Manufacturing hangover drives Daiichi Sankyo into the red

 Daiichi Sankyo has reported its delayed financial results, saying that high spending on third-party manufacturing and a lower-than-expected take-up of its antibody-drug conjugates for cancer led to a net loss for the fiscal year ended 31st March.

The Japanese pharma group is predicting a net loss of JPY 149.4 billion (around $950 million) for the year, on revenues that came in slightly higher than forecast at JPY 2,123 billion ($13.4 billion), a rise of 12.5% on the previous year.

In its update, Daiichi Sankyo said the loss came about as a consequence of a programme of signing contracts with contract manufacturing organisations to supply its ADCs – such as AstraZeneca-partnered Enhertu (trastuzumab deruxtecan) and Datroway (datopotamab deruxtecan) and MSD-partnered patritumab deruxtecan – that included minimum purchase obligations and the securing of dedicated production lines.

With its own manufacturing capacity limited when these drugs were approaching the market, the company took the decision to secure "manufacturing capacity sufficient to cover maximum demand without risk adjustment, with the highest priority placed on 'ensuring a stable supply to all patients'."

As it turned out, delays in product launch timelines meant that the expected demand did not occur, and while Daiichi Sankyo pivoted to a new, risk-adjusted strategy in the middle of 2025, that came too late to avoid some of the impact of minimum purchase obligations in CMO contracts.

An upgrade to one of Daiichi Sankyo's Japanese plants to supply in-house manufacturing capacity for ADCs, in Odawara, has also been deemed surplus to requirements and cancelled, leading to an impairment charge of JPY 19.3 billion ($123 million) on equipment and fees arising from the cancellation of contracts with construction companies.

Two weeks ago, investors in the company were spooked when it pushed back its annual report, saying it needed more time to assess "the supply plans for its oncology products portfolio and development pipeline in light of rapidly changing business conditions."

Shares in the company fell by around 10% on the announcement, and while they have since tracked back up slightly, the stock is down 26.5% since the start of the year.

While Enhertu has been delivering for Daiichi Sankyo and AZ commercially, there was a delay to the rollout of Datroway in a lung cancer indication, while an application for patritumab deruxtecan in lung cancer was withdrawn last year after disappointing results in a confirmatory study.

Share in Daiichi Sankyo continued to weaken slightly today, suggesting that investors remain nervous, likely because the company's update said it is not yet able to make provision in its accounts for medium- to long-term differences between the minimum purchase obligation and the revised supply plan "due to the high level of uncertainty."

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