In Japan, with the declining birthrate and aging population, a rapid increase in medical needs is expected in the lead-up to 2025, when the baby boomer generation will be 75 years old or older. Based on the Act on Promotion of Comprehensive Assurance of Medical Care and Long-Term Care, which was enacted in 2014, the Medical Care Act has been amended to establish a system to effectively and efficiently provide high-quality and appropriate medical care suited to each patient's condition by differentiating and strengthening hospital and bed functions, enhancing home medical care, promoting team medical care, and taking measures to secure and address uneven distribution of doctors, etc. Based on this amendment, each prefecture has estimated medical demand and the required number of hospital beds for each medical function in 2025, and has formulated a "regional medical plan" that contains measures to realize a medical care system that suits the actual situation in the region, and is promoting the differentiation and cooperation of four medical functions: highly acute, acute, recovery, and chronic.
The Group strives to collect detailed information on changes in medical policies and external environment in the region and the management status of medical institutions, strengthens proposal capabilities by promoting solution businesses, and improves distribution efficiency by taking advantage of economies of scale. We are planning to work on measures to contribute to regional medical care, but by promoting functional differentiation and consolidation at medical institutions, there is a possibility that the number of medical institutions to be sold will decrease due to the consolidation of medical equipment purchased by each medical institution. In addition, it may further intensify competition in the medical equipment sales industry, which may affect the sales amount and profits of the Group.
The reimbursement price is the billing price of the material (specified insurance medical material) that can be claimed as medical material among the charges that the medical institution can charge to the insurance institution (partly borne by the patient) as medical fees under the public medical insurance system. I have. In principle, the reimbursement price will be revised along with the revision of medical fees, which is carried out once every two years. The selling price of specified insurance medical materials to medical institutions and the purchasing price from suppliers are based on the redemption price, but are not constant. In addition, the revised reimbursement price will also differ depending on each medical material. Therefore, it is difficult to calculate in advance the amount of sales and the amount of impact on profits due to the revision of the redemption price.
In the Group, the sales of specified insurance medical materials subject to such reimbursement prices account for about one-third of the total, and the revision of the reimbursement price is the sales price and gross profit margin of the Group. If it acts on a downward trend, it may affect the sales amount and profits of the Group.
As a medium- to long-term management strategy, the Group will expand its corporate scale through M & A with companies closely linked to each region in order to maintain growth in response to the changing industry environment and meet diversifying medical field needs. I am aiming for. We intend to achieve stable growth and increase corporate value by reducing costs and improving operational efficiency by taking advantage of economies of scale.
However, in the medical device sales industry, there are many small and medium-sized companies, most of which are unlisted, and there is not necessarily a market price that can be used as a standard for calculating corporate value. We recognize that this is not sufficient. When determining the acquisition price, merger ratio, etc., our group conducts a preliminary investigation, comprehensively takes into consideration financial conditions, progress of business plans, future prospects, etc. Although we plan to negotiate and discuss as carefully as possible, taking into account the results of corporate value calculations by corporate value calculation organizations, there is no guarantee that we will be able to achieve the business plan based on the basis, and as a result, we may not be able to obtain the expected profits. If this is determined to be the case, an impairment loss on goodwill may be recorded, which could have an impact on the Group's earnings. In addition, although we will pay close attention to the preliminary investigation and conduct it as accurately as possible, there is a possibility that off-balance sheet debt or compliance issues may arise after an acquisition or merger, which could affect the Group's earnings. may have an impact.
We also recognize that each company subject to M & A has its own corporate culture and employees. The Group intends to respect the corporate culture and employees of each company that is closely related to the region and work hand in hand as a group, but the fusion of corporate culture and personnel exchanges cannot be carried out smoothly, and human resources will flow out. In some cases, or if the core systems and business procedures cannot be thoroughly integrated, it may not be possible to achieve the expected effects such as operational efficiency and synergistic effects through M & A, which will affect the sales amount and profits of the Group. May affect.
In order to meet the diversifying needs of medical sites, the Group is working on measures to further contribute to regional medical care, such as strengthening proposal capabilities by promoting solution businesses and improving distribution efficiency by taking advantage of economies of scale. We will strive to increase value. When the Group engages in a new business, the business plan is formulated after thorough consideration in advance and approved by the Board of Directors. However, in many cases, up-front investment is required to develop new businesses, and it is expected that it will take a considerable amount of time for the businesses to generate stable profits. The rate may decrease. In addition, if the business cannot be developed as originally planned due to changes in the environment of the medical industry, it may not be possible to recover the investment, which may affect the profits of the Group.
The Group is working to strengthen its efficient management structure and internal control by introducing a core system that links and integrates operations such as purchasing, sales, billing, and payment to group operating companies. While collecting information and opinions from the sales sites and management departments that operate the system, we will continue to work on strengthening and further improving the functions of the system to build a system environment with higher added value. However, while a large amount of capital investment is required to build a system environment, if there is a discrepancy between the operation of medical sites and diversifying needs, the maturity of new operations will proceed as expected. If this is not the case, operating productivity and operational efficiency may decline, which may result in unrecoverable investment and may affect the Group's sales and profits.
The Group is subject to the following legal regulations in carrying out its business.
Therefore, as a medical company, our Group has adopted the basic stance of corporate activities as "When faced with a situation where we must choose between justice and profit, we will choose justice without hesitation." We have formulated compliance guidelines and implemented an in-house e-learning training system to thoroughly inform all officers and employees of the code of conduct and strive to reduce the risk of violations of legal regulations. In addition, we are working to build a system for complying with laws and regulations by conducting internal audits by our Internal Audit Department, which is independent from other business execution divisions, verifying and evaluating the appropriateness and effectiveness of the internal control system and encouraging its improvement. However, even if we take these measures, we may not be able to avoid the risk of violations of legal regulations, including personal misconduct by officers and employees. In the event of a violation of legal regulations, depending on the nature of the violation, we may be subject to legal sanctions such as the revocation of licenses and permits, other administrative measures, and fines, as well as the possibility of being suspended from transactions with business partners, the possibility of an impact on sales activities due to a decline in trust in our Group, the possibility of compensation for damages suffered by victims, and the possibility of incurring large expenses for improving and strengthening our internal control system, which may affect the sales and profits of our Group.
Medical device sales, lending, repair, manufacturing and sales, and sales of pharmaceuticals and regenerative medicine products are subject to regulations under the Pharmaceuticals and Medical Devices Act. Therefore, it is subject to regulations by various business laws such as the Poisonous and Deleterious Substances Control Law, the Nursing Care Insurance Law, and the Construction Business Law. The main licenses, etc. obtained based on various business laws including the Pharmaceuticals and Medical Devices Act are as follows.
| subject | Name of Law | Contents of legal regulations |
|---|---|---|
| Highly managed medical equipment, etc. Sales / lending business |
Pharmaceuticals Medical Device Law |
Pursuant to Article 39, Paragraph 1 of the Pharmaceuticals and Medical Devices Act We have permission. |
| Highly controlled medical equipment for animals, etc. Sales / lending business |
Pharmaceuticals Medical Device Law |
Pursuant to Article 39, Paragraph 1 of the Pharmaceuticals and Medical Devices Act We have permission. |
| Medical equipment repair business | Pharmaceuticals Medical Device Law |
Pursuant to the provisions of Article 40-2, Paragraph 1 of the Pharmaceuticals and Medical Devices Act We have permission. |
| Type 2 Medical device manufacturing and sales business |
Pharmaceuticals Medical Device Law |
Pursuant to the provisions of Article 23-2, Paragraph 1 of the Pharmaceuticals and Medical Devices Act We have permission. |
| Pharmaceutical sales business | Pharmaceuticals Medical Device Law |
Pursuant to Article 24, Paragraph 1 of the Pharmaceuticals and Medical Devices Act We are licensed for wholesale sales. |
| Product sales business such as regenerative medicine | Pharmaceuticals Medical Device Law |
Pursuant to the provisions of Article 40-5, Paragraph 1 of the Pharmaceuticals and Medical Devices Act We have permission. |
| Veterinary drug sales business | Pharmaceuticals Medical Device Law |
Pursuant to Article 24, Paragraph 1 of the Pharmaceuticals and Medical Devices Act We are licensed for wholesale sales. |
| Poisonous and deleterious substance sales business | Poisonous and Deleterious Substances Control Law |
Pursuant to Article 4, Paragraph 1 of the Poisonous and Deleterious Substances Control Law We are registered as a general retailer. |
| Welfare equipment sales business | Long-Term Care Insurance Law | Pursuant to the provisions of Article 70, Paragraph 1 and Article 115-2, Paragraph 1 of the Nursing Care Insurance Act We are designated as a designated specific welfare equipment sales business operator and a designated specific care prevention welfare equipment sales business operator. |
| Welfare equipment rental business | Long-Term Care Insurance Law | Pursuant to the provisions of Article 70, Paragraph 1 and Article 115-2, Paragraph 1 of the Nursing Care Insurance Act We are designated as a designated welfare equipment rental business operator and a designated care prevention welfare equipment rental business operator. |
| General construction industry | Construction Business Act | Pursuant to Article 3, Paragraph 1 of the Construction Business Law We are licensed for general construction work. |
Our group's customers include public medical institutions such as national and public hospitals, and because transactions involve bidding, we must comply with anti-bribery laws and the Antimonopoly Act, which prohibits bid rigging. In addition, our group handles a large number of medical devices from American manufacturers, so we must pay attention not only to domestic anti-bribery laws but also to foreign laws such as the U.S. Foreign Corrupt Practices Act (FCPA).
The Premiums and Representations Act establishes special premium regulations that apply to industries such as the medical device industry, including the medical device sales industry, and our group does not use premiums as a means of unfairly inducing medical institutions, etc. to trade in medical devices. It is prohibited to provide goods or services necessary for the use of medical devices or other prizes beyond what is deemed appropriate in light of normal business practices. Regarding premium regulations, in addition to the regulations of the Act, we must also comply with the Medical Device Industry Fair Competition Code established by the Medical Device Industry Fair Trade Council, a self-regulatory organization for the industry to which our group belongs.
In addition to the personal information of employees, the Group may handle personal information held by medical institutions and personal information of individual sales destinations of medical equipment and long-term care welfare equipment. When handling personal information, it is necessary to establish a management system for proper acquisition and leakage prevention based on the Personal Information Protection Law.
Our group has bases in various regions, including the Tokyo metropolitan area, and conducts business activities over a wide area. In preparation for natural disasters such as earthquakes, fires, typhoons, floods, and snow damage, we have formulated a business continuity plan (BCP), and as a member of the medical industry, we are working to establish a stable supply system to ensure the continuity of medical infrastructure. In preparation for disasters, we have a seismically isolated logistics center in Kanagawa Prefecture and a large-scale logistics center with a warehouse area of over 19,000 m2 in Gunma Prefecture, and are working to expand our backup system to maintain product supply. However, our group's business scope is wide, and in light of the increasing scale of disasters due to recent climate change, it is difficult to avoid all risks in the event of a disaster. If the scale of the disaster were to far exceed expectations and damage was caused to the Group's headquarters, business locations, warehouse facilities, etc., resulting in damage to products, soiling or damage, making it difficult for employees to work, making deliveries difficult due to the disruption of distribution routes, or making sales and purchasing difficult due to damage to customers and suppliers, this could disrupt ordinary business operations and affect the Group's sales and profits.
The Group conducts its business activities in close daily contact with medical institutions such as hospitals and clinics. As medical professionals, the Group has formulated an emerging infectious disease BCP manual that includes infection prevention measures similar to those of medical institutions, and strives to implement safety measures for employees, customers and business partners. However, if a large-scale emerging infectious disease such as a new strain of influenza or COVID-19 occurs and the scale and speed of infection spread far exceeds expectations, it may disrupt ordinary business operations, such as temporary business suspension, delays in purchasing, inventory backlog, and delays in collection of accounts receivable, which may affect the sales and profits of the Group.
Some of the products handled by the Group, including medical devices and pharmaceuticals, have expiration dates set by the manufacturer. The Group aims to deliver safer and higher quality products to medical and long-term care welfare sites, and has a system for managing expiration dates by conducting regular physical inventory, thoroughly and verifying operations, and utilizing IT systems. We are working on improvement and strengthening. However, in the unlikely event that a product that has passed the expiration date is distributed due to human factors or system troubles of the Group, and serious health damage occurs, the license, etc. related to the medical equipment sales business, etc. will be revoked, and the Group will be notified. There is a possibility that sales activities will be affected due to a decline in trust, compensation for patients, medical institutions, etc., and a large amount of expenses may be incurred for improving / strengthening the expiration date management system. It may affect the sales amount and profit of.
The Group sells private brand products that emphasize the needs of medical institutions, but since it is a medical-related product, we are pursuing reliable quality. We have changed our position from a dealer to a manufacturer and are striving to select and supply responsible products, but if an unexpected defect or defect occurs in a private brand product, we will collect a large amount of products and compensate for damages. In addition to the cost burden, a decrease in trust in the Group may affect the sales amount and profits of the Group.
Medical technology is advancing day by day, and the medical devices used are also changing, for example, with the development of minimally invasive medicine in the treatment of heart disease. As a general dealer of medical equipment, the Group handles medical equipment in almost all areas without being biased to a specific area, but future innovations in medical technology will reduce the use of the medical equipment we handle. In some cases, it may affect the sales amount and profits of the Group.
The Group evaluates and judges the current status, future potential, management, industry circumstances, etc. of business partners, sets credit limits for each business partner in accordance with the credit management rules, and thoroughly manages credit, resulting in bad debts, etc. We are trying to prevent and minimize the problem. However, if the risk of unexpected bad debts becomes apparent due to the deterioration of the business performance of our business partners and it becomes necessary to record losses and allowances, it may affect the profits of the Group.
The Group's customers include public medical institutions such as national and public hospitals, and as such medical institutions tend to concentrate capital investment in December and March, which is the end of the fiscal year, the Group's sales are higher in the second and third quarters of each year than in other periods, and profits tend to increase accordingly during these periods. In reaction to this, sales through the fourth quarter tend to be lower than in other periods, and profits tend to decrease accordingly during these periods. In addition, when a medical institution builds a new facility, relocates, or expands, a large amount of medical equipment is purchased in a lump sum, which can temporarily increase sales. Therefore, the Group's quarterly Results of Operations are not linked to full-year Results of Operations, and it is difficult to predict full-year Results of Operations based solely on quarterly or half-year Results of Operations.
The sales and operating profit/loss for each quarter from ended June 2022 to the fiscal year ending June 2024 are as follows:
(Note) Provisional accounting treatments related to business combinations were finalized in the third quarter of the fiscal year ending June 2024. The operating profit for the first, second and third quarters of the fiscal year ending June 2024 reflects the finalization of the provisional accounting treatments.