Taro Pharmaceutical (TARO) Risk Analysis

If the proposed Transaction with Sun (as described further in Items 7.A, 7.B and 8.B of, and Note 18 and Note 20 to the audited consolidated financial statements included in, this 2023 Annual Report), is not completed for any reason, we will be subject to a number of material risks, including the disruption to our business resulting from the announcement of the potential Transaction, the diversion of management's attention from our day-to-day business, expenses incurred in connection with the proposed Transaction and any restrictions that may be imposed by any agreement that we may enter into in connection with the Transaction (a "Transaction Agreement") on the operation of our business during the period before the completion of the Transaction, any or all of which may make it difficult for us to achieve our business goals if the Transaction does not occur. In addition, in such a scenario where the Transaction is not consummated, our shareholders will not receive any payment for their shares, which they will instead continue to hold. In that scenario, we will remain an independent public company, and our ordinary shares will continue to be listed on the NYSE. However, if the Transaction is not consummated, then depending on the circumstances that would have caused the Transaction not to be consummated, the price of our ordinary shares may decline significantly. If that were to occur, it is uncertain when, if ever, the price of our ordinary shares would return to the prices at which the ordinary shares currently trade. Accordingly, if the Transaction is not consummated, there can be no assurance as to the effect of these risks on the future value of shares held by our shareholders.

Sarbanes-Oxley imposes certain duties on us and our executives and directors. Our efforts to comply with the requirements of Sarbanes-Oxley, and in particular with Section 404 thereof, have resulted in diversion of our management's time and attention, and we expect these efforts to require the continued commitment of resources. We have in the past, and may, in the future, identify material weaknesses in our internal controls that evidence that we fail to maintain effective internal controls in accordance with Section 404 of Sarbanes-Oxley. As of March 31, 2023, we did not identify any material weaknesses in internal controls. Failure to maintain adequate internal controls could negatively affect shareholder and customer confidence.

While acting to consummate the Transaction, the attention of our management may be diverted away from the day-to-day operations of our business, including implementing initiatives to improve performance, execution of existing business plans and pursuing other beneficial opportunities. This diversion of management resources could disrupt our operations and may have an adverse effect on the respective businesses, financial conditions, results of operations and cash flows of us or the merged entity after the effective time of the Transaction.

The pharmaceutical industry, and our company in particular, is science based. It is therefore imperative that we attract and retain qualified personnel in order to develop new products and compete effectively. If we fail to attract and retain key scientific, technical, or management personnel, our business could be affected adversely. If we are unsuccessful in retaining or replacing key employees, it could have a material adverse effect on our business, financial position, and results of operations and could cause the market value of our ordinary shares to decline. Due to the relocation of its physical operations to Hawthorne, New York, Alchemee LLC will be closing its facility located in Santa Monica, CA (the "Santa Monica facility") on or about September 29, 2023. All employees in the Santa Monica facility were informed on June 1, 2023, and offered continued employment at the Company's Hawthorne, New York location. However, not all employees may accept the offer for the continued employment, and if we are unsuccessful in replacing such employees, it may adversely affect our business operations and financial results. Additionally, we will incur transition costs in connection with the relocation, and Alchemee's business operations will likely experience some disruptions during the transition period.

While the majority of our products are either synthesized by us or are derived from multiple source materials, some raw materials and certain products are currently obtained from single domestic or foreign suppliers. Most of these materials are subject to regulatory inspections and if found to be non-compliant we could be prevented from obtaining them. Although we have not experienced significant difficulty in obtaining raw materials to date, material supply interruptions may occur in the future and we may have to obtain substitute raw materials or products. For most raw materials we do not have any long-term supply agreements and therefore we are subject to the risk that our suppliers of raw materials may not continue to supply to us on satisfactory terms or at all. In recent years, our business has experienced increased volatility in volumes due in large part to global supply chain issues. Due to the complexity of our supply chain, we have experienced supply discontinuities due to macroeconomic issues, regulatory actions, including sanctions and trade restrictions, labor disturbances and approval delays, which impacted our ability to timely meet demand in certain instances. Supply chain disruptions could continue to result in delays in our production and distribution processes, R&D initiatives, and our ability to respond timely to consumer demand. These adverse market forces have a direct impact on our overall performance. Any such disruptions could have a material impact on our business and our results of operation and financial condition. Furthermore, obtaining the regulatory approvals required for adding alternative suppliers of raw materials for finished products we manufacture may be a lengthy process. We strive to maintain adequate inventories of single source raw materials in order to ensure that any delays in receiving regulatory approvals will not have a material adverse effect upon our business. However, we may not be successful in doing so, and consequently, we may be unable to sell some products pending approval of one or more alternate sources of raw materials. Any significant interruption in our supply stream could have a material adverse effect on our operations.

Our ability to market our products depends, in part, on prices and reimbursement levels for them and related treatment established by federal and state government healthcare programs, private health insurers and other third-party payor organizations, including health maintenance organizations and managed care organizations. Reimbursement may not be available for some of our products and, even if granted, may not be maintained. Limits placed on our prices or reimbursement could make it more difficult for people to buy our products and reduce, or possibly eliminate, the demand for our products. In the event that any federal, state or other governmental authority enacts any additional legislation or adopts any additional regulations or policies that affect third-party coverage, price levels or reimbursement, demand for our products may be reduced with a consequent adverse effect, which may be material, on our sales and profitability. In addition, the purchase of our products could be significantly influenced by the following factors, among others: - trends in managed healthcare in the U.S.;- developments in health maintenance organizations, managed care organizations and similar enterprises;- judicial invalidation of major federal health care legislation;- legislative proposals to reform healthcare, drug prices and government insurance programs; and - price regulation and controls and reimbursement policies. The PPACA is a sweeping measure intended to expand healthcare coverage in the U.S., primarily through the establishment of an exchange to facilitate the purchase of health insurance, premium and cost-sharing subsidies for certain low-income individuals and expansion of the Medicaid program. Among other things, the PPACA contained provisions that changed payment levels for pharmaceuticals under Medicaid and increased pharmaceutical rebates under the Medicaid Drug Rebate Program. Effective October 1, 2010, the law changed the formula for calculating federal upper limits ("FULs"), which are a type of cap on the amount a state Medicaid program can reimburse pharmacies for multiple source drugs (i.e., drugs for which there are at least two therapeutically equivalent versions on the market). The FULs are calculated based on the weighted-average of the average manufacturer prices ("AMPs") of the equivalent drugs on the market when there are at least three therapeutically equivalent versions. In addition, the law changed the preexisting definition of AMP so that it is generally based only on direct sales to retail community pharmacies and sales to wholesalers for drugs distributed to retail community pharmacies. Further, the Centers for Medicare & Medicaid Services ("CMS") issued final regulations regarding the FUL and the calculation of AMP and rebates under the Medicaid Drug Rebate Program, effective as of April 1, 2016. Even though our reported AMPs are not disclosed publicly, the release of such FULs to the public and our customers may affect our pricing. In addition, in its final regulations for the Medicaid Drug Rebate Program, CMS required state Medicaid programs, beginning April 1, 2017, to base their reimbursement rates for brand drugs and other drugs not subject to a FUL on pharmacies' actual acquisition costs, rather than using the previous methodologies based on published benchmarks such as average wholesale price ("AWP") or wholesaler acquisition cost ("WAC"). Effective January 1, 2010, the PPACA also increased the minimum Medicaid rebate rate from 15.1% to 23.1% of AMP for most drugs approved under a new drug application ("NDA"), including authorized generics. The PPACA also increased the Medicaid rebate from 11% to 13% of AMP for most drugs approved under an ANDA. Further, the volume of rebated drugs was expanded to include drugs dispensed to beneficiaries in Medicaid managed care organizations. In addition, an alternative, higher rebate may be imposed on drugs that are line extensions of previously approved oral dosage form drugs. CMS's final regulations also expanded the Medicaid Drug Rebate Program such that manufacturers are required to pay rebates to the U.S. Territories (Puerto Rico, the U.S. Virgin Islands, Guam, the Northern Mariana Islands and American Samoa), effective January 1, 2023. These measures have increased or will increase our cost of selling to the Medicaid market. Furthermore, as a result of legislative changes in the Bipartisan Budget Act of 2015 ("BBA"), generic drugs are subject to an additional rebate if the AMP for a given quarter exceeds an inflation-adjusted baseline AMP. This price increase penalty previously applied only to innovator drugs. Currently, the price increase penalty for innovator and generic drugs, together with the basic Medicaid rebate, is limited to 100% of the AMP of the drug. Under an amendment to the Medicaid Rebate statute enacted on March 11, 2021, the 100% limit will be removed beginning on January 1, 2024, so that the rebate on a unit of drug could possibly exceed the average price of the drug. Both Congress and the current administration have proposed, finalized, or are currently considering a wide variety of actions intended to reduce drug prices and/or reduce the amount of reimbursement for drugs under federal government programs such as Medicare. These actions include basing payment for drugs under Medicare Part B on an index of prices in other countries, permitting the importation of less expensive versions of drugs from Canada and other countries, and other measures. These proposals, if finalized or enacted and fully implemented, could adversely affect us and may have a material adverse effect on our business, results of operations, financial condition and cash flows.

The pharmaceutical industry in which we operate is intensely competitive. The competition that we encounter has an effect on our product prices, market share, revenue and profitability. Depending upon how we respond to this competition, it may have a material adverse effect on us. We compete with: - generic manufacturers of our brand-name drugs;- the original manufacturers of the brand-name equivalents of our generic products;- drug manufacturers (including brand-name companies that also manufacture generic drugs);- generic drug manufacturers; and - manufacturers of new drugs that may compete with our generic drugs and proprietary products. Most of the products that we sell are either generic drugs or drugs for which related patents have expired. Most of these products do not benefit from patent protection and are therefore subject to an increased risk of competition. In addition, because many of our competitors have substantially greater financial, production and research and development resources, substantially larger sales and marketing organizations and substantially greater name recognition than we have, we are particularly subject to the risks inherent in competing with them. For example, many of our competitors may be able to develop products and processes competitive with, or superior to, our own. Furthermore, we may not be able to differentiate our products from those of our competitors, successfully develop or introduce new products that are less costly or offer better performance than those of our competitors or offer purchasers of our products payment and other commercial terms as favorable as those offered by our competitors.

We have no long-term agreements with the wholesalers that require them to purchase our products and they may therefore reduce or cease their purchases from us at any time. Any cessation or significant reduction of their purchases from us would likely have a material adverse effect on our results of operations and financial condition. Furthermore, changes in their buying patterns or in their policies and practices in relation to their working capital and inventory management may result in a reduction of, or a change in the timing of, their purchases of our products. While we receive periodic inventory reports from the wholesalers, we have no ability to obtain advance knowledge of such changes. We base our manufacturing schedules, inventories and internal sales projections principally on historical data. To the extent that actual orders from these wholesalers differ substantially from our internal projections, we may either find ourselves with excess inventory or in an out-of-stock position, which could have a material adverse effect upon our operating results.

We make a significant portion of our sales to a relatively small number of wholesalers, retail drug chains, food chains, and mass merchandisers. If demand decreases significantly, our profitability could be negatively impacted. Also, these customers constitute an essential part of the distribution chain for generic pharmaceutical products and continue to undergo significant consolidation. This consolidation may result in these groups gaining additional purchasing leverage and consequently increasing product pricing pressures facing us. In addition, the emergence of large buying groups representing independent retail pharmacies and the prevalence and influence of managed care organizations and similar institutions potentially enables those groups to negotiate price discounts on our products. Our net sales and quarterly growth comparisons may also be affected by fluctuations in the buying patterns of retail chains, major distributors and other trade buyers, whether resulting from seasonality, pricing, wholesaler buying decisions or other factors. In addition, since such a significant portion of our U.S. revenue is derived from relatively few customers, any financial difficulties experienced by a single customer, or any delay in receiving payments from a single customer could have a material adverse effect on our business, financial position and results of operations, and could cause the market value of our ordinary shares to decline.

Our future success is largely dependent upon our ability to develop, manufacture and market new commercially viable pharmaceutical products and generic equivalents of proprietary pharmaceutical products whose patents and other exclusivity periods have expired. Delays in the development, manufacture and marketing of new products could negatively impact our results of operations. Each of the steps in the development, manufacture and marketing of our products involves significant time and expense. We are, therefore, subject to the risks, among others, that: - any products under development, if and when fully developed and tested, will not perform in accordance with our expectations;- any generic product under development will, when tested, not be bioequivalent to its brand-name counterpart;- necessary regulatory approvals will not be obtained in a timely manner, if at all;- any new product cannot be successfully and profitably produced and marketed;- quality control problems may adversely impact our reputation for high-quality production;- other companies may launch their version of generic products, either prior to or following the launch of our newly approved generic version of the same product;- brand-name companies may launch their products, either themselves or through third parties, in the form of authorized generic products which can reduce sales, prices and profitability of our newly approved generic products;- generic companies may launch generic versions of our brand-name drugs; or - our products may not be priced at levels acceptable to our customers.

Our success depends, in large part, on our ability to protect our current and future technologies and products and to defend our intellectual property rights. If we fail to protect our intellectual property adequately, competitors may manufacture and market products similar to ours. Numerous patents covering our technologies have been issued to us, and we have filed, and expect to continue to file, patent applications seeking to protect newly developed technologies and products in various countries, including the U.S. Some patent applications in the U.S. are maintained in secrecy until the patent is issued. Because the publication of discoveries tends to follow their actual discovery by many months, we may not be the first to invent, or file patent applications on any of our discoveries. Patents may not be issued with respect to any of our patent applications and existing or future patents issued to or licensed by us may not provide competitive advantages for our products. Patents that are issued may be challenged, invalidated or circumvented by our competitors. Furthermore, our patent rights may not prevent our competitors from developing, using or commercializing products that are similar or functionally equivalent to our products. Where trade secrets are our sole protection, we may not be able to prevent third parties from marketing generic equivalents to our products, reducing prices in the marketplace and reducing our profitability. We also rely on trade secrets, non-patented proprietary expertise and continuing technological innovation that we seek to protect, in part, by entering into confidentiality agreements with licensees, suppliers, employees, consultants and others. These agreements may be breached and we may not have adequate remedies in the event of a breach. Disputes may arise concerning the ownership of intellectual property or the applicability of confidentiality agreements. Moreover, our trade secrets and proprietary technology may otherwise become known or be independently developed by our competitors. If patents are not issued with respect to products arising from our research, we may not be able to maintain the confidentiality of information relating to these products.

We are increasingly dependent on sophisticated information technology systems and infrastructure to operate our business. In the ordinary course of business, we collect, store and transmit large amounts of confidential information, trade secrets, intellectual property, proprietary business information, customer credit card information, and employee personal information, and it is critical that we do so in a secure manner to maintain the confidentiality and integrity of such confidential information. We have contracted with third-party vendors to enhance our operations and, as part of our service arrangements with Sun as described in greater detail under Item 7B – "Related Party Transactions-Related Party Transactions-Arrangements with Sun," we also have outsourced elements of our operations to Sun, including significant elements of our information technology infrastructure. The size and complexity of our information technology systems, and those with whom we contract, make such systems potentially vulnerable to service interruptions, security breaches from inadvertent or intentional actions by employees, partners or vendors, or from attacks by malicious third parties. Any significant disruptions to our information technology systems, including breaches of information security or cybersecurity, or failure to integrate new and existing information technology systems could adversely affect our business, financial condition or results of operations. While we exercise care in selecting vendors that maintain adequate information security controls and monitor our relationships with our vendors, we and our vendors or Sun, could be susceptible to third-party attacks on our information security systems, which attacks are of ever-increasing levels of sophistication and are made by groups and individuals with a wide range of motives and expertise, including criminal groups, "hackers" and others. These actors, criminal groups, "hackers" and others routinely attack the security of technology products, services, systems and networks using a wide variety of methods, including ransomware, malicious codes, worms, phishing attacks, denial of service attacks, and other sophisticated cyber-attacks and attempts to exploit vulnerabilities in hardware, software, and infrastructure, and our disaster recovery planning cannot account for all eventualities. Attacks also include social engineering and cyber extortion to induce customers, contractors, business partners, vendors, employees and other third parties to disclose information, transfer funds, or unwittingly provide access to systems or data. Cyber threats are continually evolving, making it difficult to defend against such threats and vulnerabilities that can persist undetected over extended periods of time. Certain aspects of the security of such technologies are unpredictable or beyond our control, and the failure by mobile technology, third party and cloud service providers to adequately safeguard their systems and prevent cyber-attacks could disrupt our operations, including our ability to timely ship and track product orders and project inventory requirements, and lead to interruptions or delays in our supply chain. Additionally, these types of problems could result in an actual or perceived breach of confidential information (including personal information) or loss, misappropriation or corruption of critical data such as protected health information or other data subject to privacy laws and proprietary business information, which could result in damage to our reputation, litigation, complaints, negative publicity, breach notification obligations, regulatory or administrative sanctions, inquiries, orders or investigations, indemnity obligations, or penalties for violations of applicable laws or regulations. The increased use of smartphones, tablets and other mobile devices may also heighten these and other operational risks. Sustained or repeated system disruptions that interrupt our ability to process orders and deliver products to the stores, impact our customers' ability to access our websites in a timely manner, or expose confidential information (including personal information) could have a material adverse effect on our results of operations, financial condition and cash flows. We may also incur losses from various types of fraud, including stolen credit card numbers, claims that a customer did not authorize a purchase, merchant fraud, and customers who have closed bank accounts or have insufficient funds in open bank accounts to satisfy payments, and any such losses may be significant. We have been the target of events of this nature and expect them to continue as cybersecurity threats have been rapidly evolving in sophistication and becoming more prevalent in the industry. For example, we disclosed that on March 1, 2023, Sun had experienced an information technology security incident that impacted some of Sun's IT assets. Upon learning that the incident had impacted Taro, Taro, in conjunction with Sun, promptly took steps to contain and remediate the impact on Taro, including employing appropriate containment protocols to mitigate the threat, employing enhanced security measures and utilizing global cyber security experts to ensure the integrity of its IT systems' infrastructure and data. Based on our investigation, Taro currently believes that the incident's effects on its IT system include a breach of certain file systems and the theft of company data and personal data. A ransomware group has claimed responsibility for this incident. As part of the containment measures, Taro proactively isolated its network and initiated recovery procedures. As a result of these measures, Taro's business operations and revenues were impacted, however, the full impact of which cannot be reliably measured nor believed to be material currently. Taro may also further incur expenses in connection with the incident and the remediation. Taro is currently unable to determine other potential adverse impacts of the incident, including but not limited to additional information security incidents, increased costs to maintain insurance coverage, the diversion of management and employee time or the possibility of litigation. In addition, although we have cybersecurity insurance, such insurance may not adequately cover the losses and damages that we sustained as a result of the incident or may sustain as a result of any future security incident or cyber-attack. We may also not be able to obtain adequate insurance coverage in the future at acceptable costs. Furthermore, the public perception that a security incident or a cyber-attack on our systems has been successful, whether or not this perception is correct, may damage our reputation with customers and third parties with whom we do business. Taro has since strengthened its cybersecurity infrastructure and is in the process of implementing improvements to its cyber and data security systems to safeguard against such risks in the future. Taro is also implementing certain long-term measures to augment its security control systems across the organization. Taro worked with legal counsel across relevant jurisdictions to notify regulatory and data protection authorities, where considered required, and Taro believes there is no material legal non-compliance as a result of the information security incident. Taro believes that all known impacts on its financial statements for the year ended March 31, 2023, due to this incident have been considered. Maintaining the secrecy of our confidential information, trade secrets, intellectual property, proprietary business information, and employee personal information is important to our competitive business position. However, such information can be difficult to protect. While we have taken steps to protect such information and invested heavily in information technology, data security and preventing data leakages, there can be no assurance that our efforts will prevent service interruptions or security breaches in our systems or the unauthorized or inadvertent wrongful use or disclosure of data that could adversely affect our business operations or result in the loss, dissemination, or misuse of critical or sensitive information. In addition, there is a risk that encryption and other protective measures, despite their sophistication, may be defeated, particularly to the extent that new computing technologies vastly increase the speed and computing power available. A breach of our security measures or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of our data, whether as a result of theft, hacking, fraud, trickery or other forms of deception, or for any other cause, could enable others to produce competing products, use our data to gain an advantage, and/or adversely affect our business position. Applicable data privacy and security obligations may require us to notify relevant stakeholders of security incidents. Such disclosures are costly, and the disclosures or the failure to comply with such requirements could lead to adverse consequences. Any such breach or the accidental loss, inadvertent disclosure, unapproved dissemination, misappropriation or misuse of our data could also result in a violation of applicable privacy and other laws in the U.S. and abroad, litigation exposure, regulatory fines, penalties or intervention, reimbursement or other compensatory costs, additional compliance costs and our internal controls or disclosure controls being rendered ineffective. Further, any such interruption, security breach, loss or disclosure of confidential information, could result in financial, legal, business and reputational harm to us and could have a material adverse effect on our business, financial condition, results of operations, cash flows, and/or share price. Our obligations related to data privacy and security are quickly changing in an increasingly stringent fashion, creating some uncertainty as to the effective future legal framework. We expect that new privacy and cybersecurity laws and regulations will be proposed and adopted in the U.S. and other jurisdictions in which we operate. Additionally, these obligations may be subject to differing applications and interpretations, which may be inconsistent or conflict among jurisdictions. Preparing for and complying with these obligations requires significant resources and may necessitate changes to our information technologies, systems, and practices and to those of any third parties that process data on our behalf. Although we endeavor to comply with all applicable data privacy and security obligations, we may at times fail (or be perceived to have failed) to do so. Moreover, despite our efforts, our personnel or third parties upon whom we rely may fail to comply with such obligations, which could negatively impact our business operations and compliance posture.

In March 2010, the U.S. government enacted the Patient Protection and Affordable Care Act, as amended by the Health Care Education and Reconciliation Act of 2010 (collectively, "PPACA"), which represented the most comprehensive overhaul of both the public and private healthcare systems ever enacted in the U.S. The PPACA substantially expanded the number of insured individuals in the U.S. through a combination of expanded Medicaid eligibility, establishment of an insurance exchange through which individuals and groups without coverage may purchase commercial health insurance, prohibiting coverage exclusions for pre-existing conditions and other measures. PPACA also imposed on manufacturers a variety of additional rebates, discounts, fees, taxes and reporting and regulatory requirements. We face uncertainties due to litigation brought against the federal government by a number of state attorneys general in 2018, who seek a ruling that the PPACA is unconstitutional. In November 2020, the Supreme Court heard an appeal of a lower court ruling brought by other attorneys general and the U.S. House of Representatives. On June 17, 2021, the U.S. Supreme Court dismissed a challenge on procedural grounds that argued the PPACA is unconstitutional in its entirety because the "individual mandate" was repealed by Congress. Thus, the PPACA remains in effect in its current form. It is possible that the PPACA will be subject to judicial or Congressional challenges in the future. It is uncertain how any such challenges and the healthcare measures of the Biden administration will impact the PPACA and our business. There has been increasing legislative and enforcement interest in the United States with respect to drug pricing practices. Specifically, there have been several recent U.S. Congressional inquiries and proposed federal and state legislation designed to, among other things, bring more transparency to drug pricing, reduce the cost of prescription drugs under Medicare, and reform government program reimbursement methodologies for drugs. In August 2022, Congress enacted the Inflation Reduction Act ("IRA"), a law with sweeping changes to the payment of drugs under the Medicare program. It includes legislative changes that could lead to greater pricing pressures on our products such as amendments to: (i) re-design the Part D benefit by eliminating the "donut hole" under the Medicare Part D program beginning in 2025, among other changes; (ii) modify the "noninterference" provisions of the Medicare Part D enabling statute to require the U.S. Department of Health and Human Services ("HHS") to negotiate the prices of a subset of brand drugs with the highest annual expenditures under Medicare Parts B and D that have been on the market for a certain length of time and lack generic or biosimilar competition, under which Medicare prices for such drugs are capped by a "maximum fair price"; and (iii) impose new rebate obligations on manufacturers of certain drugs paid under Medicare Part B or D whose prices increase faster than inflation relative to a benchmark period. With respect to the re-design of the Part D benefit as it relates to generics, the IRA modifies the relative portions of beneficiary drug payments covered by Part D plans and Medicare throughout the various benefit stages to impose a higher obligation on Part D plans. As it relates to Part D negotiation, although generic drugs are not themselves subject the negotiation process, it is possible that a brand product that serves as a reference drug for a Taro product pre-ANDA approval may be selected for negotiation before the generic launches. If so, the Taro generic may ultimately launch at a lower price than it would absent negotiation of the reference drug. Finally, with regard to inflationary rebates, generic drugs generally will not be subject to Part B rebates but could be subject to Part D rebates in specific circumstances. A number of state legislatures have also begun considering legislation that would implement IRA-like frameworks for state-regulated insurance markets. We continue to monitor these legislative developments, evaluate whether any changes to our business practices and operations are necessary to comply with such legislative reforms and advocate for policies that support both innovations and access to high-quality medicines for patients. However, we cannot accurately predict the ultimate impact of such legislative developments on our business or whether additional changes in regulatory policies will occur in the future. In October 2022, President Biden issued an Executive Order directing the Center for Medicare and Medicaid Innovation ("CMMI") to explore models to further address drug pricing. CMMI issued a report on February 14, 2023, describing three models that the Secretary has selected for testing. It is possible that Congress or the Administration may take further actions to control drug prices. Further federal, state and foreign legislative and regulatory developments are likely, and we expect these already enacted and ongoing initiatives to increase pressure on drug pricing.