The following are the principle risks that could have a material effect on the operating results and the financial situation of the Seikagaku Corporation.
Most of the Seikagaku Group’s products affect people’s lives and health and, consequently, are subject to legal restrictions for ensuring the quality, efficacy, and safety of pharmaceuticals and other products imposed by regulatory authorities in each country. Actions taken by regulatory authorities, such as amendments to these related laws and regulations, could affect our business results.
Timeframe and expense required for new product development
In pharmaceutical products development, the core of Seikagaku’s business, various clinical trials to confirm efficacy and safety are required from the time of basic research to new drug approval. Even if the Company bears enormous Research and Development(R&D) expenses over long periods of time, there is risk that products under development will not progress to launch. R&D expenses vary according to R&D progress, and this could affect our business results.
Revisions to the National Health Insurance Drug Price Standard due to contain medical costs
The National Health Insurance Drug Price Standard in Japan, which has established drug prices at the time of payment from medical insurance to health insurance medical care institutions and health insurance pharmacies, is periodically revised. Also, with the aim of reducing medical costs, the use of inexpensive generics is promoted, and additional price reductions are implemented for long-listed drugs (original drugs with generic equivalents). Similarly, the use of generics is promoted, and price reductions are implemented as medical cost reduction measures overseas. These trends could affect our business results.
Reliance on specific distributors
We have entered into exclusive distributorship agreements with sales partners for the pharmaceuticals and medical devices that are our mainstay products, which limits the number of distributors. In Japan, we have entered into exclusive distributorship agreements with Kaken Pharmaceutical Co., Ltd. for the joint function improving agents ARTZ and ARTZ Dispo and with Santen Pharmaceutical Co., Ltd. for OPEGAN, OPEGAN Hi, and SHELLGAN. Overseas, we have entered into exclusive agreements that cover specific countries or regions for distributorship of our products. Changes to the business relationships with these companies due to changes in circumstances, depending on the nature of the changes, could affect our business results.
Reliance on specific products
Joint function improving agents and ophthalmic viscoelastic devices account for more than 90% of the net sales of the pharmaceuticals business in Japan and overseas markets in the fiscal year ended March 31, 2018. Consequently, any unforeseen material side effects or other events that have a material effect on the manufacturing and sale of these mainstay products could affect our business results.
Reliance on specific suppliers
Various restrictions apply to the manufacture of pharmaceuticals, and some raw materials require the approval of regulatory authorities. Therefore, the number of raw materials suppliers is limited, and we perform on-site audits and strive to maintain quality and establish a stable supply system. We rely on single supply sources for certain raw materials. Consequently, any change in circumstances that makes it difficult to procure raw materials could disrupt the manufacture of products and affect our business results.
Use of animal-derived ingredients as raw materials
Many of the Seikagaku Group’s products are made using ingredients derived from animals, namely chickens, sharks, and horseshoe crabs, as raw materials. Consequently, any restrictions on the use of animal-derived ingredients as raw materials or difficulty in procuring these ingredients could affect our business results.
Exchange rate fluctuations
Revenues from sales of an intra-articular injection for the treatment of knee osteoarthritis in the U.S. and the sales of U.S. consolidated subsidiary Associates of Cape Cod Inc. are denominated in U.S. dollars. Although we endeavor to reduce exchange risks by denominating a portion of R&D expense payments in foreign currencies and other means, recently the overseas sales ratio has been increasing. Consequently, exchange rate trends could affect our business results.
Price fluctuations of holdings of marketable securities
We invest cash reserves in marketable securities for the purpose of applying them to future R&D and capital expenditures. Although we endeavor to reduce risks through diversification of investments and other means, price fluctuations of marketable securities and other investments could affect our business results.
Initiation of litigation relating to pharmaceutical side effects, product liability, patents or other intellectual rights, labor problems, depending on the details, could affect our business results.
Occurrence of large-scale disasters
Any stagnation of business activities or disruption of product supply as a result of extensive damage to the Seikagaku Group’s business sites due to an earthquake, a typhoon or other natural disaster, fire or other accident, or an epidemic of a new influenza virus or other infectious disease could affect our business results. Also, any major expenses for the repair of facilities damaged in a disaster could affect our business results.