A Daiichi Sankyo quarterly report that should have celebrated strong commercial execution was instead derailed by an accounting error and manufacturing losses.
During its earnings call Friday, Daiichi disclosed that the company had missed 29 billion Japanese yen ($182 million) in selling, general and administrative expenses (SG&A) in its fiscal year 2025 report, which covers the 12 months ended in March 2026.
The discrepancy stemmed from “booking errors in accounts payable for suppliers,” Daiichi CFO Tomohiro Kodama explained on the English-dubbed call. The company only uncovered the issue after noticing unexplainable variances in SG&A figures when compiling its new quarterly report this week.
“This is attributable to individual processing errors,” Kodama told investors. “We judge that this would not undermine the effectiveness of internal control for financial reporting as a whole.”
Despite the explanation up front, several analysts on Friday’s call questioned how Daiichi didn’t detect the issue at the time of the original financial report.
An accounting error at a Japanese firm could trigger sharper investor pushback than a similar mistake at a U.S. company due to high expectations around corporate governance, built on a culture that values precision and trust. Under this environment, an accounting blunder can easily be interpreted as a systemic failure rather than an isolated glitch.
Following Daiichi’s quarterly announcement, the company’s stock price dropped 11.1% on Friday local time.
However, as Jefferies analysts pointed out in two notes Friday, the accounting slip-up may not be the only reason for the selloff.
Despite a 21%, or 100 billion yen ($630 million), year-over-year jump in revenue, Daiichi’s core operating profit increased by only 6%, and its reported operating profit dropped 12% in the three months ended in June, which represents the company’s first quarter of fiscal 2026.
The company’s quarterly revenue of 575 billion yen beat analysts’ expectations by 43 billion yen, driven by strong performance from the two AZ-partnered ADCs, Enhertu and Datroway, according to Jefferies.
As a result, Daiichi dialed up its full-year revenue outlook by 60 billion yen (2.6%) to 2.34 trillion yen. After 49% year-over-year growth for Enhertu, Daiichi increased its full-year projection for the HER2 ADC to above 1 trillion yen.
Despite a rosier revenue outlook, Daiichi kept its core operating profit forecast unchanged at 360 billion yen, which, as Jefferies analysts pointed out, means “none of the incremental revenue is expected to translate into higher core earnings.”
Analysts on the call questioned a sharp, 46 billion yen increase in SG&A expenses, which Daiichi largely attributed to increased profit share with partner AstraZeneca. Kodama also cited investments in AI, as well as employee education “toward the reskilling of our people to be engaged in highly advanced work.”
In another drag on Daiichi’s bottom line, the company unveiled some inventory valuation losses “in the upper side” of the single-digit billion yen range tied to manufacturing disposals and products that failed to meet specifications, including antibody-drug conjugates. The write-down was part of a 20 billion yen increase in projected full-year cost of sales.
The issue prompted one analyst on the call from J.P. Morgan to question whether it reflects any structural deficiencies, although Daiichi management didn’t directly address that concern.