Business risks
In the following discussion of risk factors, major risks related to the Group's businesses that may exert a significant influence on investors' judgment are outlined. From the standpoint of proactive information disclosure, we have included references to matters that do not necessarily constitute risk factors but that we believe are important for investors to consider.
The Tsumura Group will strive to avoid the materialization of such risks; however, should such risks materialize, we will endeavor to minimize their impact. This discussion includes issues that are not yet pertinent to the Group's performance.
1. Medical systems
In the pharmaceutical industry, changes to medical care systems exert a major influence on the market environment. Depending on the direction of change, a negative effect on the industry as a whole and on the Tsumura Group could result.
2. Competition
In the pharmaceutical industry, changes to medical care systems exert a major influence on the market environment. Depending on the direction of change, a negative effect on the industry as a whole and on the Tsumura Group could result.
3. Product supply
Approximately 80% of the medicinal plants that constitute the main ingredients of the Tsumura's Kampo formulations are imported from China, and some processes in the production of Kampo products are outsourced to subsidiaries situated in China. Because most of the medicinal plants grow wild, we are researching the cultivation of major medicinal plants for the future. However, in the event of unforeseeable changes in legal regulations or political or economic conditions, it could become difficult to secure or import sufficient quantities. In addition, bad weather, natural disasters, and wars could destabilize social conditions, causing distribution problems due to demand or supply issues, and this could have a negative impact on our ability to supply products due to a rise in market prices or a scarcity of raw material. Likewise, while we have use earthquake-resistant construction methods and conduct regular inspections of equipment and facilities within Japan, we cannot completely guarantee that the functioning of our facilities will not be hampered or halted in the event of a massive earthquake, fire, power outage, or other disaster.
The Group's social standing or performance could be negatively affected should the supply of products be interrupted or delayed due to the above.
4. Product safety and side effects
In the manufacturing of the Group's products, we strictly adhere to the quality control standards of the countries in which we operate. However, although self-imposed standards for crude drugs have been set, we cannot completely guarantee that there will not be a defect or safety problem, including undetected pesticide residue on a medicinal plant used in a Kampo product. In addition, should consumers experience unexpected side effects from a pharmaceutical product marketed by the Tsumura Group, the existing methods of use may be restricted, and a loss of confidence in the Group and its pharmaceutical products may result in a drop in the dispensation of our medicines or in patients' refusal to take them.
The Tsumura Group's performance may suffer if a situation such as the above results in a decline in sales volume, demands for large amounts of damage compensation, or a large-scale recall, among other possibilities.
5. R&D
In the interest of future growth and better corporate performance, the Tsumura Group conducts R&D activities related to new products and new technologies both in Japan and abroad. However, we cannot guarantee that all of these activities will be successful. The Group's performance could suffer if for some reason R&D activities were canceled or delayed or if costs increased significantly.
6. International business
The Tsumura Group engages in the manufacture and sale of pharmaceuticals in China, Korea, and other foreign countries. Because of this involvement in international business, it is possible for the Group to be negatively affected by unforeseeable changes in legal regulations or in political, economic, or other conditions.
7. Financial conditions
The Group's performance could be negatively affected by financial conditions, such as a sudden drop in share prices or increased retirement liabilities arising from a drop in the discount rate.
8. Intellectual property
We cannot guarantee the full protection of the intellectual property owned by the Group in relation to Kampo products. The Group's performance could be negatively affected if there was a leakage of such information leading to a decline in competitiveness.
9. Exchange rate fluctuations
The Group imports from China most of the crude drugs used in the Kampo products that it markets. Therefore, sharp movements in exchange rates could negatively impact the Group's business performance and financial position.
