With respect to Kyowa Hakko Kirin group's business performance and financial position, the major risks that may significantly affect investors' assessments include, but are not limited to, those described below. The group recognizes that these risk events may occur, and the group uses a risk management system to prevent the occurrence of those risk events that can be controlled by the group. At the same time, the group will do its utmost to respond in the event of the occurrence of a risk event.
*Items in this section dealing with future events reflect the assessment of the group as of December 31, 2018.
(1) Risks Associated with R&D Investment
In ethical drug operations, the development of new drugs requires long periods of time and substantial R&D expenditures. In the long-term development of new drugs, there may be cases where the expected efficacy or safety is not confirmed. This may result in the abandonment of plans to continue with R&D.
In addition, in the bio-chemicals business, the Group invests R&D resources into the development of new products and new technologies to differentiate itself from its competitors. However, as with R&D for pharmaceuticals business, there is no guarantee that these investments will produce results.
Moreover, as with the above, in cases where the expected R&D results are not realized, the Group’s future growth and profitability may decline and our business performance and financial position may also be adversely affected.
(2) Risks Related to Intellectual Property Assets
The Group strictly manages its intellectual property assets and closely monitors infringement by third parties. Nevertheless, in cases where the Group’s intellectual property rights are infringed upon, sales revenue of the Group’s products or licensing revenue could decline earlier than forecast and the Group’s business performance and financial position could be adversely affected.
Furthermore, while the Group pays particular attention not to violate the intellectual property rights of others, in cases where the Group is subject to litigation based on allegations of infringement of intellectual property rights, the Group may be required to cease such activities, and pay compensation and/or settlement, and our business activities, business performance and financial position may be adversely affected.
(3) Risks of Side Effects
Pharmaceutical products undergo strict safety assessments at the development stage and are approved following reviews by the relevant national regulatory authorities. However, following launch, there have been cases whereby previously unknown side effects based on the accumulated results of users become apparent. In such cases where unexpected side effects are discovered following launch, the Group’s business performance and financial position, etc., could be adversely affected.
(4) Risks Related to Pharmaceutical Regulations
The pharmaceuticals business, the Group’s core business, operates under the pharmaceutical regulatory authorities of the countries in which we operate. In Japan, the Group’s business performance and financial position could be adversely affected by trends in the reform of Japan's healthcare system, such as the promotion of generic drugs usage, in addition to price reductions under the public pharmaceutical price system.
As for overseas pressure to suppress medical cost is becoming higher, and in cases where a price reduction cannot be compensated for by an increase in volumes, the Group’s business performance and financial position could be adversely affected.
(5) Legal Regulation Risks
In the course of carrying out its operations in Japan and overseas, the Group must strictly comply with legal regulations.
The Group emphasizes compliance to try to ensure that it does not violate the laws to which it is subject, and the Group is working to bolster internal control functions through such means as administrative oversight. However, there is no guarantee that the Group will be able to completely eliminate the possibility of committing a violation of these legal regulations. If, because we are unable to observe these legal regulations, new product development is delayed or stopped, or manufacturing or sales activities are restricted, the Group’s credibility could be damaged. In such cases, the Group’s business performance and financial position could be negatively impacted.
Furthermore, in the future, if laws and regulations that must be observed in Japan and overseas change, the Group’s business performance and financial position could be adversely affected.
(6) Risks of Fluctuations to Foreign Exchange Rate
The Group conducts transactions denominated in foreign currencies such as receiving income from overseas sales, licensing-out of technologies overseas, and acquiring raw materials overseas. Therefore, any sudden change in exchange rates could adversely affect the Group’s financial position and business performance. Fluctuations to the exchange rate could also affect our ability to be price competitive on products sold in markets shared with overseas competitors.
In addition, the gains and losses, and assets and liabilities of overseas-consolidated subsidiaries converted in local currencies are translated into yen for the preparation of the consolidated financial report. The exchange rate at the time of conversion could have an effect on values following currency conversion.
(7) Disaster-related and Accident-related Risks
Earthquakes, fires, pandemics such as influenza, large-scale electrical blackouts, and other events potentially occurring in different locations could result in the suspension of business activities at the Group’s headquarters, plants, research facilities or offices. The Group handles substances that are subject to various legal regulations and guidelines, and as a result of natural disasters, etc., these substances could enter the external environment and cause damage to the surrounding area.
Although the Group maintains a disaster prevention system and has prepared a business continuity plan, should a major event or accident occur it might result in significant damage and negatively impact the Group’s position of trust in society. Additionally, the Group’s business performance and financial position could be adversely affected.
(8) Litigation-related Risks
A lawsuit filed against the Group concerning our business activities (e.g., side effects of pharmaceutical products, product liability, labor-related problems, fair trade), could have a negative impact on the Group’s operating results, financial condition, etc.
(9) Security and Information Management Risks
As the Group utilizes a variety of information systems, system malfunctions, computer viruses, etc., may impede our business. We handle large amounts of information including personal information, and in the case that these information are divulged outside the company, the Group’s business performance and financial position could be adversely affected.
(10) Environmental Risks
The Group ensures thorough compliance with environment-related laws and regulations regarding air, water quality, noise, vibrations, offensive odors, soil contamination, ground subsidence, waste, etc. However, in the event that environmental-preservation problems such as pollution arise, or if a revision in the relevant laws occurs, leading to costs incurred in having to provide compensation to the surrounding areas, fix the environmental damages, or invest in new facilities the Group’s business performance and financial position could be adversely affected.
(11) Risks Related to Alliances with Other Companies
The Group enters into an alliance with other companies in the form of joint development, joint marketing, technology partnership or joint venture establishment and/or outsources operations such as production, logistics and marketing to other companies. However, if problems arise and/or the Group fails to achieve results from such alliances or operations outsourcing for any reason, or experiences a contract alteration or alliance termination, the Group’s business performance and financial position could be adversely affected.
(12) Risks Related to Securing and Training Personnel
The Group employs a diverse array of individuals who demonstrate their abilities and engage in business activities in Japan and overseas. However, if the Group is unable to secure personnel with highly specialized skills in each country or sufficiently train employees to perform specific jobs, the Group’s business performance and financial position could be adversely affected.
(13) Risks Related to Stable Supply
The Group is expanding its businesses worldwide and is ensuring the creation of a secure supply system. However, if technical or legal issues arise in manufacturing or logistical facilities, or stoppages arise in the supply of raw material and fuel, leading to the supply of our products being stopped, delayed, or being insufficient to meet a greater-than-expected growth in demand the Group’s business performance and financial position could be adversely affected.
(14) Risks Related to Competition and Patent Expiration
In the event that revenue declines as a result of competition between the Group’s and other companies’ products and/or the entry of generic products following the expiry of the Group’s patents, the Group’s business performance and financial position could be adversely affected.
(15) Risks Related to Overseas Business Expansion
The Group is expanding its businesses globally, but there are risks of political instability caused by terrorism or conflicts, uncertain economic conditions, and difficulties resulting from differences in culture and/or customs. If the Group is unable to avoid such risks, the Group’s business performance and financial position could be adversely affected.
(16) Other Risks
In addition to the above, there are other risks that could adversely affect the Group’s business performance and financial position, and they include poor market penetration of products, changes to share prices and interest rates, impairment of fixed assets, etc.