Ⅰ.Basic Views

Basic Views on Corporate Governance, Capital Structure, Corporate Attributes, and Other Key Information

1. Basic Views

The Cosmo Bio Group (hereinafter, the "Group") operates its business for the purpose of contributing to the advancement of life sciences in order to fulfill its social mission of contributing to the creation of a rich and secure society by protecting people's lives and health as a trusted functional partner of all people engaged in life sciences. The Group's basic view on corporate governance is to deepen the trust of our stakeholders and society at large by establishing a transparent and efficient management system that implements measures that are appropriate in terms of social norms while aiming to fulfill its mission and achieve continuous development.

Reasons for Non-compliance with the Principles of the Corporate Governance Code

Applicable Version of the Code

This report has been prepared based on the Corporate Governance Code as revised in June 2021.

Supplementary Principle 1.2.4 Electronic Voting at General Shareholders' Meetings and English Translations of the Convening Notices Thereof

The Company works to improve convenience for shareholders by enabling them to exercise their voting rights by using a voting rights exercise form and via the Internet. However, we do not currently use the Electronic Voting Platform or prepare English translations of the convening notices of General Shareholders' Meetings because the shareholding ratios of institutional investors and foreign investors are insignificant.
We will consider taking these measures going forward in view of the shareholding ratios of institutional investors and foreign investors.

Principle 1.4 Cross-Shareholdings

The Company has prepared a policy on cross-shareholdings that permits the Company to hold shares in the form of cross-shareholdings as necessary for the purpose of maintaining and strengthening long-term and stable relationships with investees and benefiting from advantages related to its business strategies in order to enhance its corporate value.

As for the examination of the economic rationale for such cross-shareholdings, the Board of Directors annually determines whether to continue to hold such shares based on comprehensive evaluations of whether the Group can expect its corporate value to be enhanced by such shareholdings due to, for example, advantages related to its management strategies or businesses and future business potential as well as any risks after reviewing the financial position, operating results, stock price, dividend yield, etc., of investees. For any shares that lack the economic rationale for cross-holding as determined by the Board of Directors, the Company will carefully consider reducing them as appropriate to improve medium to long-term capital efficiency. The Company will also consider evaluating the appropriateness of the cross-shareholding of each stock and disclosing such evaluation results.

In principle, the Company exercises its voting rights on all shares held in the form of cross-shareholding after determining whether to vote for or against each proposal in view of the situation, commercial relationship, etc., of each company based on the belief that the appropriate exercise of voting rights will lead to the medium to long-term corporate value enhancement of the company. In particular, the Company makes careful decisions regarding proposals that may have a significant impact on corporate value and shareholder return (such as proposals concerning changes in organization, reorganization of business, and takeover defense measures).

Supplementary Principle 3.1.2 English Language Disclosures

We do not currently disclose or provide information in English because the shareholding ratios of institutional investors and foreign investors are currently insignificant. We will evaluate the necessity of English language disclosures going forward in view of the future composition of our shareholders.

Supplementary Principle 4.1.2 Commitment to the Medium-term Management Plan

As part of disclosing information to help shareholders and investors correctly understand its management strategies and financial condition, the Company discloses its earnings forecasts for each fiscal year through financial summary reports and other media. If there is a difference in the progress statuses of the plans and the results, the Company provides an explanation through disclosure documents after fully analyzing the reason for the difference.
The Company has formulated a three-year plan (the medium-term management plan) and revises it as necessary after reviewing and analyzing its progress.
The Company does not actively disclose specific measures and numerical targets partly as a countermeasure against competitors in the same industry.

Supplementary Principle 4.2.2 Basic Policy on Sustainability Initiatives

(i) The Group implements various sustainability initiatives based on the understanding that the implementation of these initiatives is an important management issue and that its business activities themselves constitute its corporate social responsibility.
The Company intends to contribute to the sustainable evolution of society while aiming to enhance its corporate value through its business activities.
After identifying its sustainability issues, the Group will promote environmental, social, and governance initiatives toward the realization of sustainable growth. The current status of these initiatives is disclosed on the Company website and in other IR materials.
(URL：https://www.cosmobio.com/en/sustainability/)

(ii) As for the allocation of management resources, in accordance with the management philosophy and management policies stated in Principle 3.1(i), the Company has formulated a three-year management plan after discussing it at Board of Directors meetings to ensure its effectiveness. The Board of Directors reviews the progress and implementation status of the plan based on quarterly financial reports and the quarterly reports that it receives from executive directors to provide supervision and to discuss and provide advice regarding the plan.
We will consider how to implement effective supervision of business portfolio strategies by the Board of Directors as a future challenge.

Supplementary Principle 4.10.1 Mandates, Roles, etc., of the Nomination Committee and Remuneration Committee

The nomination and remuneration of management executives and directors are determined by the Board of Directors at its meetings attended by three directors (excluding directors who are Audit and Supervisory Committee members) and four outside directors who are Audit and Supervisory Committee members to ensure independence and objectivity. The Company will continue to consider voluntarily establishing a nomination committee and a remuneration committee or creating their mechanism.

Principle 4.11 Preconditions for Board Effectiveness

The Board of Directors of the Company as a whole should have a well-balanced combination of knowledge, experience, and skills and ensure optimal diversity among its members in terms of gender, work experience, age, etc., in order to make important management decisions appropriately. Accordingly, the current composition of the Board of Directors is well-balanced, and its members include executive directors who have a thorough knowledge of each business area (including one female director) and outside directors who have strong expertise (such as certified public accountants) and extensive experience (such as managing experience with other companies). We will consider embracing international diversity depending on the expansion of the size of our overseas businesses.
The Company has ensured that directors who are Audit and Supervisory Committee members include at least one certified public accountant with strong expertise in finance and accounting.

Supplementary Principle 4.11.3 Analysis and Evaluation of Effectiveness of the Board of Directors as a Whole

The Board of Directors of the Company works to improve its effectiveness through discussions and deliberations among its members including directors who are Audit and Supervisory Committee members.
The effectiveness of the Board of Directors has been evaluated using a named scoring method and a questionnaire in a free-comment format. Based on the analysis results, we have determined that the Board of Directors is generally functioning effectively and that its effectiveness has been ensured. Going forward, we will consider and implement specific measures to address issues identified in the analysis results in order to further improve effectiveness. We will also consider disclosing the results thereof.

Principle 4.14 Director Training

Directors of the Company work to deepen their knowledge as necessary and obtain new knowledge in response to current trends by actively participating in seminars organized by external organizations including associations of which the Company is a member. Costs for participation in such seminars and for inviting outside lecturers are borne by the Company in accordance with its internal regulations.
Going forward, the Board of Directors will properly review the implementation status of such training.

Principle 5.2 Establishing and Disclosing Business Strategies and Business Plans

The Company discloses, in its annual securities reports and other media, the management policies and the three-year management plan of the Group and its activities conducted in anticipation of future developments as important medium to long-term issues in order to help all its stakeholders including shareholders to deepen their understanding. The Company does not actively disclose specific measures and numerical targets partly as a countermeasure against competitors in the same industry. On the other hand, the Company discloses earnings forecasts for each fiscal year on its website and in other media.
The company will try to present our roadmap to all stakeholders in order to realize our long-term vision and group long-term strategy for next 10 years

Supplementary Principle 5.2.1 Basic Business Portfolio Policy

Going forward, the Company will strive to indicate its basic business portfolio policy and the status of the rebalancing of the business portfolio to its shareholders and investors in an easy-to-understand manner after discussing the matter at Board of Directors meetings.

Action to Implement Management that is Conscious of Cost of Capital and Stock Price (under Consideration)

The Company is currently considering, and intends to disclose as soon as possible, policies and specific measures in order to implement and improve the analysis and evaluation of cost of capital and return on capital.

Disclosure Based on the Principles of the Corporate Governance Code

Applicable Version of the Code

This report has been prepared based on the Corporate Governance Code as revised in June 2021.

Principle 1.4 Cross-Shareholdings

Please refer to our explanation in Principle 1.4 under "Reasons for Non-compliance with the Principles of the Corporate Governance Code" above.

Principle 1.7 Procedure for Transactions with Related Parties

Any competitive transactions or conflict-of-interest transactions between the Company and its directors are subject to the prior approval of the Board of Directors. Such transactions are also reviewed by the Audit and Supervisory Committee before they are submitted to the Board of Directors for approval. Whether there have been any such transactions and their details, if any, are reported to the Board of Directors as appropriate.
In addition, the Company has implemented a system of checks to determine annually whether there have been any related-party transactions between the Company and its directors, relatives of directors, or major shareholders. If there have been any such transactions, the Company will disclose them in the notes to financial statements and annual securities reports in compliance with applicable laws and regulations.

Supplementary Principle 2.4.1 Ensuring Diversity in Promoting Human Resources to Core Positions

The Group, aiming to create a better work environment where the human rights of all workers are respected, is working to advance the promotion, development, and empowerment of human resources regardless of gender, work experience, cultural background, nationality, etc., in order to help them to fully demonstrate their abilities and to create new innovations. The Group has also introduced an evaluation system to ensure fair evaluation of abilities and other aspects of each employee without discrimination based on age, gender, number of years with the Company, and other factors when determining, for example, promotion to a managerial position. For this reason, the Group has not set any targets in terms of the composition or the number of persons in managerial positions based on the categories of female, non-Japanese, or persons with certain work experience.

As of the end of 2023, the percentage of female for employees was 53%. There has been no promotion of a non-Japanese person to a managerial position. The percentage of female for managers was 41%, and mid-career hires account for 70% of all employees. The Company will work to develop an environment that raises the aspirations of employees and helps them to make use of their individual abilities by always responding to issues related to the work environment, personnel evaluation system, etc., in an equal and appropriate manner rather than focusing on numerical targets.

Having introduced teleworking, flexible working hours, nursing-care leave, etc., in order to enable flexible work styles, the Company provides various means of support such as shorter working hours for employees who are raising children. In order to help each employee fully demonstrate his or her abilities and play active roles, the Company offers OJT, seminars, and active rotation of job assignments as part of employee education. Going forward, the Company intends to realize the business growth of the Group by continually implementing recruitment, development, and promotion of the diverse human resources that will be necessary for such growth.

Principle 2.6 Management of Corporate Pension Funds

The Company introduced a defined-benefit corporate pension plan with options in April 2022.
The plan was introduced for the purpose of supporting employees' wealth formation. As it does not involve the investment management of funds contributed to the corporate pension, it has no impact on the Company's financial position. Before they start investing, employees are fully informed about the basic information of the plan and the points to be noted about investing.

Principle 3.1 Full Disclosure (Explanations of Management Strategies, Remuneration of Directors, Appointment, Dismissal, and Nomination of Management Executives, etc)

(i) In accordance with the first item of its group philosophy: "Contribute to the advancement of life sciences," the Group operates its business for the purpose of contributing to society through its technologies, products, and services by enhancing its business value in the field of life sciences to earn the trust of researchers.
The details of the Company's management policies and plans are disclosed on the Company's website as well as in its annual securities reports and other media.
(URL: https://www.cosmobio.com/en/company/mission/)

(ii) The Group's social mission is to protect people's lives and health and to contribute to the creation of a rich and secure society by contributing to the advancement and evolution of life science researches through supporting research activities. The Company's basic view on corporate governance is to deepen the trust of our stakeholders and society at large by establishing a transparent and efficient management system and implementing measures that are appropriate in view of social norms in a way that will fulfill its mission and achieve continuous development. Based on this basic view, the Company discloses information on its website and in the annual securities report, corporate governance report, etc.
(URL: https://www.cosmobio.com/en/sustainability/governance/corpogovernance/basic/)

(iii) The total amount of remuneration for directors (excluding directors who are Audit and Supervisory Committee members) is subject to the upper limit approved at the General Shareholders' Meeting. The amount of remuneration for each director (excluding directors who are Audit and Supervisory Committee members) is determined by the Board of Directors, whose members consist of three directors (excluding directors who are Audit and Supervisory Committee members) and four directors who are Audit and Supervisory Committee members to ensure independence and objectivity. The Company will continue to consider voluntarily establishing a remuneration committee or creating a system for it. The details are disclosed in the governance section of the Company's website.
(URL: https://www.cosmobio.com/en/sustainability/governance/corpogovernance/organization/)
Going forward, the Board of Directors of the Company will work to further improve the objectivity and transparency of the procedure for determining remuneration and examine whether an appropriate remuneration system has been introduced in terms of sustainable growth, including whether it is necessary to voluntarily establish a remuneration committee.

(iv) For senior management appointments and nominations of candidates for director positions, persons suitable for each position are approved by the Board of Directors, whose members consist of three directors (excluding directors who are Audit and Supervisory Committee members) and four directors who are Audit and Supervisory Committee members, based on comprehensive consideration of their knowledge, experience, skills, personality, etc. Proposals for director candidates are subsequently submitted at the General Shareholders' Meeting.
If it is objectively determined to be appropriate to dismiss a senior management member in such a case as where he or she has violated laws and regulations, the articles of incorporation, etc., during his or her term of office in a way that has significantly impaired corporate value, the Board of Directors will determine whether to dismiss the senior management member after thoroughly deliberating the matter.
Going forward, the Company will examine whether it is necessary to voluntarily establish a nomination committee or consider developing appropriate mechanisms in order to improve the objectivity, timeliness, and transparency of nomination and dismissal procedures.

(v) As for the explanation to be provided at the time of the appointment/dismissal of a director and the nominations of director candidates, reference materials attached to the notice of the 41th Ordinary General Shareholders' Meeting of the Company contain the reasons for the nominations of each director candidate and their skills matrices.

Supplementary Principle 3.1.3 Sustainability Initiatives

The Company intends to contribute to the sustainable evolution of society while aiming to enhance its corporate value through its business activities.
After identifying its sustainability issues, the Group will promote environmental, social, and governance initiatives toward the realization of sustainable growth.

(i) The Company's sustainability initiatives
The Group has identified key issues (materiality) in order to promote sustainability initiatives. Their details are disclosed on the Company website and in its IR materials.
(URL: https://www.cosmobio.com/en/sustainability/csr/)
We have also developed the goals of these initiatives and an action plan for them, which will be implemented step by step going forward.

(ii) Investment in human capital and intellectual property
The three-year management plan of the Company has identified the enhancement of human capital as one of the key issues (materiality). Priority measures include improving the Company's personnel evaluation system and developing the human resources necessary for business growth. The Company is also actively creating an environment in which employees can work while fully demonstrating their abilities and accommodating diverse work styles. The Company also intends to offer highly competitive products and services by promoting researches and business development from a medium to long-term perspective leveraging its technologies and the results of collaborative researches.

Supplementary Principle 4.1.1 Outline of Scope of Delegation to Management

The Board of Directors of the Company makes decisions on matters prescribed by laws and regulations, the articles of incorporation, and the Board of Directors Regulations. The roles and responsibilities of directors are determined by Board of Directors meetings, the Division of Duties Regulations, the Approval Authority Regulations, and others, and any business execution matters approved by the Board of Directors are promptly addressed by executive directors.

Principle 4.8 Effective Use of Independent Directors

The Company has appointed four independent directors who frequently exchange opinions with other directors and members of senior management from their unique external viewpoints to adequately fulfill their duties as outside directors. In addition, directors who are Audit and Supervisory Committee members are executing, as appropriate, the authority given to them by applicable laws and regulations. For these reasons, the Company believes that management oversight and supervision are adequately functioning.

Principle 4.9 Independence Standards and Qualifications for Independent Directors

The Company appoints independent directors who satisfy the requirements for outside directors under the Companies Act and the qualifications for independent officers established by the Tokyo Stock Exchange and who have strong expertise and can provide appropriate opinions on the management of the Company based on their ample experience and knowledge.

Supplementary Principle 4.11.1 View on the Diversity of the Members of the Board of Directors

The Board of Directors of the Company as a whole should have a well-balanced combination of knowledge, experience, and skills and ensure optimal diversity among its members in terms of gender, work experience, age, etc., in order to make important management decisions appropriately. Accordingly, the current members of the Board of Directors include executive directors who have a thorough knowledge of each business area (including one female director) and outside directors who have strong expertise (such as certified public accountants) and extensive experience (such as managing experience with other companies) in order to ensure transparency in its decision making and to strengthen its supervisory function. The Company has ensured that directors who are Audit and Supervisory Committee members include at least one certified public accountant with strong expertise in finance and accounting in order to ensure a well-balanced composition of the Board of Directors.
The skills matrices of the directors are shown in "Other Matters Concerning the Corporate Governance System."

Supplementary Principle 4.11.2 Concurrent Positions of Directors

If a director of the Company holds a concurrent position at another listed company, the Company strives to ensure that such concurrent position is limited to the extent that it does not cause any difficulty in the performance of his or her duties as a director of the Company. The statuses of such concurrent positions are disclosed every year in the notices of the General Shareholders' Meetings and annual securities reports.

Supplementary Principle 4.11.3 Analysis and Evaluation of Effectiveness of the Board of Directors as a Whole

Please refer to our explanation in Principle 4.11.3 under "Reasons for Non-compliance with the Principles of the Corporate Governance Code" above.

Supplementary Principle 4.14.2 Training Policy for Directors

The Company provides newly appointed directors with opportunities to learn the necessary knowledge of the business, finance, organization, etc., of the Group and to understand the job duties and responsibilities required of them as directors upon assumption of office. After the assumption of office, they are also provided with training opportunities using seminars organized by outside organizations, including associations of which the Company is a member, and financial support to cover their costs for the purpose of continuously renewing relevant knowledge.
The Company also provides its outside directors with explanations on the outline of its business and operation systems as well as information on its business, organization, etc., upon assumption of office.

Principle 5.1 Policy on Efforts to Promote Constructive Dialogue with Shareholders

Under the supervision of dialogue with shareholders in general by the officer in charge of investor relations, the Company strives to realize constructive dialogue with shareholders.
As part of its initiatives to promote constructive dialogue with shareholders, the Company is implementing the following measures:

(i) The President is responsible for the overall supervision of dialogue with shareholders in general, including the matters listed in (ii) through (v) below, to ensure constructive dialogue. The officer in charge of investor relations may also fulfill the same responsibility as necessary following the instructions of the President.

(ii) Following the instructions of the officer in charge of investor relations, the person in charge of investor relations at the General Affairs Department supports the dialogue with shareholders in coordination with the departments concerned.

(iii) The officer in charge of investor relations actively responds to any requests for telephone interviews or other forms of IR interviews from investors. Meanwhile, the Company holds financial results briefings semiannually where briefings are provided by the President.

(iv) Any opinions and concerns of shareholders shared through dialogue and any information obtained from other IR activities are reported by the officer in charge of investor relations to the Board of Directors for appropriate information sharing with directors.

(v) During the dialogue with shareholders and investors, the Company pays close attention to information management in accordance with its IR policy in order to make sure that it does not contain any insider information.

Current Status of Dialogue with Shareholders

Based on the policy above, the Company is holding information sessions for individual investors, in addition to holding information sessions and conducting questionnaire surveys for analysts and investors. Any feedback from shareholders and investors is reported to the Board of Directors by the officer in charge of investor relations, and the Board of Directors is striving to reflect it in future dialogue.

2. Capital Structure

Status of Major Shareholders

Supplementary Explanation

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3. Corporate Attributes

4. Policy on Measures to Protect Minority Shareholders in Conducting Transactions with Controlling Shareholders

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5. Other Special Circumstances That May Have a Material Impact on Corporate Governance

Not applicable