The Daiichi Sankyo Group identifies risks as those factors that may prevent the Group from attaining its organizational goals and targets and that can be predicted in advance. The Group is promoting risk management through such means as taking steps to address risks inherent in corporate activities through retaining, reducing, avoiding, or transferring these risks. In addition, we seek to minimize the adverse impacts of risks on people, society and the Group should risks actualize.

Risk Management

Risk Management System

At the Daiichi Sankyo Group, the Head of Global Compliance and Risk Management (GCRM) oversees the Group's Risk Management activities. Within this structure, the Heads of each Unit and Function promote autonomous risk management, which includes risk identification, risk assessment, and the implementation of mitigation strategies and countermeasures. GCRM is responsible for operational oversight of risk management, including providing necessary instructions, support, and advice to each Unit and Function.
The material risks of the Daiichi Sankyo Group are acknowledged by the Executive Management Committee (EMC) and the Board of Directors. Each designated Head of Unit or Function (risk owner) is responsible for implementing mitigation strategies and countermeasures and monitoring them periodically. When signs of potential material risks are detected within a Unit or Function, the respective Head promptly reports them to the CEO and the Head of GCRM.
We have established the Risk Management Committee (RMC) to strengthen our risk management framework and to facilitate discussions on risks at the EMC level.The RMC consists of core members and additional flex members invited based on the agenda, and it engages in in-depth discussions on various risks. The Risk Management team invites internal and external specialists as necessary to ensure that discussions benefit from up-to-date expertise on relevant topics.
Additionally, the Risk Management team has established a process through which Risk Coordinators, designated by each Unit or Function, support the Head of Unit or Function and promote the risk management processes. Furthermore, we have introduced a recurring PESTLE analysis to monitor external factors and changes, establishing a systematic approach that enables us to respond promptly to emerging risks . 

Crisis Management

In the Daiichi Sankyo Group Crisis and Business Continuity Management Policy defines "Crisis" as defines "Crisis" as an event or emerging situation that exceeds routine management capacity and requires urgent action due to its actual or potential 
impact on people, society, or the organization.

As stated in our basic policy, we are committed to "Upon the occurrence of a crisis, the Daiichi Sankyo Group shall respond immediately and precisely based on the following principles: ensuring the safety of the lives and communities of Daiichi Sankyo Group employees and related personnel and fulfilling the responsibilities as members of a life science company. The Group shall endeavor to minimize human, social, or corporate losses and strive for business continuity and quick recovery."

In addition to promoting autonomous Crisis Management in each region and function as well as at group companies, we have established a process that enables us to respond flexibly and globally according to the type of Crisis (Disasters, Accidents, Incidents (including Terrorism), Scandals, Violations of laws, Information management issues, Product issues) and the degree of impact of the Crisis.

In the event of a Crisis requiring a response, reporting criteria and reporting routes will be specified and a Crisis Management Officer will be established (CEO or person designated by the CEO), along with an Initial Crisis Management Officer (Head of Global Risk Management), and Crisis Response Manager. In the case of a Crisis with a major global impact and the need for company-wide responses, the Group will share necessary information with the Head of GCRM and work towards preventing the escalation of the situation and quickly resolving it through a timely and appropriate initial responses.

After a Crisis incidence, we will analyze the situation ex post facto to prevent recurrences and improve our response.

Initial Response to Crisis

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Business Continuity Plan (BCP)

The Daiichi Sankyo Group has formulated a business continuity plan (BCP) for all hazards to deal with various threats that may affect business continuity.

To meet the demands of society in the event of an emergency, we have established a protocol that ensures the stable supply and quality of pharmaceuticals and other products, and a process that ensures the continuity of research and development. In response to the diversification of threats and the globalization of our business, we are continually making improvements to ensure that we can respond appropriately to threats as they emerge.

Major Risks and Their Management

Material risks (risks managed at the corporate level) are discussed in the RMC and approved by the EMC and Board meetings.
The table below summarizes Major Risks extracted from the Group's material risks and management risks at each unit and function.
In extracting the risks, the possibility of impact on investment decisions and other similar matters were considered.

Areas Risk Summary Response (Including Countermeasures and Mitigation Action)
Research and Development & Alliances with Partner Companies

The potential of discontinuation of research and development, failure to obtain approval due to changes in approval review criteria, or changes or termination of contract terms related to collaborations in the development of new drug candidates.
Investment may not be recovered due to changes in development plans and excess inventory may result in disposal costs.
This includes new drug candidates in partnership with AstraZeneca, as well as in partnership with Merck.

Continue a Joint Committee with each AstraZeneca and Merck, create a unified vision between the two companies for each area of collaboration, and use this vision to formulate and manage the progress of strategies; Ensure constant communication with pharmaceutical regulatory authorities in each country as a means of managing and reducing risks.
 Changes in the external environment (including changes in the competitive environment) and changes in plans Negative impact may arise from the launch of new drugs by competitors, the emergence of next-generation technologies, updates to treatment guidelines, changes in clinical trial results, demand forecasts, and supply plans, as well as long-term contract manufacturing agreements (CMOs) and liquidated damages for failure to meet minimum purchase obligations. Monitor trends such as competitors’ development and product launches, updates to treatment guidelines, and the status of regulatory reviews.
Monitor the development progress of our own pipeline, improve the accuracy of demand forecasts, and maintain a flexible production system.
Identify discrepancies between actual demand and forecasts.
Negotiate revisions to contract terms.
Pharmaceutical Side Effects and Quality Issues

Pharmaceutical products may be recalled or withdrawn from the market due to quality issues or unforeseen side effects; significant expenses may be incurred due to resulting allegations of injury and other matters of liability.

Consistent quality assurance through the enhancement of management systems compliant with GMP and GDP standards; Regular audits of group company facilities and business partners are conducted; Perform objective assessments, reviews, and analysis of safety management information (e.g., information on side effects) is globally collected; Share this information with health care professionals in an appropriate manner; Provide all employees with training in safety management information every year.
Overseas Business Expansion

Operations overseas may be impacted by a number of factors, including: political instability, changes in tariffs, sudden policy changes, deterioration of economic circumstances, contraventions of local laws and regulations, and worsening labor management relations.

Appoint risk coordinators in each unit, and collect and share information on a regular basis; When a problem occurs, follow the crisis initial response procedure, aiding prompt problem resolution.
Collect timely information to understand the potential impact on the business, consider when direct advocacy or requests to the government through industry organizations in Japan, the U.S., and Europe would be most impactful, and examine flexibilities in our supply chain.
Manufacturing and Procurement

Risks affecting manufacturing, procurement activities, and investigational products, including quality risks in contract manufacturing, may include damage to Group-owned facilities, impairment of public infrastructure, and technical issues.

Establish systems to rapidly restore operations in the event of an emergency and to ensure stable supplies of pharmaceuticals with assured quality for the continued provision of medical services; Continuously improve BCP by reviewing operations and organizational structure related to priority supply items, etc.; Periodically review list of priority supply items.
Ensure distribution of manufacturing and logistics bases, and install private electricity generators; Strengthen IT foundations (e.g. infrastructure), such as by ensuring redundancy in core systems.
Enhance the oversight of contracted manufacturing sites through risk management and promote the implementation of risk mitigation measures.
Environment & Safety

Exposure to chemical substances by people both inside and outside the company; contamination of soil, air, and water; serious occupational safety and health accidents or disasters; and supply chain disruptions and the suspension of operations at manufacturing sites resulting from extreme weather events and water stress associated with climate change may adversely affect the stable supply of pharmaceuticals, business continuity, financial performance, and the company's reputation.

Strengthening the occupational safety and health management system by ensuring the proper management of chemical substances and the safe operation of our business, and by promoting the acquisition of ISO 45001 certification at our domestic and overseas plants.
Integration of sustainability-related risks (including environmental, health, and safety risks) into company-wide risk management, and establishment of reporting mechanisms to the Executive Management Committee and the Board of Directors.
Based on climate change scenario analysis: stable supply measures (such as safety stock, multiple sourcing, and diversify cation of production sites); facility measures to address water shortages and water-related disasters; strengthening of business continuity plans (BCPs); and promotion of initiatives to reduce greenhouse gas emissions and waste.
Intellectual Property Rights

Third party claims of patent infringement or other intellectual property claims against the Group, which could interrupt the Group’s business or result in legal action; the Group itself may initiate legal action if a third party is found to have infringed Group-owned intellectual property rights.

Maximize value and minimize risks for the creation and protection of intellectual property; Establish systems to identify, monitor and minimize the impact of intellectual property challenges on business by working together with internal and external parties.
Litigation

Lawsuits may arise over pharmaceutical side effects, product liability, employment/labor issues, and fair trade-related litigations, among others.

Minimize legal risks and maximize business opportunities under applicable laws and regulations, contracts, and dispute prevention and resolution.
Laws and Regulations and Regulatory Trends to Limit Healthcare Expenses

Negative impact may arise from administrative and legislative measures related to drug price revisions, the healthcare system, and health insurance.

Monitor drug price policies in each country, collect timely information to understand the potential impact on the business, consider when direct advocacy or requests to the government through industry organizations in Japan, the U.S., and Europe would be most impactful, and work out different scenarios.
Compliance Risk

Material violations of laws and regulations, including personal misconduct by directors and employees, could have a significant adverse impact on our business performance, financial and reputational condition.

Ensure compliance with laws and regulations through education and awareness-raising activities. CEO's compliance message, monitoring of business operations to detect any inappropriate activities as early as possible. Prevent and ensure early detection of compliance violations through the whistleblowing system (Global Hotline) available not only to executives and employees but also to business partners, and take strict action when they occur. Established Global Ethics & Compliance Committee.
Financial Market and Exchange Rate Fluctuations

Negative effects may result from stock market behavior, interest rate trends, or exchange rate fluctuations.

Reduce cross holdings; Implement mid-term reviews of pension fund asset allocations; Execute currency hedging transactions.
Information Security and System

Network infection, cyber-attacks, and unexpected system failures, and other similar events may result in a system shutdown or leakage of confidential information.

Promoting measures related to information security and cybersecurity, establishing policies and rules; Provide employees with continuous information security training; Establish security systems with defense functions, infringement detection, and countermeasure function; Strengthen information security and cybersecurity infrastructure to improve operations; Implement security measures and management system designs for factories, manufacturing facilities, and systems (OT systems); Regular monitoring of personal information management practices.
Securing Talent

Increasingly competitive job markets may result in an inability to secure sufficient talent with the high levels of expertise required for various roles.

Strengthening planned recruitment activities and fostering and securing talents through diverse approaches; Establishment and implementation of a globally unified HR system and human resource information system; Promote both One DS Culture and Inclusion & Diversity (I&D), and analyze and improve employee engagement through global engagement surveys, Maximize utilization of human resources globally.

Emerging Risk

We also monitor emerging risks (new risks that may affect the company over the next few years and are still under evaluation due to their high uncertainty and dynamic nature). Depending on discussions at the RMC and EMC, the assessment of an individual emerging risk may be changed to a material risk or a unit-level risk. We monitor the following risk as the emerging risk.

Risk

Risks Related to the Utilization of AI

1.Decline in competitiveness due to delays in applying AI and digital transformation
Amid rapid advances in AI technology research and development and digital transformation (hereinafter “DX”) worldwide, the utilization of AI, particularly generative AI, is becoming indispensable, especially in drug discovery research and development processes. If we fail to respond to these technological innovations in AI, we may lose our competitive advantage in research and development, which could adversely affect the performance of our group.

2.Response to AI-related regulations
Regulations governing the use of AI technology are becoming increasingly stringent worldwide. In particular, inadequate response to new regulations such as the EU AI Act in the EU could result in fines or restrictions on business activities. Additionally, inadequate AI governance frameworks could lead to incidents that adversely affect patient health or safety. Furthermore, this could result in a decline in the Group's social credibility or claims for compensation, which could negatively impact business performance.

Response

In response to these various risk scenarios, the Group is continuing to build a framework aimed at accelerating research and development through technological innovation using AI and promoting DX based on the utilization of AI throughout the company. In addition to complying with AI-related regulations, we are also working to establish an AI governance system (formulating a global AI governance policy, establishing global guidelines for AI development and operation according to risk classification, etc.).