Risk factors related to business, financial, and other types of information shown in our annual securities report that could substantially affect the judgment of investors include the following.
Also, forward-looking statements are based on the Group’s judgement as of March 31, 2024.
Risks related to health insurance system reforms and revision of the national drug price standard
The Japanese government is working to create a new medical insurance system to prevent the collapse of healthcare. Initiatives include reforming the medical insurance system for the elderly in the later stages of life; resolving the shortage of doctors; responding to new strains of influenza; increasing responses to diseases such as cancer and hepatitis; and building a comprehensive community-based healthcare system. Ethical pharmaceuticals, the main products sold by the Group, are listed in the NHI (National Health Insurance) Drug Price Standard. The Drug Price Standard, published by the Ministry of Health, Labour and Welfare (MHLW), mandates the range of drugs that can be used in medical treatment under health insurance programs and the billing prices for the drugs used. The standard acts as an upper limit on selling prices. The Drug Price Standard is revised every two years in April to reflect the current price, and the price is usually lowered for the majority of items. In recent years, partial revisions have also been made in April of years in between full-scale revisions, and drug prices have been revised every year. Prices for items for which the market has grown beyond a certain scale due to the addition of new efficacies, etc. are revised four times a year. In this way, the medical insurance system—including revisions to the Drug Price Standard—can affect the Group’s business performance.
Risks related to drug manufacturers’ pricing policies
Gross profit for wholesale pharmaceuticals, the Group’s major business segment, comes mainly from trading gains (the difference between selling and purchase prices) as well as rebates and sales incentives paid by pharmaceutical manufacturers based on the amount of drugs purchased and sold over a certain period. Purchase prices are mainly reviewed at the time of drug price revisions. Rebates and sales incentives are reviewed from time to time, as needed, and changes in the policies and sales strategies of manufacturers can affect the Group’s business performance. To secure rebates and sales incentives, we review the terms and conditions of transactions with manufacturers then propose initiatives with manufacturers, as needed.
Risks related to delivery prices
The majority of ethical drugs in Japan are distributed by pharmaceutical wholesalers. The wholesale pharmaceutical industry is working on unit price transactions based on the value of each drug following the Guidelines for the Improvement of Commercial Transaction Practices of Ethical Drugs for Manufacturers, Wholesalers, and Medical Institutions/Pharmacies (Distribution Improvement Guidelines). These guidelines were established by the Ministry of Health, Labour and Welfare (MHLW). However, there is the possibility of excessive competition over prices due to factors such as the regional strategies of competitors. In the event of excessive price competition, the market price can decline, and we would have no choice but to sell at the new price. In addition, if prices cannot be met, then the number of items sold could decrease. This type of price competition can affect the Group’s business performance.
The Group will continue to maintain delivery at reasonable prices, consistent with Japan’s drug distribution guidelines.
Risks related to specific trading practices
In the wholesale pharmaceutical industry, the Group’s main business area, there is a unique business practice: products are delivered to medical institutions and other customers while the delivery price has not yet been determined. The price is then negotiated after delivery. We are working on an early conclusion to these negotiations, one strategy for improving distribution. At the same time, we are also working on selling drugs at prices that match their value, which is another strategy for improving distribution, so price negotiations can be lengthy. In the event that price negotiations take a long time, we calculate the predicted price based on a reasonable estimate and post sales data to our accounts. If there is a difference between the predicted price and the final price, the Group’s business performance can be affected.
The Group will continue to maintain delivery at reasonable prices, while following the drug distribution guidelines.
Risks associated with the ownership of investment securities
The Group owns shares and other investment securities. For shares with a market value, we compare the acquisition cost with the market price at the end of the current consolidated fiscal year. For all shares with a 50% decline or more the loss is recognized. Shares with a decline of 30% or more (but less than 50%) over the past two years—and shares with a decline of 30% or more (but less than 50%) for which the issuing company is insolvent are recognized to the amount considered necessary—identifying the possibility of recovery. For these reasons, a decline in the market value of investment securities held by the Group can affect our business performance.
The Board of Directors determines the rationality of continuing to hold investment securities every year and only continues to hold investments that are considered reasonable.
Risks related to information leaks
If an unforeseen information leak occurs, the Group’s business performance could be affected by the loss of social credibility, liability for damages, and transactions being suspended.
In addition to having a basic policy on the protection of personal information, we also have an information security policy and we follow all regulations. As well, we educate employees and work to strictly protect and manage customer data.
Risks due to system problems
The Group depends heavily on computer systems and networks. In the event of largescale system problems due to an accident, disaster, or computer virus, etc., the Group’s business performance could be affected.
To prevent system problems from occurring, we monitor computer equipment 24 hours a day, 365 days a year, and we have a system to transition quickly to recover operations when necessary. We have installed emergency generators to ensure that our systems can continue to operate even during a disaster that results in a power outage. Redundancy is built into our network, enabling continuous, uninterrupted operations, even if some equipment fails.
Risks associated with natural disasters and accidents
Although the Group has effective disaster readiness measures in place, based on our experience with natural disasters, largescale natural disasters or accidents can interfere with business operations and can affect the Group’s business performance.
To maintain a stable supply of pharmaceuticals in the event of a disaster, we have formulated business continuity plans (BCPs), prepared disaster response manuals, and installed emergency power generators at our major logistics centers and bases.
Risks due to legal regulations
The Group’s main business is the wholesaling ethical pharmaceuticals. For this reason, we require the registration and designation of licenses and permits, as well as permissions for development, manufacturing, and importation, following the Act on Securing Quality, Efficacy and Safety of Products Including Pharmaceuticals and Medical Devices (Pharmaceuticals and Medical Devices Act) and other laws and regulations. The status of permits and approvals from regulatory authorities can affect the Group’s business performance.
In addition to establishing compliance guidelines, the Group thoroughly educates employees to ensure full compliance with all laws and regulations.