Risk Factors Relating to the Group and its Business etc.
The Company described certain risk factors relating to the Group and its business etc. as below in the Annual Securities Report (Yuukasyouken-Houkokusyo) for the fiscal year ended March 31, 2016. Matters regarding the future are based on the situation as of March 31, 2016.
1. Risk associated with research and development
The Group focuses on efficient and speedy research and development of new products as well as new technologies. However, in some cases, we are forced to terminate research and development because it fails to meet the standards on efficacy and safety required for drug approval along the way. As a result, the Group may not be able to recover the costs incurred, or forced to re-examine the research and development policy.
2. Risk associated with intellectual property rights
The Group’s products are protected by multiple patents on their materials and manufacturing processes for a specified period of time. The Group strictly manages the intellectual property rights including patent rights and always pays close attention to a possible infringement of these rights by others. But when the intellectual property rights the Group owns are infringed by a third party, the expected revenue may be lost. Also, if the Group’s product infringes other company’s intellectual property right, the Group may be asked for compensation.
3. Impact of changes in market environment
Amid the continuous drastic reform of the healthcare system in Japan, the Group’s business environment is getting tougher combined with the market competition with other companies. Such changes in the market environment may negatively affect the market price and have an influence on the Group’s operating results and financial condition.
4. Risk associated with legal regulations and others
The Group is subject to the Pharmaceutical and Medical Device Law and the related laws and regulations in Japan and to legal regulations imposed by FDA and others overseas. When such laws and regulations are revised or strengthened in the future, it may lead to a restriction on the Group’s business activities or an increase in business operation costs.
5. Risk associated with overseas business and exchange fluctuations
The Group has business operations not only in Japan but also overseas such as North America and Europe. Accordingly, the share of overseas sales in the Company’s consolidated net sales as well as the share of overseas assets in the consolidated total assets is increasing, leading to increased exposure to exchange rate fluctuations. The Company takes certain measures such as forward exchange contracts to mitigate the risk of exchange fluctuations, but these measures do not avoid the entire risk. So the Company’s operating results, assets and liabilities, and net assets may be negatively affected by exchange fluctuations. In addition, when a recession, changes in the political situation, changes in laws or regulations, changes in the tax system, terrorism or conflicts, spread of infectious diseases or a disaster arise in the countries where the Company has business operations, the Company’s operating results may be negatively affected.
6. Risk associated with corporate acquisition (M&As), etc.
As one of the strategies for growth, the Group considers and implements M&As in the areas relevant to the existing businesses, at home and abroad, and aims to improve the corporate value through it. In implementing M&As, the Group conducts sufficient research and review in advance on the profitability and investment collectability, but the business acquired may fail to achieve the initial target due to sudden changes in the business environment or unexpected circumstances after the M&A. In such cases, the Group’s operating results and financial condition may be negatively affected.
7. Risk associated with accuracy management
Accuracy management is the most important matter for the Group to maintain the accuracy of testing results. The Group’s major business companies in clinical laboratory testing business regularly participate in surveys conducted by public institutions such as the Japan Medical Association and conduct thorough accuracy management. In addition, the Group focuses on establishing an internal accuracy management system by obtaining the service mark certification issued by the Association for Promotion of Health Care Service and ISO15189 certification. However, testing accuracy may be lower when appropriate testing could not be conducted due to unforeseen circumstances, and this may lead to a loss of the Company’s credibility. Consequently, this may negatively affect the Group’s operating results.
8. Risk associated with handling information and information systems
The Group holds an enormous volume of confidential information on patients and their testing data, and it is one of the important management issues to ensure its security and establish a compliance structure with the Personal Information Protection Act. As part of this effort, SRL, Inc. obtained the PrivacyMark certification in February 2005. SRL also obtained ISMS and ISO/IEC 27001 certification as security measures for information systems. However, if personal information is leaked due to criminal acts, cyber-attack, computer virus, information system malfunction, human error or any other negative development, the Group’s credibility may fall, and this may affect the operating results of the Group. Moreover, the Group utilizes information systems for conducting business. Although the Group strives to ensure stable operations of such information systems, if a scenario occurs such as large-scale service suspension, invoicing error, delay in testing report, or loss of data as a consequence of software or hardware malfunction, human error, disaster, criminal acts, cyber-attack, computer virus, terrorism or any other such negative development, the Group may lose credibility with respect to its products or services, and this may affect the operating results of the Group.
9. Risk associated with application of accounting of impairment assets
The Group owns non-current assets consisting of property, plant and equipment and intangible assets including goodwill. If the values of these assets fall or if the expected future cash flow cannot be attained, the Group is required to book impairment loss, and this may negatively affect the operating results and financial condition of the Group.
10. Effects of suspension or restriction of business activities due to disaster, accident, etc.
If the Group’s operations are obstructed because its various places of business or medical institutions, which are the Group’s customers, are struck by a natural disaster such as a large-scale typhoon or earthquake, this may negatively affect the Group’s operating results. Furthermore, if there is an incident such as an industrial accident or accident with equipment, causing a restriction or suspension of business activities or similar event, this may also negatively affect the Group’s operating results.