Forward-Looking Information and Factors that Might Affect Future Results
Any statements that we make, other than historical facts, contain forward-looking information based on our business plans and assumptions at the time of disclosure. Such forward-looking information includes, but is not limited to, our expected growth strategies, projected operating results, anticipated timing for developing, obtaining approval for and bringing products to market and the status of R&D. Our business, as well as each product we develop and market, is subject to various risks and uncertainties beyond our control. Therefore, these forward-looking statements might differ substantially from the actual results. Risks and uncertainties that could affect the Company's future results and financial condition include, but are not limited to, the factors described below. Information disclosed is subject to addition, change or deletion without notice.
Our prescription pharmaceutical business is subject to government regulatory controls regarding healthcare programs and drug prices in Japan and other countries. Although our current operating and/or financial projections were made in full consideration of drug price revisions in Japan to the best extent possible, those revisions that may take place beyond the scope of our anticipated projections or other revisions in healthcare programs might also affect our operating and/or financial results. In other countries and markets where we manufacture and sell our products, we continue to face a variety of regulatory controls over the prices of prescription pharmaceuticals and government pressure for drug price reduction.
Social and Economic Conditions and Changes in the Law
Santen's future results might be affected by political and economic changes in key markets worldwide in which we operate. Our anticipated performance and financial condition might also be affected by changes in applicable accounting principles, and laws and regulations concerning taxes, the Product Liability Law, the Antitrust Law, environmental laws and regulations, and other factors.
Overseas sales and expenses, as well as the assets of overseas subsidiaries, affect our sales, profits and financial condition, depending on foreign exchange rate fluctuations. Overseas sales for the fiscal year ended March 31, 2017 accounted for 27.0% of our consolidated net sales.
The sale of generic products both in and outside Japan has the potential of impacting the Company's performance.
Other companies have already released generic products in Japan for such items as Hyalein and Cravit. Looking ahead, the impact from generic products is projected to grow.
Dependency on Specific Products and Business Partners
Dependency on Mainstay Products
Total sales of EYLEA and Cosopt accounted for over 30% of Santen's consolidated net sales for the fiscal year ended March 31, 2017. Should any sales suspension or a decline in sales occur due to any unanticipated negative influences, such as potential product defects or newly discovered side effects, our business results and financial performance might be negatively affected.
Dependency on In-Licensed Products
Some of our products are licensed by other companies. We hold exclusive rights to manufacture and sell ophthalmic formulations such as Cravit, Detantol, TAPROS, DIQUAS and ALESION. We also have exclusive sales rights in Japan for Rescula and EYLEA, and sales right in Japan for Livostin. Should changes be made in the terms and conditions after the expiration of such contracts or should the agreements not be renewed, our business performance might be affected.
Dependency on Specific Business Partners
We depend on specific business partners for the supply of certain raw materials such as the active pharmaceutical ingredient for Cravit and containers for our OTC pharmaceuticals. If the supply of these materials is interrupted or discontinued for any reason, our pharmaceutical production might be adversely affected. Should it subsequently affect the supply of our products and cause any interruption or discontinuance, it would adversely affect our business performance.
The percentage of our business conducted with the top 10 wholesalers in Japan has reached 65% of our consolidated net sales. If our wholesale partners experience bankruptcy leading to bad debts, our business performance might be adversely affected.
Uncertainties of New Drugs Development
Years are required to bring new drugs from initial R&D to final approval and marketing. Various uncertainties exist at every stage in the development process that could sidetrack a new product, such as discontinuance of development or rejection after the application is filed. It is difficult for us to accurately predict when new products, new indications or formulations under development will reach the approval stage and be ready for launch. Forecasting a precise timeline for project development and completion depends on a number of variable factors, including, but not limited to, delayed government reviews, conflicting or unusable clinical data that does not indicate significant differences in relation to competitor products, safety and efficacy concerns and unexpected side effects - which might lead to discontinued development or delayed product release and thereby negatively affect projected salkes of new drugs.
Potentially Insufficient Returns on R&D Investment
The creation and development of new pharmaceuticals, as well as the development of new indications and formulations, is critical for the future growth of Santen. Every year we invest significantly in R&D, and there is a possibility that future investments will not result in sufficient sales of new products to provide an adequate return.
Issues with Alliances
Forecasts for new pharmaceuticals include various assumptions of alliances in development and/or sales. Actual results of these alliances might affect our overall sales and financial condition.
Production Interruptions or Delays
Production halts or delays due to natural disasters or fires may affect our financial performance. Furthermore, because the manufacturing of some products is concentrated in a single location, supply may be disrupted if a certain plant terminates operations.
Cancellation of Sales and Product Withdrawals
If sales of certain products are cancelled, or if we withdraw products due to product quality defects, unexpected side effects, tampering or other causes, our overall financial results might be negatively affected.
Our main business involves the production and sales of prescription pharmaceuticals. The nature of our business makes us vulnerable to litigation related to patents, the Product Liability Law, violation of the Antitrust Law and consumer-related and environmental lawsuits. If such legal actions take place, the proceedings might affect our overall performance and financial condition. Currently, we are not involved in any litigation that substantially impacts the management of the Company.