New Product Research and Development

With the aim of becoming a top innovator for advanced and sustainable patient-centric healthcare, powered by its unique strength in science and technology, Chugai aggressively pursues research and development in Japan and overseas. Our development pipeline is well stocked, especially in the field of oncology. However, bringing all drug candidates smoothly through to the market from the development stage may not be possible, and we expect to have to abandon development in some cases. When such a situation occurs, there is a possibility of a material impact on Chugai’s business performance and financial position, depending on the product under development.

Changes in Product Environments

In recent years, there have been rapid technological advancements in the pharmaceutical industry, and Chugai faces fierce competition from pharmaceutical companies in Japan and overseas. Chugai’s business performance and financial position may be materially affected by changes in product environments caused by the sale of competitor products and generics and also by changes in marketing and technology license contracts concluded by Chugai.

Side Effects

Pharmaceutical products are approved by regulatory authorities in each country after stringent screening. However, because of the characteristics of these products, it is difficult to completely prevent side effects from their use even if all possible safety measures are taken. In cases where side effects occur, in particular newly discovered serious side effects, there is a risk of a material impact on Chugai’s business performance and financial position.

Medical System Reform

Japan’s health insurance system is being reformed against a backdrop of rapid demographic change, with a falling birthrate and an increasing number of elderly people. As part of this process, measures are being taken to curb medical expenses, including revisions to the system of reimbursement of medical fees, and NHI drug price reforms. Overseas, pressure to reduce drug costs is increasing, especially in advanced countries. Future measures to curb drug costs in these countries could materially affect Chugai’s business performance and financial position.

Intellectual Property Rights

Chugai recognizes that it applies intellectual property rights in pursuing its business activities, and takes care to distinguish its own proprietary intellectual property rights and licensing arrangements recognized under law. However, the possibility remains of unintentional infringement on third-party intellectual property rights. Major disputes related to intellectual property rights relating to our business could have a material impact on Chugai’s business performance and financial position.

Strategic Alliance with Roche

In line with its strategic alliance with Roche, Chugai is the only pharmaceutical partner of Roche in the Japanese market and has granted Roche first refusal rights with respect to its products in global markets outside Japan, excluding South Korea and Taiwan. Consequently, Chugai has in-licensed and out-licensed many products and projects from and to Roche. Changes in Chugai’s strategic alliance with Roche for any reason could have a material impact on its business performance and financial position.

International Business Activities

Chugai actively conducts international operations including overseas marketing and research and development, and export and import of bulk drug products. These international business activities expose Chugai to risks associated with legal and regulatory changes, political instability, economic uncertainty, local labormanagement relations, changes in and interpretations of systems of taxation, changes in foreign currency markets, differences in commercial practices and other issues. Compliance and other problems arising from these issues could have a material impact on Chugai’s business performance and financial position.

Information Technology Security and Information Control

Chugai makes full use of a wide range of information technology systems in its business activities. Consequently, it is subject to the risk of its operations being disrupted due to system malfunctions, computer viruses or other external factors. In addition, an accident or other incident resulting in the leakage of confidential information could have a material impact on Chugai’s business performance and financial position.

Impact from Large-Scale Disasters and Other Contingencies

In the event of natural disasters such as earthquakes or typhoons, or accidents such as fires or other contingencies, damage to Chugai’s business sites or sales locations, or those of its business partners, could interrupt its operations. In addition, Chugai could incur significant expenses for the repair of damaged buildings and facilities. Such circumstances could therefore have a material impact on Chugai’s business performance and financial position.

Litigation

There is a possibility that litigation may be brought against Chugai over side effects of pharmaceuticals, product liability, labor issues, fair trade or other issues associated with its business activities, which could have a material impact on Chugai’s business performance and financial position.

Environmental Issues

In addition to complying with laws and regulations related to environmental issues,Chugai has established a set of even higher voluntary standards and has been making efforts to achieve them. In the course of Chugai’s business activities, violations of relevant laws or regulations may occur as a result of an accident or other incident. Any related expenses could have a material impact on Chugai’s business performance and financial position.

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