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.
In FY24, we enhanced the Daiichi Sankyo Group's Risk Management by implementing improvements based on industry practice reviews and interviews with senior management. As part of this initiative, we established the Risk Management Committee (RMC) 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

The Daiichi Sankyo Group defines "Crisis" as a collective term for events among the potential risks in our corporate activities that have arisen and that require urgent action, as well as events with a high likelihood of occurring. The Group has formulated a Global Crisis Management Policy that defines basic matters related to Crisis Management with the aim of minimizing losses caused by such events.

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). 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.

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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 Material Risks Risk Summary Response (Including Countermeasures and Mitigation Action)
Research and Development & Alliances with Partner Companies  〇

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 Trastuzumab Deruxtecan (T-DXd/DS-8201: Anti-HER2 ADC, product name: ENHERTU®) and Datopotamab Deruxtecan (Dato-DXd/DS- 1062: Anti-TROP-2 ADC, product name: DATROWAY®) in partnership with AstraZeneca, as well as Patritumab Deruxtecan (HER3-DXd/U3-1402), Ivnatamab Deruxtecan (I-DXd/DS-7300), DS-6000 (R-DXd), and MK-6070 (DS3280) 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.
Pharmaceutical Side Effects and Quality Issues 〇

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 〇

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, work out different scenarios, consider requests to the government through industry organizations in Japan, the U.S., and Europe, and examining the possibility of strengthening local production in the US.
Manufacturing and Procurement 〇

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.
Environment & Safety

Some chemical substances used in the research and manufacturing of pharmaceuticals may potentially have adverse effects on human health and ecosystems.
Climate change-induced weather disasters, global warming, and loss of biodiversity pose potential risks to the pharmaceutical supply chain, such as disruption, increased manufacturing costs, and restrictions on the use of natural resources.

Establish and ensure continuous monitoring of independent management standards that are more rigorous than those set by local authorities; Disclose information according to recommendations of the TCFD (Task Force on Climate-related Financial Disclosures), Risk assessment and disclosure in accordance with the TNFD (Taskforce on Nature-related Financial Disclosures).
Intellectual Property Rights 〇

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 〇

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 〇

Negative impact may arise from administrative 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 requests to the government through industry organizations in Japan, the U.S., and Europe and work out different scenarios.
Compliance Risk  〇

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

Ensure compliance with laws and regulations through education and awereness-raising activities. CEO's compliance message (twice a year), 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 〇

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 〇

Network infection, cyber-attacks, 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.).