Risk Management

Governance :

Risk Management

リード文

We work to identify potential major risks to prevent them from occurring, and we have a structure in place to ensure that appropriate actions are taken in case of their occurrence.
In addition, we establish a company-wide risk management system with President, Representative Director as the chief risk management officer and Executive Director, Corporate Strategy & Planning (Member of the Board of Directors, Executive Officer) as the risk management director in charge. In this way, we tackle issues related to risk management, recognizing them as important management strategic issues.

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Risk Management

Establishment of the Enterprise Risk Management (ERM) System

We started preparations for the introduction of Enterprise Risk Management (ERM) in fiscal 2018 and introduced it in fiscal 2019, aiming for total, rather than partial, optimization of risk management.
In conjunction with the introduction of ERM, we have appointed a Chief Risk Management Officer (President, Representative Director, and Chief Executive Officer) and a Head Risk Management Officer (Member of the Board of Directors). Furthermore, in addition to newly establishing the "Risk Management Office" in 2019, we have also formulated the "Risk Management Regulations" to promote ERM.

Basic Policy on ERM.

With the aim of ensuring stable business continuity and achieving our business objectives, we develop and implement an enterprise risk management system to minimize losses to our company and its stakeholders including customers, while fulfilling our accountability to society.
Each division assesses its risks and those in divisions under its jurisdiction, using the risk assessment sheet, and autonomously promotes risk management.
We identify the most important and urgent risks that could have a considerable impact on business management as material risks, and promote company-wide risk management activities.
In the event a risk materializes, we take measures to minimize the damage and ensure prompt recovery in order to solve problems as quickly as possible.

ERM Promotion System

Basic Approach
1. The Head of each division supervises the risk management of the entire division through the division’s Risk Management Promotion Meeting.
2. Division Managers conduct daily risk management as risk owners.
3. Every quarter, Risk Management Office monitors the risk management status of each headquarters from the viewpoint of ERM.The results of monitoring are shared and examined for issues at the Company-Wide Risk Management Committee (Chairperson: Director, Risk Management Office) held twice a year. The monitoring results are also reported to the Management Committee (Composed of directors, executive officers, division managers, etc.) and the Board of Directors.
Risk Management Promotion Meeting
The Risk Management Promotion Meeting in each division assesses the risks of their division and extracts issues using the risk assessment sheet, and develops prevention measures for identified risks according to their materiality and urgency, as well as risk response plans. Thus, each division autonomously promotes risk management by considering, developing and implementing appropriate risk measures. The risk assessment sheet covers a wide range of risks, not only business risks, but also risks related to the environment, major disasters, human rights, pharmaceutical affairs laws and regulations, and bribery.
Response to Material Risks
The Management Meeting identify important and urgent risks as “material risks” every fiscal year, and consider, develop and implement measures to control the identified risks, while monitoring the identified risks on a company-wide scale.
In the event a risk arises, we take action in accordance with the response plan to minimize the damage and ensure prompt recovery, thereby solving problems as quickly as possible.
Crisis management
In the event a material risk arises and crisis management becomes necessary, the President sets up an Emergency Response Committee to take measures to minimize damage and facilitate speedy recovery.
Risk management education
We provide education on risk management for all employees to raise their awareness and sensitivity toward risks.
In fiscal 2019, we conducted e-learning training to help employees acquire basic knowledge about risks, risk assessment, and ERM, and learn about our company’s ERM system. We also commenced workshop-style training regarding risk management methods in the second half of fiscal 2019; so far, inside directors, risk managers of all divisions, and leader-class employees in some divisions have completed the training. This training is planned to be provided to all employees. We will continue to promote education on risk management.

ONO’s risk management system

ONO Group’s Risk Management

To promote risk management activities across the Group, we provide our subsidiaries with guidance and advice on risk management, while respecting their autonomy. We provide such guidance and advice through various opportunities including regular meetings where we receive reports from subsidiaries regarding their business operations and discuss important matters.
We are currently working to expand our ERM system to our subsidiaries in Japan and overseas by the end of fiscal 2020 to further enhance the risk management of the entire Group.

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System to ensure proper business operations of the ONO Group

To ensure legal compliance across the Group, we provide appropriate consultation and guidance to our subsidiaries. While respecting their autonomy, we request that each company provide us with regular business reports and consult with us on important business issues in advance.

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Business Continuity Plan (BCP)

According to the instructions of the Emergency Response Committee chaired by the President, Representative Director, we have organized the BCP Management Headquarters and established a system designed to minimize the impact of an emergency on operations even in the case where an emergency occurs such as a natural disaster or serious accident, so that we can continue business activities or recover promptly and resume them if they are suspended. The BCM Committee, which is chaired by Executive Director, Corporate Strategy & Planning (Member of the Board of Directors, Executive Officer) and in charge of business continuity management (BCM), and the Management Office have been formed to maintain and strengthen our abilities to respond to crisis and continue our business operations, and promote relevant management activities during normal times.
We have installed systems prepared for disasters such as emergency generators and duplicate power service in our head office, the Tokyo Building, and all of our plants and research institutions, and we also have introduced seismic isolation systems to prepare for earthquakes in our head office, the Tokyo Building, the Minase Research Institute, and the Yamaguchi Plant. As we have transferred some of the Osaka Head Office’s functions to the Tokyo Building, we can use resources such as internal systems and inventories at either base in the event of natural disasters in one area. The development of our two-base system prevents us from having to stop our business activities and improves our ability to continue our business operations.

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Business Risks

The Group's business performance may be significantly affected by various risks that could in the future occur in its business activities.
The major risks that have the potential to affect the Group's business are listed below. However, this list does not cover all risks, and there are risks other than those described below that could potentially influence investor decisions.
The matters in this document relating to the future are based on the judgment of the Group as of the end of fiscal 2019.

<Major Risks>

New product development
Upholding our corporate philosophy ”Dedicated to Man’s Fight against Disease and Pain,” ONO strives to develop unique and innovative new drugs that deliver true benefit to patients in order to satisfy as-yet unmet medical needs. With the aim of becoming an R&D-based global pharmaceutical company specializing in specific fields, we not only pursue development of innovative pharmaceutical products independently but also promote open innovation that incorporates world-leading technologies and knowledge.
However, it is possible that a long-term and large amount of R&D investment will not lead to the market launch of an innovative drug, and will cause the discontinuation of development midway. If such a situation occurs, expected revenue may not be realized, and the Group's operating results and financial position may be significantly affected.
Response to changes in the market environment
The Group is striving to maximize product value through proactive R&D activities, swift inter-departmental cooperation across the entire company, and strengthening of human resource development functions. To that end, we constantly analyze the market environment while paying attention to the factors affecting the product life cycle and review strategies to achieve a competitive advantage at every stage of the product life cycle, thereby responding appropriately to changes in the market. We also secure the necessary resources to maximize the potential of every product we offer.
However, the Group’s operating results and financial position may be significantly affected depending on the sales situation of competing products and generic products.
Compliance
In conducting business activities, the Group is subject to various laws and regulations, such as those related to product quality, safety, the environment, chemical substances, transactions and labor, as well as accounting standards and tax laws. In the future, we will need to respond to ever-stricter climate change mitigation policies and regulations around the world. In addition to formulating the Compliance Program Policy, etc. based on the Codes of Conduct, the Group has established a robust compliance system, which includes the Compliance Committee and internal reporting and consultation desks, to ensure that all business activities are conducted in compliance with applicable laws and regulations. However, if the Group or its contractors violate any laws or regulations materially, the Group’s reputation, as well as its operating results and financial position, may be adversely affected. In addition, if the Group’s business activities are restricted due to changes in laws and regulations, and as a result additional investment costs are incurred, the Group's operating results and financial position may be significantly affected.
Product quality control
In line with its policy of contributing to society through stable supply of pharmaceuticals that are quality-assured to a high standard, the Group not only meets the legal requirements relating to the quality of pharmaceutical products but also has established a robust quality system based on its own quality manual and continually improves the system to stably supply high-quality pharmaceutical products from the perspectives of patients, caregivers and healthcare professionals. Also, we have a robust product recall system in place. If concerns arise regarding the quality, efficacy and safety of any of our products, investigation will be conducted promptly, and if a recall is decided upon, such recall information will be communicated immediately to medical professionals and the relevant product will be recalled as required. However, if a serious quality problem that exceeds the Group’s expectation arises or a concern is raised about the safety and security of our product due to the discovery of new scientific knowledge, it could reduce trust not only in the relevant product brand but also in the entire Group, possibly causing a significant adverse impact on the Group’s operating results and financial position.
Securing and developing human resources
The Group strives to secure and foster diverse and competent human resources to ensure sustainable growth. We are continuously committed to the development of support systems and working conditions that help employees work in various styles so that each and every person in our diverse workforce can work energetically and demonstrate his or her full potential. We also work to continually enhance training programs to match the individual needs and levels of ability and development. Thus, through various activities, we seek to become an attractive company that attracts and retains excellent employees.
To respond quickly and flexibly to environmental changes and increase corporate value, we believe it is important to enhance the diversity of attributes, values, and behavioral characteristics of the members who make up the organization and recognize their individualities. Under this belief, we are implementing various initiatives to promote the active participation of women and persons with disabilities in the workplace and to promote midcareer employment.
However, possible failure to attract and retain diverse and talented human resources over the medium to long term could cause the Group’s business activities to stagnate, resulting in a significant impact on the Group’s operating results and financial position.
Large-scale earthquakes, climate change-related natural disasters, and accidents
In preparation for earthquakes, floods associated with climate change (water risks) and other natural disasters, the Group formulates disaster prevention measures and business continuity plans for its manufacturing plants and major business sites and addresses climate change-related risks in accordance with the TCFD recommendations. The Group has a manufacturing plant, the Fujiyama Plant, in Shizuoka Prefecture. In addition to this, a new plant, the Yamaguchi Plant, was constructed in Yamaguchi Prefecture to accommodate future business expansion, as well as to reduce risks and ensure business continuity during large-scale disasters. Also, the Head Office, the Tokyo Building, and all manufacturing plants and research institutes are equipped with emergency power generators and two-line power receiving systems to ensure uninterrupted operations in the event of a power failure. The Head Office, Tokyo Building, Minase Research Institute and Yamaguchi Plant are equipped with seismic isolation systems to prepare for earthquakes. Furthermore, we have established a system to handle emergency situations at two bases, in Osaka and Tokyo, in the event of a large-scale disaster. We have also introduced a safety confirmation system to speedily confirm the safety of our employees. In addition, we conduct periodical disaster drills to raise employees’ awareness of disaster prevention and improve their ability to respond to an emergency situation.
Despite our efforts, however, a large-scale earthquake or natural disaster resulting from climate change may cause problems in our raw material procurement, manufacturing and logistics operations, thus hindering the supply of products and our R&D activities. In each case, the Group’s operating results and financial position may be significantly affected.
Furthermore, the spread of infectious diseases, such as novel coronavirus, and the occurrence of an explosion or fire accident at production plants, information/control system failures, problems at suppliers of raw materials, malfunction of social infrastructure such as electricity and water, environmental pollution from harmful substances, terrorism, political disturbances, riots, etc. may hinder the supply of products, R&D activities and other business activities. This may have a serious impact on the Group’s operating results and financial position.
Health insurance system reform
The pharmaceutical manufacturing and sales business of the Group is subject to various regulations under the pharmaceutical administration and regulations of each country in which it operates. The changes are being made in Japan to the downward revision of drug prices under the official drug pricing system and the medical system, including promotion of use of generic drugs. Overseas, the pressure to limit healthcare spending is increasing. Due to the above-mentioned factors, in the event the revenue is decreased in consequence of falling sales prices of pharmaceuticals which cannot be covered by increased sales volumes or other measures, the Group’s operating results and financial position may be adversely affected.
Reliance on specific products
Of the Group's revenue, revenue from OPDIVO Intravenous Infusion and anti-PD-1 antibody-related royalties account for about 60% of the total revenue (fiscal year ended March 31, 2020). If the revenue from OPDIVO Intravenous Infusion and anti-PD-1 antibody-related royalties decrease due to drug price revisions, the emergence of other promising competing products, the expiration of protection period of patents, and other unforeseen circumstances, the Group’s operating results and financial position may be adversely affected.
Newly discovered side effects
The Group develops a risk management plan and collects and evaluates safety (side effects) information on a continual basis for each pharmaceutical. We analyze the collected data to determine the seriousness of the safety information and the necessity of issuing warnings, and if necessary, we revise the cautions on package inserts and make announcements about proper use.
However, there is a possibility that new side effects that had not been experienced in clinical trials will be reported after marketing. In the event that a new serious side effect is discovered, the Group’s operating results and financial position may be adversely affected by the payment of damages and a decrease in revenue due to revocation of drug approval.
Intellectual property rights
The Group takes great care to ensure that products it manufactures or sells do not infringe upon third-party intellectual property rights. However, if the Group is found to have infringed upon a third-party intellectual property right, the Group’s operating results and financial position may be adversely affected by the payment of damages and a decrease in revenue due to the suspension of manufacturing and sale, etc. In addition, the Group identifies and manages the inventors, etc. appropriately and pays the appropriate amount of compensation determined by internal regulations and contracts. However, if a lawsuit is filed by an inventor, etc., the Group's operating results and financial position may be adversely affected by the payment of damages
In September 2015, the Dana-Farber Cancer Institute in the United States of America filed a suit in the U.S. District Court for Massachusetts against ONO Bristol-Myers Squibb Company, and Professor Tasuku Honjo for addition of inventors for patent applications on anti-PD-1 antibodies and anti-PD-L1 antibodies that the Company owned. On May 17, 2019, in the first instance, the Court ruled that Clive R. Wood, PhD, and a Dana-Farber Cancer Institute scientist, Gordon J. Freeman, PhD, should be named as inventors on the patents. The Company was dissatisfied with the decision and appealed. Similar lawsuits have been filed in Europe. In addition, on June 21, 2019, the Dana-Farber Cancer Institute, the assignee of Gordon J. Freeman’s rights and interests in the present inventions, filed a lawsuit against the Company and Bristol-Myers Squibb in the US District Court for Massachusetts, claiming that it has the right to receive a portion of the licensing revenue that the Company and Bristol-Myers Squibb have received by suing, as exclusive patent owners, their competitors for patent infringement and later reaching a settlement or concluding license agreements with the competitors.
It is not possible to estimate the impact of the court rulings for these lawsuits on the Group’s operating results, etc. at this stage.
Litigation
The Group may be subject to litigation over pharmaceutical side effects, product liability (PL), labor issues, fair trade issues, environmental issues, or other issues associated with its business activities. Unfavorable court decisions may adversely affect the Group’s operating results and financial position.
Information management
The Group holds a lot of important information, including personal information. To ensure proper management of such information, the Group has implemented various measures, including establishing and disseminating related rules, educating employees on the importance of information management, and taking security measures on IT systems.
However, if information in the possession of the Group is falsified, misused or leaked due to computer virus infection, system failures caused by cyber attacks, accidents, etc., the Group's operating results and financial position may be adversely affected due to a significant loss of social credibility.
Overseas business expansion
The Group is actively expanding its operations overseas with the aim of becoming a “Global Specialty Pharma Company” capable of offering innovative new drugs developed in-house around the world. In South Korea and Taiwan, we have already set up wholly owned subsidiaries and have started selling our products. In the future, we will work to develop and strengthen our development system, etc., with a view to marketing through our own sales organizations in Europe and the United States.
In conducting global business activities, we obtain information on each country or region where we operate, including legal restrictions, economic conditions, political instability, region-specific natural disasters and uncertainties in the business environment, and consider necessary measures. However, if these risks cannot be avoided completely, the Group’s operating results and financial position may be adversely affected.
Alliance with other companies
The Group cooperates with other companies in various forms, such as joint research, joint development, in-and-out licensing of developed products, and joint sales. Changes in or cancellations of alliances with other companies for any reason may have an adverse impact on the Group’s operating results and financial position.
Fluctuations in financial market conditions
• Foreign exchange fluctuations
The Group conducts business internationally and receives royalties and makes payment of expenses, etc. in foreign currencies. Foreign exchange rate fluctuations expose the Group to risks, such as a decline in sales revenue, an increase in purchasing costs, an increase in R&D expenses, and foreign exchange losses. To mitigate the above risks, based on its market risk management policy, the Group hedges foreign exchange risk through forward exchange contracts, for a certain percentage of foreign currency denominated transactions.
However, foreign exchange fluctuations that exceed assumptions may adversely affect the Group’s operating results and financial position.
• Stock price fluctuations
The Group is exposed to risk of stock price fluctuations arising from equity instruments. The Group holds equity instruments to smoothly execute its business strategies but no equity instruments are held for short-term trading purposes. These equity instruments are periodically reviewed to assess their fair values and the financial status of the issuing companies, and the portfolio is revised as required, taking into account the relationships with the relevant companies.
However, if the market value of equity instruments fluctuates substantially more than expected, the Group's operating results and financial position may be adversely affected.
Response to environmental issues
As part of efforts to address global environmental issues, the Group has established an environmental vision (ECO VISION 2050) based on its Global Environmental Policy. In line with the ECO VISION 2050 and Global Environmental Policy, the Group is making group-wide efforts to realize a decarbonized society, a water recycling society, and a resource recycling society. In addition, being keenly aware of corporate social responsibility toward the environment, we carry out all our business activities in an environmentally responsible way to preserve a rich global environment.
Some of the chemical substances used in pharmaceutical research and manufacturing processes include substances that have a negative impact on human health or the ecosystem. Therefore, we strive to comply with environmental laws and regulations regarding the use, handling, manufacture, storage, and disposal of hazardous substances of countries and regions in which we conduct business activities.
However, costs may increase in the future if new carbon taxes are introduced or greenhouse gas emission limits are tightened to combat global warming. Also, should unexpected contamination by harmful substances or collateral damage occur, the Group may face exclusion from insurance coverage or have to bear expenses that exceed compensation and legal liability. In addition, changes of environmental laws and regulations in the future may limit the Group’s business activities, including research and development and manufacturing.
In such cases, the Group’s operating results and financial position may be adversely affected.
Spread of COVID-19 infection
As a life-related company, the Group strives to ensure a stable supply of pharmaceutical products. We are working vigorously to maintain a stable supply in cooperation with our affiliated companies and business partners. For the time being, there is no problem regarding the production and supply of our pharmaceutical products to medical institutions. Also, in an effort to contribute to the research and development of therapeutic drugs, etc., we have started clinical trials with “camostat mesilate (CM),” an oral protease inhibitor for the treatment of chronic pancreatitis and postoperative reflux esophagitis. In addition, we are supplying investigational drugs of CM for clinical studies based on requests from medical institutions and research organizations both in Japan and abroad.
Furthermore, to ensure the safety and health of patients, healthcare professionals and our employees, as well as to prevent the spread of infections, we refrained from visiting medical institutions, but from June we started to resume sales activities step by step at medical institutions and in areas less affected by COVID-19. In addition to conventional physical visits, we have also used new measures, such as web-based meetings and remote lectures, so that MRs can carry out their responsibility to provide pharmaceutical information to healthcare professionals. We have taken the utmost preventive measures, such as prohibiting business trips in Japan and overseas, cancelling or postponing events (lectures, seminars, in-house/external training, etc.), or holding events online.
However, further spread of infection and prolongation of the pandemic in the future could hinder the supply of products and R&D activities. In such case, the Group’s operating results and financial position may be adversely affected by the stagnation of its business activities, etc.
Deferred tax assets and impairment treatment
The Group records various tangible fixed assets and intangible assets, as well as deferred tax assets used in business operations. If any of the risks described in the Business Risks section were to materialize, deviations from the business performance plan could occur, making it impossible for the Group to generate expected cash flows. In this case, there is a possibility that tangible fixed assets and intangible assets may be impaired, and deferred tax assets may decrease. In such cases, the Group’s operating results and financial position may be adversely affected.

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Information Security Management

Basic Approach

Information assets are very important management resources.
ONO Pharmaceutical and its group companies have established, and implement and maintain the Information Securities Global Policies to strictly protect and not divulge the information assets, including R&D information, external information obtained for business use, and personal information of customers/suppliers, as well as to share and utilize information properly within the group.

Information Security Global Policy

Information Security Management System

The ONO Group has established the Information Security Global Policies and related regulations. To ensure their effectiveness, an information security management system has been established, including specific actions to be taken in the event of an information security incident.
Overall responsibility for information security rests with the Information Security Director (Member of the Board of Directors, Executive Officer / Executive Director, Corporate Strategy & Planning). The Information Security Director is responsible not only for formulating the group’s information security management strategy, but also for creating, revising, implementing and managing related regulations, etc., while taking into account changes in the environment surrounding ONO and the latest trends in information security-related laws and regulations. Under the Information Security Director, the Information System Department Manager and the Division Directors of Information Security are appointed to perform information security management duties at each division and group company.

Organizational Structure for Information Security Management

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