Operating Risks

The Group is developing its business activities globally, with the manufacture and sale of clinical diagnostic reagents as its main business. In order to respond to the various risks that exist in the course of its business activities, the Group has established the Eiken Group Risk Management Regulations, which systematically stipulate the Group’s risk management, and promotes risk management by establishing the Risk Management and Compliance Committee, composed of all Executive Officers. Risk management initiatives are reported to the Board of Directors, and the Board of Directors supervises their effectiveness.

Among the matters related to the status of business and accounting described in the Annual Securities Report, the following matters may have a significant impact on the decisions of investors.

In addition to the above, there are various other risks that may affect the Group’s financial position and operating results in the present and future, and the risks described here are not all of the risks of the Group. In addition, forward-looking matters in the text are based on the judgment of the Group as of the end of the current consolidated fiscal year.

In promoting global business activities, economic changes in each country and region, pandemic outbreaks, geopolitical risks, and other factors could affect our financial position and business performance in the event of delays, suspension, or termination of colorectal cancer screening programs for our core fecal immunochemical test reagents, delays in regulatory approval of new products, or if the reduction in the scale of the Global Fund due to the closure of USAID leads to a prolonged decline in demand for healthcare and diagnostic reagents in developing countries.

In light of these risks, the Group's overseas sales divisions will strive to promptly collect and share risk information and economic trends in each country through its distributors as strategic partners and will respond in a timely and appropriate manner through collaboration with international organizations.

The Group strives to strengthen the planning and development of new products and technologies and to create new businesses based on medical needs and medium- to long-term vision. However, if the recovery of R&D investment becomes difficult due to the uncertainty of R&D (delays, interruptions or cancellations), or if it does not lead to sufficient results due to the loss of commercialization opportunities or inconsistency with ever-changing market trends, or if there is a delay or interruption in the planning of new business, the medium- to long-term business plan may be affected and the financial position and operating results may be affected.

In light of these risks, the Group formulates business strategies based on a business portfolio utilizing new technologies and new fields and works to create new markets and new demand, while setting standards for investment recovery and evaluating progress at the Executive Committee, Board of Directors, etc., and will manage them in a timely and appropriate manner.

The Group sells its products in accordance with the regulatory regulations of each country and region, if trends in healthcare system reform in each country leads to the control of medical costs and the tightening of pharmaceutical regulations, changes in the operation of colorectal cancer screening programs, and the strengthening of environmental regulations on diagnostic reagents and medical devices could affect product prices, product usage and regulatory applications and terms and conditions of bids and tenders, and may affect the Group’s financial position and operating results.

In light of these risks, the Group will strive to promptly grasp trends in healthcare systems, pharmaceutical regulations, and environmental regulations in each country and respond in a timely and appropriate manner.

The Group is engaged in product quality assurance based on a quality management system (ISO13485 certification, -23- MDSAP certification). However, in the unlikely event that a quality problem occurs in its main product group and profitable product group and the supply of products cannot be maintained for a long period, the Group’s financial position and operating results may be affected.

In light of these risks, the Group is working to stabilize quality by strengthening its production technology capabilities, appropriately operate its quality management system, and strengthen quality monitoring and quality assurance by investigating and analyzing product quality evaluations in the market.

In the event that the Group or its suppliers suffer enormous damage due to natural disasters such as large-scale earthquakes, storms and floods, serious accidents such as fires, or cyberattacks, or if operations are suspended for a long period of time due to the outbreak of a pandemic or geopolitical risks, the supply of products may not be maintained, which may affect our financial position and operating results.

In light of these risks, the Group strives to secure safe stock of products, secure inventory of important raw materials, and avoid risks by purchasing from multiple companies, and is working to continuously improve its response capabilities so that it can maintain supply through business continuity management. In addition, we have obtained the National Resilience Contribution Organization Certification (Resilience Certification) promoted by the National Resilience Promotion Office of the Cabinet Secretariat.

The Group has introduced various IT systems to improve operational efficiency and is working to improve business processes. Therefore, if a long-term response is required due to a system failure due to a disaster or cyberattacks that hinder business operations or information leakage outside the company, financial position and operating results may be affected.

In light of these risks, the Group has established appropriate information security measures and conducts regular education and training for all employees aimed at responding to targeted attack e-mails and improving IT literacy, as well as training on initial responses to cyberattacks and business continuity management.

Prices of raw materials used for the Group’s products are subject to changes in market prices, logistics costs, and foreign exchange rates associated with changes in economic conditions in each country and region, outbreaks of pandemics, geopolitical risks, and other factors. In the event that such prices soar due to these causes, or if energy prices remain at a high level due to prolonged conflict such as the United States–Iran war, the cost of such products may increase, which may affect the Group’s financial position and operating results.

In light of these risks, the Group allocates management resources based on the classification of its product portfolio and conducts monitoring at the Executive Committee and will strive to reduce manufacturing costs and improve profitability through continuous improvements in production efficiency.

In the consolidated balance sheet for the fiscal year ending March 2026, the Group recorded 7,992 million yen in inventories, representing 12.8% of total assets. In the event of a significant decline in the commodity market due to a sudden deterioration in the supply-demand balance, etc., the write-down of inventories may affect the financial position and operating results.

In light of these risks, through the promotion of DX, the Group improves the accuracy of supply-demand forecasting and thereby enhances the precision of production planning, while grouping items based on sales amounts, etc. and setting safety stock levels and ordering and production conditions for each group. Through these measures, the Group achieves inventory control in accordance with the importance of products and their impact on the market, thereby reducing the risk of excess inventories. In addition, the Group has established inventory turnover as an indicator of capital efficiency and manages it at an appropriate level.