Sumitomo Dainippon Pharma Annual Report 2017
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Business RisksBelow is a discussion of the most significant risks that could negatively impact the operating results and financial position of Sumitomo Dainippon Pharma Group.Forward-looking statements in the discussion of the risks below reflect the judgment of the Group as of March 31, 2017.Risk relating to research and development of new productsThe Group works to research and develop highly original and globally viable products. While the Group strives to maintain an extensive product pipeline and to bring products to market as early as possible, all projects in the pipeline may not be successfully developed and launched to the market because of the growing difficulty of development of new drugs. It is possible that some development projects may be delayed or abandoned. Depending on the nature of the product under development, such cases could have a significant and negative impact on the Group’s operating results and financial position.Problems concerning adverse eventsPharmaceutical products are approved only after rigorous safety testing, at different stages of development, and rigorous screening by the competent authorities in all the countries involved. These efforts notwithstanding, previously unreported adverse events are sometimes discovered only after a drug has already been marketed. The appearance of such unexpected adverse events once a product has been sold could have a significant and negative impact on the Group’s operating results and financial position.Healthcare system reformsThe precipitous decline in Japan’s birthrate and the rapid rise in the country’s elderly population are the prime factors causing the financial state of Japan’s healthcare insurance system to deteriorate. In this climate, measures continue to emerge aimed at curbing healthcare costs by price restraint of branded prescription drugs and promotion of generic drug use, while how to best reform the country’s healthcare system continues to be debated. The direction that any healthcare system reforms might take, including mandated NHI price revisions, could ultimately have a significant and negative impact on the Group’s operating results and financial position. Pharmaceutical products are subject to various kinds of regulations in foreign countries as well. The Group’s operating results and financial position may be significantly affected, depending on the future courses of the U.S. healthcare system reform and other administrative measures overseas.Risk relating to the sale of productsThe Group can envision scenarios in which sales of its pharmaceutical products are liable to decrease due to competition from the products in the same area from other manufacturers or from a launch of generic products following the expiration of a patent period or the like. Such cases could have a significant and negative impact on the Group’s operating results and financial position.Risk relating to intellectual property rightsThe Group utilizes a wide range of intellectual property during the course of its R&D activities, including both property owned by the Group and property that the Group lawfully uses with the authorization of the property’s owner. Nevertheless, the Group recognizes the possibility, no matter how slight, that some use might be deemed an infringement of a third party’s intellectual property rights. Consequently, legal disputes pertaining to intellectual property rights could arise and have a significant and negative impact on the Group’s operating results and financial position.Termination of partnershipsThe Group enters into a variety of partnerships with other companies for the sale of purchased goods, the establishment of joint ventures, co-promotion, and the licensing in and out of products under development, as well as for joint research and other purposes. The termination, for whatever reason, of such partnerships could have a significant and negative impact on the Group’s operating results and financial position.Prerequisites for primary business activitiesThe Group’s core business is the ethical pharmaceuticals business. Accordingly, the Group requires licenses and other certifications to engage in R&D and the manufacture and sale of drugs pursuant to Japan’s “Law on Securing Quality, Efficacy and Safety of Products including Pharmaceuticals and Medical Devices” and other laws and regulations related to pharmaceuticals. The Company has obtained licenses and other certifications, including Type 1 and Type 2 Pharmaceuticals Manufacturing and Sales Business licenses (both valid for five years). In addition, in order to engage in the ethical pharmaceuticals business in overseas countries, the Group also has obtained licenses as needed under laws and regulations related to pharmaceuticals of those countries. These licenses and other certifications will cease to be valid unless they complete procedures as stipulated by the applicable laws and regulations. These laws and regulations also stipulate that these licenses and certifications may be revoked and/or that the Financial SectionSumitomo Dainippon Pharma Co., Ltd. Annual Report 201765

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