Business Risks

The Annual Securities Report includes risk factors related to the Group’s business and financial information that may have a significant impact on investors’ decision-making.
Please note that any forward-looking statements contained in this document are based on the Group’s judgment as of the end of March 2026.

The Group manages large volumes of personal data and patient testing information. Ensuring data security and compliance with Japan’s Personal Information Protection Act is a top management priority. As part of these efforts, SRL, Inc., H.U. Frontier, Inc. and Nihon Stery, Inc., and three additional Group companies have obtained Privacy Mark certification. Additionally, ISO/IEC 27001(ISMS) certification has been obtained for operations related to clinical laboratory testing systems.
The Group strives to maintain stable operations of its information systems in connection with its business activities. Furthermore, in response to the increasingly sophisticated nature of recent cyberattacks, we continuously review our security measures, implementing safeguards to prevent data leaks and ensuring that operational protocols are fully communicated and strictly followed.
However, information systems may be disrupted by system failures, human errors, natural disasters or cyberattacks. Such events could lead to service disruptions or data breaches, which could damage trust in the Group and its products and services, and adversely impact its business performance and financial condition.
The Group develops its own information systems to support operations, strengthening project management, including third-party assessments when necessary. However, challenges in securing human resources may delay development, increase costs, or hinder implementation of planned system functions, potentially affecting operational execution and resulting in unrecoverable development costs.

In Lab Testing and its related Services (LTS) business, quality control is essential to ensure testing accuracy. The primary companies involved in LTS regularly participate in quality surveys conducted by organizations, such as the Japan Medical Association, the Japanese Association of Medical Technologists, Japan Registered Clinical Laboratories Association, and other public institutions. These efforts are reinforced by internal quality control and external certifications, including the Service Mark certification awarded by the Japan Health Sciences Foundation, College of American Pathologists (CAP), Clinical Laboratory Improvement Amendments (CLIA), and ISO 15189. In the LTS business, the Group swiftly identifies and addresses potential errors through diligent root cause analysis and appropriate countermeasures. Preventative measures include procedural improvements, automation, and enhanced employee training to elevate the standards and minimize errors.
In the In Vitro Diagnostics (IVD) business, the Group enhances product quality through a dedicated internal quality assurance framework. Major IVD group companies hold ISO 13485 certification, the international quality standard for medical devices.
In the sterilization and surgical support business of the Healthcare-related Services (HS) business, key sterilization centers have obtained ISO9001 certification, the international standard for quality management systems.
Despite these measures, quality-related issues may still arise from human error or unforeseen circumstances, potentially harming the Group’s reputation and adversely affecting its business and financial performance.

The Group actively invests in R&D to drive timely and efficient innovation. H.U. Group Research Institute G.K., serves as a central entity for efficient and accelerated basic research and internal information integration. The Group monitors market trends and participates in academic conferences to gather insights and leverage external expertise. Also, progress is reviewed periodically to ensure effective project oversight internally.
However, the Group may face delays or underperformance due to difficulty in securing human resources. In some cases, projects may be discontinued if they fail to meet standards required for regulatory approval, such as efficacy and safety criteria, leading to unrecoverable costs and potentially necessitating a review of R&D policies. Failure to respond to rapid technological changes could also diminish the competitiveness of the Group's products, services, or business model, adversely affecting its performance and financial condition.

Guided by the personnel philosophy that “the power of the Company is the sum total of the power of its individual members,” the Group considers human resources to be its most crucial management asset. It works to secure human resources, develop HR systems, implement career development programs, and create supportive work environment to maximize employee performance.
However, if these initiatives are not effectively implemented, combined with Japan’s declining birthrate and aging population, as well as global labor market shifts, the Group may face difficulties in securing and retaining human resources. Insufficient human resource development could disrupt business operations and adversely affect the Group’s performance and financial condition.

Human-made disasters (e.g., fires, labor disputes, facility accidents) and outbreaks of infectious disease occurred at the Group’s business sites could disrupt operations and adversely affect its business performance and financial condition. In particular, pandemics with high transmission rates and significant health risks may result in operational limitations and additional costs, further affecting performance.

The Group has established a robust business continuity plan (BCP) to address potential large-scale natural disasters, such as typhoons and earthquakes. Emergency-use facilities and essential supply stockpiles are maintained at our business sites.
In alignment with the recommendations of the Task Force on Climate-related Financial Disclosure (TCFD), the Group analyzes climate-related risks and opportunities, integrates findings into strategy, and publicly discloses progress toward achieving carbon neutrality by 2050.
However, if natural disasters or other climate-related damage intensify, they could adversely affect the Group's performance and financial condition. Furthermore, if environmental regulations, such as those governing greenhouse gas emissions, become stricter than expected, the Group’s operation may face additional challenges.

To maintain a stable supply for its products and services, the Group builds resilient procurement system and diversifies its supplier base.
However, supply chain disruptions caused by unexpected demand increases, delays, malfunctions, or unforeseen external events may impair the Group’s ability to maintain stable delivery. Furthermore, if rising labor or material costs cannot be passed on through pricing adjustments, the Group’s business performance and financial condition may be adversely affected.

The Group holds a diverse portfolio of tangible and intangible fixed assets, including goodwill and investment securities. Among the assets that may have a significant impact on the financial statements for the following fiscal year are the tangible and intangible assets of SRL, Inc. valued at 42,022 million yen (15.7% of consolidated total assets).
These valuations are based on accounting estimates. If the value of these declines or their future cash flows falls short of expectations, impairment losses may need to be recognized, which could adversely affect the Group’s business performance and financial condition.

The Group pursues domestic and international M&A to support its growth strategy and enhance corporate value.
Each acquisition is preceded by investigation and review of profitability and investment recoverability, conducted by the relevant Group companies and the Company's specialized departments, with advice from external experts, such as lawyers and accountants, as necessary.
Despite these efforts, acquired businesses may not perform as expected due to unforeseen post-acquisition circumstances, which could adversely affect the Group’s business performance and financial condition.

The Group protects its products through patents covering substances, manufacturing methods, and other intellectual property for a certain period. It appropriately manages intellectual property rights, including patent rights, and remains vigilant against infringement by others. To enhance expertise and oversight, it is strengthening management system by consolidating intellectual property management functions within the Group.
However, if the Group's intellectual property rights are infringed upon by third parties, expected revenues may be lost. Conversely, if the Group's products infringe on the intellectual property rights of others, the Group may be subject to claims for damages.

The Group complies with domestic and international regulations, including Japan’s Pharmaceuticals and Medical Devices Act and overseas regulations such as those of the U.S. FDA. It continuously monitors regulatory developments and evaluates appropriate responses.
However, future changes in laws or regulations may restrict operations or increase administrative costs.

Ongoing reforms in Japan’s medical system and intensifying competition present a challenging environment. The Group continuously analyzes market and competitor trends to enhance competitiveness and explore new business opportunities.
However, changes in the market environment, stricter global cost-containment policies, and tighter regulations on R&D, manufacturing, and distribution have been affecting market prices, and this trend is expected to continue, which may adversely affect the Group's business performance and financial condition.

The Group actively operates business across North America, Europe, Asia, and other region, making its overseas operations strategically important. However, these activities expose the Group to a variety of risks, including economic downturns, policy changes, economic sanctions, labor issues, cultural differences, political and social instability, weak industrial infrastructure, public hygiene issues, changes in laws and regulations, tax system revisions, terrorism and conflicts, pandemics, and natural disasters. While the Group takes responsive measures to address these risks, they may still disrupt operations and affect its business performance and financial condition.

The estimation of future taxable income, prior to temporary differences, used to assess the recoverability of deferred tax assets is based on the comprehensively approved budget for the following fiscal year and the figures from the medium-term management plan, with adjustments reflecting historical performance. This estimate considers the taxable income and losses, excluding temporary factors that occurred in the current fiscal year.
The assessment of deferred tax assets is influenced by progress of the budget for the following fiscal year and medium-term plan. If the Group’s performance in the following fiscal year falls significantly short of expectations, it may become necessary to reduce the recorded amount of deferred tax assets, which could adversely affect the Group’s business performance and financial condition.

The financial targets under the Medium-term Plan are forward-looking statements based on the Group’s management targets. Their achievement is subject to various internal and external risks, including those noted in items (1) to (14). In particular, the Group may be affected by greater-than-anticipated intensification of competition and resulting declines in market prices, unmet R&D objectives, shifting customer needs, alliance underperformance, greater-than-expected changes in domestic and overseas medical systems, and risks related to overseas business expansion and foreign exchange volatility.