DAIICHI SANKYO COMPANY,LIMITED

Business Overview

Pharmaceutical-Focused Business Structure Maintained Over Five Years

Daiichi Sankyo Company, Limited (Daiichi Sankyo) and its group companies consistently focused primarily on the manufacture and sale of pharmaceuticals from the fiscal year ended March 31, 2022 through the fiscal year ended March 31, 2026. The group also maintained a single reportable segment throughout the five-year period rather than operating a business structure divided into multiple reportable segments. (Annual Securities Reports, 2022–2026)

In Japan, Daiichi Sankyo continued to conduct pharmaceutical research and development, manufacturing, and sales, while group companies handled pharmaceutical manufacturing, over-the-counter drugs, vaccines, and R&D support. Overseas, the group maintained research, manufacturing, and sales operations through Daiichi Sankyo, Inc. and American Regent, Inc. in the United States, Daiichi Sankyo Europe GmbH and its group companies in Europe, and local subsidiaries in China, Brazil, and other markets. (Annual Securities Reports, 2022–2026)

Reorganization of the Domestic Group

A notable change over the five-year period was the reorganization of domestic group companies. In the fiscal year ended March 31, 2022, companies including Daiichi Sankyo Espha, Daiichi Sankyo Propharma, Daiichi Sankyo Chemical Pharma, Daiichi Sankyo Biotech, and Daiichi Sankyo RD Novare were consolidated subsidiaries engaged in pharmaceutical R&D, manufacturing, sales, and related activities. (Annual Securities Report, 2022)

In April 2024, Daiichi Sankyo transferred part of its equity interest in Daiichi Sankyo Espha to Qol Holdings, and Daiichi Sankyo Espha became an equity-method affiliate. In the Business Overview section of the Annual Securities Report for the fiscal year ended March 31, 2025, Daiichi Sankyo Espha was no longer listed as a consolidated subsidiary. (Annual Securities Report, 2025)

In April 2025, Daiichi Sankyo absorbed Daiichi Sankyo Propharma and Daiichi Sankyo Chemical Pharma, both of which had been engaged in pharmaceutical manufacturing. As a result, the 2 companies were no longer listed as group companies in the fiscal year ended March 31, 2026, and Daiichi Sankyo itself assumed responsibility for pharmaceutical R&D, manufacturing, and sales. (Annual Securities Reports, 2025–2026)

Along with these reorganizations, the number of group companies decreased from 52 in the fiscal year ended March 31, 2022 to 45 in the fiscal year ended March 31, 2026. The number of domestic companies also decreased from 13 to 7. This change reflects a consolidation of the group's legal-entity structure through measures such as the change in ownership of Daiichi Sankyo Espha and the absorption of manufacturing subsidiaries, rather than a contraction of the pharmaceutical-centered business itself. (Annual Securities Reports, 2022 and 2026)

Overseas R&D, Manufacturing, and Sales Structure Maintained

The basic structure of the overseas business did not change significantly. In the United States, Daiichi Sankyo, Inc. remained responsible for R&D and sales, while American Regent, Inc. handled R&D, manufacturing, and sales. In Europe, the group continued R&D, manufacturing, and sales operations in multiple countries, centered on Daiichi Sankyo Europe GmbH. Operations also continued through local subsidiaries in China, Brazil, and other markets. (Annual Securities Reports, 2022–2026)

The number of overseas companies increased from 39 in the fiscal year ended March 31, 2022 to 41 in the fiscal year ended March 31, 2025, before declining to 38 in the fiscal year ended March 31, 2026. Despite these changes, the basic structure of a global pharmaceutical business with operating bases in the United States, Europe, Asia, and other regions was maintained. (Annual Securities Reports, 2022, 2025, and 2026)

Further Changes to the Domestic Structure Planned

The Annual Securities Report for the fiscal year ended March 31, 2026 states that Daiichi Sankyo resolved to transfer all shares of Daiichi Sankyo Healthcare to Suntory Holdings and entered into a share transfer agreement in April 2026. The transfer is planned to be implemented in stages and completed during fiscal 2029. The company also resolved on a basic policy under which Daiichi Sankyo Business Associe is to be absorbed by Daiichi Sankyo, effective October 2027. Neither measure changed the business structure as of March 31, 2026, but further reorganization of domestic group companies is planned. (Annual Securities Report, 2026)

Across the five years, the pharmaceutical business remained at the center of the Daiichi Sankyo Group, and the basic structure of maintaining R&D, manufacturing, and sales bases in the United States, Europe, Asia, and other regions was unchanged. In Japan, however, changes in equity ownership and the absorption of subsidiaries resulted in a more consolidated legal-entity structure. (Annual Securities Reports, 2022–2026)

Business Environment and Strategy

Management Policy and Business Environment

DXd ADCs at the Center of the 5-year Business Plan (FY2021–FY2025)

From the fiscal year ended March 31, 2022 through the fiscal year ended March 31, 2025, the Daiichi Sankyo Group operated under its 5-year Business Plan (FY2021–FY2025). While pursuing ESG management, it aimed to achieve its fiscal 2025 target of becoming a “Global Pharma Innovator with Competitive Advantage in Oncology.” Beyond this, the group had established its 2030 Vision of becoming an “Innovative Global Healthcare Company Contributing to the Sustainable Development of Society.” (Annual Securities Reports, 2022–2025)

At the center of the strategy were antibody-drug conjugates (ADCs) using Daiichi Sankyo's proprietary DXd technology. An ADC combines an antibody that binds to target cells with a drug, with the aim of delivering the drug to those cells. Daiichi Sankyo designated ENHERTU (trastuzumab deruxtecan, T-DXd), Dato-DXd (datopotamab deruxtecan), and HER3-DXd (patritumab deruxtecan) as its “3ADCs,” and maximizing their product value was the highest priority of the 5-year Business Plan (FY2021–FY2025). (Annual Securities Reports, 2022–2025)

For ENHERTU and Dato-DXd, Daiichi Sankyo advanced development and market penetration through strategic collaborations with AstraZeneca, while also developing HER3-DXd toward launch. At the same time, its strategic pillars included profit growth from existing businesses and products, identifying and building further growth drivers, and co-creating value with stakeholders. (Annual Securities Reports, 2022–2025)

As the plan progressed, ENHERTU's market penetration and indication expansion advanced faster than initially planned. From the fiscal year ended March 31, 2023 onward, Daiichi Sankyo raised its outlook for revenue and oncology revenue from the levels assumed when the 5-year Business Plan (FY2021–FY2025) was formulated. At the same time, it expanded R&D investment in DXd ADCs and capital expenditure to strengthen supply capacity. The basic capital-allocation policy of balancing growth investment and shareholder returns was maintained. (Annual Securities Reports, 2023–2025)

Development Expanded from 3ADCs to 5DXd ADCs

In October 2023, Daiichi Sankyo entered into global development and commercialization agreements with Merck for 3 products: HER3-DXd, ifinatamab deruxtecan (I-DXd/DS-7300), and DS-6000. Because HER3-DXd had already been included in the 3ADCs, the expansion effectively added I-DXd and DS-6000 as 2 new development programs. (Annual Securities Report, 2024)

This expanded the portfolio from the original 3ADCs—ENHERTU, Dato-DXd, and HER3-DXd—to 5 products, adding I-DXd and DS-6000, collectively positioned as the “5DXd ADCs.” The R&D strategy also broadened from “3 and Alpha,” centered on the 3ADCs, to “5DXd ADCs and Next Wave,” which combines maximizing the value of the 5 DXd ADCs with generating the next growth candidates. (Annual Securities Reports, 2024–2025)

Throughout the 5-year Business Plan (FY2021–FY2025), the group maintained its direction of concentrating management resources on oncology and DXd ADCs. At the same time, the development framework expanded from the initial 3ADCs to the 5DXd ADCs, creating a structure that pursued both growth of existing products and the creation of future drug-discovery technologies and product candidates. (Annual Securities Reports, 2022–2025)

Five-Year Business Plan (FY2026–FY2030) Formulated in 2026

In the fiscal year ended March 31, 2026, Daiichi Sankyo stated that it had achieved the fiscal 2025 target under the 5-year Business Plan (FY2021–FY2025) of becoming a “Global Pharma Innovator with Competitive Advantage in Oncology”. It then established a new 2035 Vision: “Trusted healthcare innovator transforming the lives of people through our science and technology.” The previous 2030 Vision was repositioned as a specific target toward fiscal 2030. (Annual Securities Report, 2026)

Under the Five-Year Business Plan (FY2026–FY2030), the group set fiscal 2030 quantitative targets of at least JPY 3,000.0 billion in revenue, at least JPY 600.0 billion in operating profit, and EPS of at least ¥260. Strategically, it aims to become a global top-5 oncology company by 2035 by maximizing the product value of DXd ADCs and to identify new Breakthrough Generating Technologies (BGTs) beyond DXd ADCs by 2030. BGTs are described as drug-discovery technology platforms intended to deliver more innovative medicines to patients more rapidly. (Annual Securities Report, 2026)

Across the five years, the direction of placing oncology and DXd ADCs at the center of growth remained consistent. The strategic scope expanded from the development and launch of the 3ADCs to the 5DXd ADCs and then to the exploration of new drug-discovery technologies beyond DXd ADCs. (Annual Securities Reports, 2022–2026)

Sustainability Approach and Initiatives

As of the fiscal year ended March 31, 2022, the Daiichi Sankyo Group defined long-term management that incorporates ESG factors into management strategy and enhances both financial and non-financial value as “ESG management.” It identified materiality from the perspectives of medium- to long-term impact on corporate value and societal expectations, and set long-term targets and KPIs linked to the 5-year Business Plan (FY2021–FY2025). (Annual Securities Reports, 2022–2025)

Subsequent disclosures provided more specific explanations of governance structures, targets, and results for climate change, human rights, the environment, human capital, and supply chains. For climate change, the group raised its Scope 1 and 2 reduction targets to a 1.5°C-aligned level and updated the CO2 reduction targets requested of suppliers for Scope 3 to the same level. In June 2023, the targets were certified as “1.5°C targets” by the Science Based Targets initiative. (Annual Securities Report, 2024)

In the fiscal year ended March 31, 2025, the Sustainability Committee discussed environmental matters, occupational health and safety, the net-zero transition plan, sustainability disclosures, and human-rights assessments, with some matters reported to the Executive Management Committee. In the fiscal year ended March 31, 2026, the group presented an approach that links the Five-Year Business Plan (FY2026–FY2030) with sustainability-related policies and sets metrics and targets for strategies based on material issues. (Annual Securities Reports, 2025–2026)

Sustainability did not emerge as a new management issue midway through the five-year period; it was already positioned as part of management strategy in the fiscal year ended March 31, 2022. Over time, disclosures became more specific regarding governance structures and targets for individual topics such as climate change, human rights, and information disclosure. (Annual Securities Reports, 2022–2026)

Note: A dedicated “Sustainability Approach and Initiatives” disclosure section was introduced in Annual Securities Reports following the January 2023 revision of disclosure regulations.

Business Risks

R&D and Strategic Alliances Remain Major Business Risks

In the pharmaceutical business, R&D for new drug candidates requires substantial costs and long periods of time. Major risks consistently identified include failure to achieve expected efficacy or safety, failure to obtain regulatory approval, and delays in launches or sales plans. Daiichi Sankyo also recognizes that changes to or termination of agreements for joint development and sales alliances with third parties could affect business performance. (Annual Securities Reports, 2022–2026)

These risks became more specific as management resources were concentrated on DXd ADCs. In the fiscal year ended March 31, 2022, development centered on the 3ADCs. By the fiscal year ended March 31, 2024, the risk disclosures included not only the alliance with AstraZeneca but also the alliance with Merck covering 3 DXd ADCs. The company states that joint committees are used to manage strategy, investment decisions, profit and loss, key milestones, launch preparation, and other matters with its partners. (Annual Securities Reports, 2022 and 2024–2026)

In the fiscal year ended March 31, 2026, external changes were described more specifically, including launches of competing ADC products, indication expansion of existing drugs, the emergence of next-generation technologies, drug-price containment measures in various countries, and changes in treatment guidelines. The company has also entered into long-term agreements with multiple contract manufacturers to ensure stable supply of ADC products, and recognizes fluctuations between production plans and actual demand as a business risk. (Annual Securities Report, 2026)

Risks Associated with Global Operations

Because the group conducts R&D, manufacturing, and sales overseas, political and economic conditions, geopolitical factors, laws and regulations, administrative responses, and labor relations in each country have consistently been identified as risks. Foreign-exchange fluctuations are also recognized as factors that can affect business performance and financial position as the group manufactures, sells, exports, and imports products internationally. (Annual Securities Reports, 2022–2026)

Quality, Stable Supply, and Information Security

Pharmaceutical quality and safety, as well as continuity of manufacturing and supply, have remained major risks. The group addresses quality through management based on GMP and GDP, audits of group companies and business partners, and the collection and evaluation of safety information. (Annual Securities Reports, 2022–2026)

IT system outages, cyberattacks, and leakage of confidential or personal information have also consistently been recognized as risks. Across the five years, the group maintained information-management rules, employee training, and measures to strengthen defense, detection, and response capabilities. (Annual Securities Reports, 2022–2026)

Risk Management Framework

Under the risk-management framework, individual organizations identify and assess risks and formulate and implement response measures, while risks are managed across the group. The framework also combines business continuity planning and crisis management, covering business continuity and early recovery when risks materialize. (Annual Securities Reports, 2022–2026)

Across the five years, fundamental risks for a pharmaceutical company—including R&D, quality and safety, overseas operations, foreign exchange, and information security—remained in place. At the same time, as resources became more concentrated on DXd ADCs and large alliances with external companies expanded, disclosures became more specific regarding development, approval and launch of particular product groups, collaboration with partners, ADC supply capacity, and the competitive environment. (Annual Securities Reports, 2022–2026)

Management's Analysis of Financial Position and Results

Management's explanations of performance repeatedly identified growth in ENHERTU as a major driver of revenue expansion throughout the five-year period. In the fiscal year ended March 31, 2022, growth in products including LIXIANA and ENHERTU contributed to higher revenue. In subsequent years, increased sales from ENHERTU's market penetration, geographic expansion, and indication expansion had a larger impact. (Annual Securities Reports, 2022–2026)

At the same time, selling, general and administrative expenses associated with profit sharing with AstraZeneca for ENHERTU increased, as did R&D expenses for DXd ADCs. Management's explanations show that spending on R&D and sales activities for future growth expanded alongside revenue. (Annual Securities Reports, 2022–2026)

Foreign exchange also affected reported results. Yen depreciation increased revenue in some years, and the foreign-exchange impact was separately presented in annual performance explanations. Revenue growth therefore reflected not only product growth but also foreign-exchange effects. (Annual Securities Reports, 2022–2026)

In the fiscal year ended March 31, 2026, revenue and core operating profit excluding one-time factors increased, while IFRS operating profit decreased year on year because compensation for losses to contract manufacturers and other items were recorded as one-time expenses. The company also discloses core operating profit, which excludes one-time gains and losses, as a measure of recurring profitability. (Annual Securities Report, 2026)

Across the five years of management commentary, revenue growth centered on ENHERTU and other DXd ADCs progressed alongside increased investment in R&D, sales, and supply. Individual financial figures and one-time gains and losses are discussed again in the Financial Overview section. (Annual Securities Reports, 2022–2026)

Material Agreements

Among the agreements that led to major changes in business strategy over the five-year period were alliances with external companies involving DXd ADCs. Daiichi Sankyo has jointly developed and commercialized ENHERTU worldwide with AstraZeneca since 2019 and Dato-DXd since 2020. (Annual Securities Reports, 2022–2026)

In October 2023, Daiichi Sankyo entered into global development and commercialization agreements with Merck for HER3-DXd, I-DXd, and DS-6000. The 2 companies jointly develop and commercialize the 3 products worldwide except in Japan, while Daiichi Sankyo is responsible for their manufacturing and supply. This alliance expanded Daiichi Sankyo's DXd ADC co-development framework from ENHERTU and Dato-DXd with AstraZeneca to the 5DXd ADCs, including the 3 products partnered with Merck. (Annual Securities Report, 2024)

In August 2024, MK-6070, which had been developed by Merck, was also added to the companies' joint development and commercialization framework. (Annual Securities Report, 2025)

These agreements form part of Daiichi Sankyo's strategy to accelerate DXd ADC development and commercialization through alliances with external companies. Their financial effects are discussed in the Financial Overview section. (Annual Securities Reports, 2024–2026)

Research and Development

In the fiscal year ended March 31, 2022, Daiichi Sankyo pursued its “3 and Alpha” strategy, concentrating resources on the 3ADCs—ENHERTU, Dato-DXd, and HER3-DXd—while generating future growth candidates beyond them. R&D expenses increased from JPY 260.2 billion in the fiscal year ended March 31, 2022 to JPY 341.6 billion in 2023, JPY 365.2 billion in 2024, JPY 436.0 billion in 2025, and JPY 466.0 billion in 2026. (Annual Securities Reports, 2022–2026)

In the fiscal year ended March 31, 2024, I-DXd and DS-6000 were added to the original 3ADCs, expanding the R&D focus to the 5DXd ADCs. The R&D strategy accordingly became “5DXd ADCs and Next Wave.” ENHERTU and Dato-DXd are jointly developed with AstraZeneca, while HER3-DXd, I-DXd, and DS-6000 are jointly developed with Merck. (Annual Securities Reports, 2024–2026)

The R&D scope is not limited to DXd ADCs. Throughout the five-year period, the group stated its policy of generating the next growth candidates using multiple modalities, including ADCs, nucleic acid medicines, and gene therapy, across diseases including areas outside oncology. (Annual Securities Reports, 2022–2026)

Under the Five-Year Business Plan (FY2026–FY2030) formulated in the fiscal year ended March 31, 2026, Daiichi Sankyo continues to maximize the product value of DXd ADCs while targeting the identification of new BGTs beyond DXd ADCs by 2030. The R&D focus has therefore broadened from the stage of expanding DXd ADC development from 3 products to 5 under the 5-year Business Plan (FY2021–FY2025) to a stage of growing the existing DXd ADC portfolio while exploring and developing next-generation drug-discovery technologies. (Annual Securities Report, 2026)

Financial Overview

Consolidated Statement of Financial Position

Total Assets Expanded and Contract Liabilities Rose in 2024

Total assets of the Daiichi Sankyo Group increased from JPY 2,221.4 billion at March 31, 2022 to JPY 2,508.9 billion at March 31, 2023 and JPY 3,461.1 billion at March 31, 2024. They remained broadly unchanged at JPY 3,456.1 billion at March 31, 2025 before increasing to JPY 3,996.3 billion at March 31, 2026. (Annual Securities Reports, 2022–2026)

A particularly large change occurred in the fiscal year ended March 31, 2024. In October 2023, Daiichi Sankyo entered into global development and commercialization agreements with Merck for 3 DXd ADCs—HER3-DXd, I-DXd, and DS-6000—and received a non-refundable upfront payment of USD 3.0 billion. The upfront payment was not recognized entirely as revenue upon receipt. Instead, revenue is recognized over time as performance obligations such as manufacturing and supply are satisfied. The unrecognized portion is therefore recorded as contract liabilities. (Annual Securities Report, 2024)

Consolidated contract liabilities increased from JPY 321.1 billion at March 31, 2023 to JPY 737.6 billion at March 31, 2024. Of the March 31, 2024 balance, JPY 57.4 billion was current and JPY 680.2 billion was non-current, mainly reflecting the upfront payment from Merck. Subsequently, part of the contract liabilities was recognized as revenue as manufacturing, supply, and other performance obligations were satisfied, while additional upfront and other payments were also received. As a result, year-end contract liabilities increased to JPY 819.0 billion at March 31, 2025 and JPY 881.2 billion at March 31, 2026. In the fiscal year ended March 31, 2026, JPY 68.2 billion of opening contract liabilities was recognized as revenue, showing that revenue recognition on existing agreements progressed while new consideration increased the overall balance. (Annual Securities Reports, 2024–2026)

Equity attributable to owners of the parent increased from JPY 1,350.9 billion at March 31, 2022 to JPY 1,688.2 billion at March 31, 2024, but decreased to JPY 1,623.4 billion at March 31, 2025. In that year, share repurchases reduced equity by JPY 246.1 billion, so capital reductions from shareholder returns occurred alongside accumulated profits. At March 31, 2026, equity attributable to owners of the parent increased to JPY 1,684.0 billion, while share repurchases of JPY 150.5 billion were also carried out. (Annual Securities Reports, 2024–2026)

Provisions for ADC Contract Manufacturing Increased in 2026

In the fiscal year ended March 31, 2026, provisions increased significantly from JPY 18.8 billion at March 31, 2025 to JPY 214.4 billion. Of this amount, JPY 169.5 billion was a provision for loss compensation related to contract manufacturing of ADC products. (Annual Securities Report, 2026)

Daiichi Sankyo outsources part of its ADC production to multiple contract manufacturing organizations (CMOs), and the contracts include annual minimum purchase obligations. After revising its supply plan in the fiscal year ended March 31, 2026 based on clinical-trial results and other factors, a gap arose between expected order quantities and minimum purchase obligations. The company therefore recorded JPY 169.5 billion as estimated loss compensation that was highly likely to be paid in the future. The actual amount may vary depending on future order volumes, reallocation of manufacturing capacity to third parties, and the outcome of discussions with CMOs. (Annual Securities Report, 2026)

This is an example of the supply-side risk associated with ADC demand fluctuations and contract-manufacturing agreements, described under Business Risks, appearing in the financial statements as a provision. (Annual Securities Report, 2026)

Consolidated Income Statement

Revenue Approximately Doubled Over Five Years

Revenue increased from JPY 1,044.9 billion in the fiscal year ended March 31, 2022 to JPY 1,278.5 billion in 2023, JPY 1,601.7 billion in 2024, JPY 1,886.3 billion in 2025, and JPY 2,123.0 billion in 2026. The scale of revenue approximately doubled over the five-year period. (Annual Securities Reports, 2022–2026)

During this period, product sales led by ENHERTU expanded, while royalty and milestone income under joint development and commercialization agreements with AstraZeneca and Merck was also included in revenue. Of the JPY 2,123.0 billion in revenue in the fiscal year ended March 31, 2026, JPY 1,854.0 billion came from sales of prescription drugs, healthcare products, and related products, while JPY 190.2 billion was royalty and milestone income. (Annual Securities Report, 2026)

Operating profit increased from JPY 73.0 billion in the fiscal year ended March 31, 2022 to JPY 120.6 billion in 2023, JPY 211.6 billion in 2024, and JPY 331.9 billion in 2025. Profit attributable to owners of the parent also increased from JPY 67.0 billion in the fiscal year ended March 31, 2022 to JPY 295.8 billion in 2025. (Annual Securities Reports, 2022–2025)

R&D and Selling Expenses Increased with Business Expansion

R&D expenses and selling, general and administrative expenses increased alongside revenue. R&D expenses in the Consolidated Income Statement rose from JPY 260.2 billion in the fiscal year ended March 31, 2022 to JPY 341.6 billion in 2023, JPY 365.2 billion in 2024, JPY 436.0 billion in 2025, and JPY 466.0 billion in 2026. (Annual Securities Reports, 2022–2026)

The company explained in its R&D disclosures that the DXd ADC development focus expanded from 3ADCs to 5DXd ADCs and that global clinical development was advancing. As revenue expanded, the amount invested in R&D also increased. (Annual Securities Reports, 2024–2026)

Revenue Rose While Operating Profit Fell in 2026

In the fiscal year ended March 31, 2026, revenue increased 12.6% year on year to JPY 2,123.0 billion, while operating profit decreased 22.3% to JPY 258.0 billion. Profit before income taxes decreased 17.8% to JPY 292.4 billion, and profit attributable to owners of the parent decreased 5.4% to JPY 279.7 billion. (Annual Securities Report, 2026)

Core operating profit, which the company uses as a measure of recurring profitability, increased 24.3% from JPY 312.8 billion to JPY 388.9 billion. Meanwhile, one-time expenses increased from JPY 3.1 billion in the previous year to JPY 153.0 billion. The company explained that loss compensation to contract manufacturers and other items were recorded as one-time expenses, contributing to the decrease in operating profit. (Annual Securities Report, 2026)

Accordingly, in the fiscal year ended March 31, 2026, core operating profit from ordinary business activities increased, while IFRS operating profit decreased because of a substantial increase in one-time expenses.

Consolidated Statement of Cash Flows

Merck Agreement Significantly Increased Operating Cash Flow in 2024

Cash flows from operating activities were JPY 139.2 billion in the fiscal year ended March 31, 2022 and JPY 114.5 billion in 2023, before increasing significantly to JPY 599.3 billion in 2024. (Annual Securities Reports, 2022–2024)

In the fiscal year ended March 31, 2024, a JPY 416.1 billion increase in contract liabilities contributed positively to operating cash flow. The company also identified the upfront payment received from Merck under the strategic alliance for HER3-DXd, I-DXd, and DS-6000 as a factor behind the increase in operating cash flow. (Annual Securities Report, 2024)

The Merck agreement affected profit and loss and cash flow differently. The upfront payment was received in cash first and therefore substantially increased operating cash flow. For profit and loss purposes, however, the full amount was not recognized as revenue in that year. The unrecognized portion was recorded as contract liabilities and is transferred to revenue as the performance obligations are satisfied. (Annual Securities Report, 2024)

Cash flows from operating activities decreased to JPY 53.8 billion in the fiscal year ended March 31, 2025. Although profit before income taxes increased, higher working capital, including trade receivables and inventories, reduced cash flow. Contract liabilities increased by a further JPY 81.4 billion, but this was not comparable in scale to the increase when the Merck agreement was signed in the previous year. (Annual Securities Report, 2025)

Cash flows from operating activities were JPY 77.7 billion in the fiscal year ended March 31, 2026. Provisions increased by JPY 195.7 billion, including provisions for loss compensation, but recognizing a provision is an accounting measure for future payments and did not mean that the entire amount was paid in cash during the year. Inventories increased by JPY 172.7 billion, which reduced operating cash flow. (Annual Securities Report, 2026)

Cash Used for Both Growth Investment and Shareholder Returns

In investing activities, expenditures for property, plant and equipment were JPY 88.3 billion in the fiscal year ended March 31, 2024, JPY 116.3 billion in 2025, and JPY 128.4 billion in 2026, against the backdrop of efforts to strengthen DXd ADC supply capacity. The company also acquired intangible assets, indicating that funds were invested not only in R&D but also in manufacturing and supply capacity. (Annual Securities Reports, 2024–2026)

In financing activities, cash outflows for shareholder returns increased. In the fiscal year ended March 31, 2025, financing cash flow was an outflow of JPY 377.8 billion, including JPY 246.1 billion for share repurchases and JPY 114.3 billion for dividend payments. In the fiscal year ended March 31, 2026, share repurchases were JPY 150.5 billion and dividend payments were JPY 128.4 billion, while bond issuance generated JPY 300.0 billion in proceeds. Financing cash flow was therefore an outflow of JPY 97.9 billion. (Annual Securities Reports, 2025–2026)

Cash and cash equivalents decreased from JPY 647.2 billion at March 31, 2024 and JPY 639.8 billion at March 31, 2025 to JPY 449.8 billion at March 31, 2026. In the fiscal year ended March 31, 2026, the group also raised funds through bond issuance while continuing to require cash for growth investment, shareholder returns, and working capital. (Annual Securities Reports, 2024–2026)

Key Changes Seen in the Notes to the Financial Statements

Merck Agreement Created Different Timing for Cash and Revenue

The agreements with Merck covering 3 DXd ADCs, discussed under Material Agreements in Business Environment and Strategy, also caused major changes in the financial statements.

The non-refundable upfront payment of USD 3.0 billion received in the fiscal year ended March 31, 2024 was not recognized entirely as revenue when received. Daiichi Sankyo determined that the grant of licenses and manufacturing and supply services constituted a single performance obligation for each product, and it recognizes the upfront payment as royalty and milestone income over the period in which those performance obligations are satisfied. (Annual Securities Report, 2024)

As a result, the agreement generated a large cash inflow and significantly increased operating cash flow in the fiscal year ended March 31, 2024, while unrecognized revenue remained on the Statement of Financial Position as contract liabilities. Contract liabilities subsequently stood at JPY 819.0 billion at March 31, 2025 and JPY 881.2 billion at March 31, 2026, with amounts to be recognized as revenue as future performance obligations are satisfied. (Annual Securities Reports, 2024–2026)

ADC Supply Risk Materialized as a Loss Compensation Provision

Under Business Risks in Business Environment and Strategy, the review noted that Daiichi Sankyo had entered into long-term agreements with multiple contract manufacturers to ensure stable supply of ADC products, and that differences between contractual minimum purchase obligations and actual demand represented a risk.

This risk appeared in the financial figures in the fiscal year ended March 31, 2026. Following a revision of the supply plan based on clinical-trial results and other factors, a difference arose between minimum purchase obligations and expected orders. Daiichi Sankyo therefore recorded a JPY 169.5 billion provision for loss compensation related to contract manufacturing of ADC products. (Annual Securities Report, 2026)

The company estimates the compensation amount based on assumptions including future demand forecasts, expected order quantities, and the possibility of reallocating manufacturing capacity to third parties. The actual payment amount and timing have therefore not yet been finalized. The fiscal year ended March 31, 2026 was a year in which the relationship between ADC demand and supply planning and contract-manufacturing agreements, already recognized as a business risk, appeared concretely in the financial statements through provisions and one-time expenses. (Annual Securities Report, 2026)

Five-Year Financial Changes

From the fiscal year ended March 31, 2022 through the fiscal year ended March 31, 2026, revenue expanded from just over JPY 1,000.0 billion to more than JPY 2,000.0 billion. R&D expenses and capital expenditure also increased as the business grew around DXd ADCs.

During this process, the large Merck alliance in the fiscal year ended March 31, 2024 resulted in a substantial upfront payment that appeared in operating cash flow and contract liabilities. Because the timing of cash receipt differs from the timing of revenue recognition, the agreement needs to be viewed separately in terms of cash flow and profit and loss.

In the fiscal year ended March 31, 2026, a provision for loss compensation was recorded following a revision of the ADC supply plan. As a result, IFRS operating profit decreased even as revenue and core operating profit increased. Across the five years, the financial statements increasingly reflected not only higher revenue, R&D, and capital investment associated with DXd ADC growth, but also contractual effects tied to the business strategy, including contract liabilities from alliance agreements and provisions related to contract manufacturing. (Annual Securities Reports, 2022–2026)

Dividend Policy

Stable Dividends with Increases Alongside Profit Growth

Daiichi Sankyo has positioned shareholder returns as an important management measure and maintained a basic policy of stable dividends after comprehensively considering growth investment, preparations for bond repayment, shareholder returns, and other factors. The company intends to use retained earnings for growth investment aimed at sustainable enhancement of corporate value, including R&D, business development, capital expenditure, and working capital. It also generally pays dividends twice a year, through an interim dividend and a year-end dividend. (Annual Securities Reports, 2022–2026)

Under the 5-year Business Plan (FY2021–FY2025), the company planned to maintain an ordinary dividend of ¥27 per share while increasing dividends in line with profit growth and conducting flexible share repurchases. It adopted dividend on equity (DOE) as a KPI for shareholder returns and set a target of at least 8% for fiscal 2025. DOE indicates the level of dividends relative to shareholders' equity, using equity rather than only a single year's earnings as the basis for setting the dividend level. (Annual Securities Reports, 2022–2025)

In fiscal 2022, as ENHERTU revenue expanded beyond the initial plan, Daiichi Sankyo brought forward the timing of a dividend increase and raised the annual dividend from ¥27 to ¥30 per share. The annual dividend increased to ¥50 in fiscal 2023 and ¥60 in fiscal 2024, with dividend increases in line with profit growth continuing throughout the 5-year Business Plan (FY2021–FY2025). (Annual Securities Reports, 2023–2025)

Annual Dividend Increased from ¥27 to ¥78 per Share

The annual dividend increased substantially over the five-year period, from ¥27 per share in the fiscal year ended March 31, 2022 to ¥78 per share in the fiscal year ended March 31, 2026. For the fiscal year ended March 31, 2026, the company planned an annual dividend of ¥78 per share, consisting of an interim dividend of ¥39 and a year-end dividend of ¥39. At the time the Annual Securities Report was filed, the ¥39 year-end dividend remained a proposal for the annual general meeting of shareholders. (Annual Securities Reports, 2022–2026)

The 5-year Business Plan (FY2021–FY2025) initially set a fiscal 2025 DOE target of at least 8%. In the Annual Securities Report for the fiscal year ended March 31, 2025, however, the company stated that, based on the progress of business performance, it planned an annual dividend of ¥78 per share for fiscal 2025 and expected DOE of at least 8.5%. Along with the increase in dividends, the dividend level relative to shareholders' equity was also raised. (Annual Securities Report, 2025)

Share Repurchases Also Used for Shareholder Returns

In addition to dividends, share repurchases were used as a means of shareholder returns. In fiscal 2024 in particular, the company conducted 2 share repurchases to enhance shareholder returns and improve capital efficiency. From April 2024 through January 2025, it repurchased approximately 38.71 million shares for approximately JPY 200.0 billion. From March through April 2025, it repurchased approximately 13.97 million shares for approximately JPY 50.0 billion. (Annual Securities Report, 2025)

Accordingly, in the latter half of the 5-year Business Plan (FY2021–FY2025), shareholder returns expanded through a combination of higher dividends and share repurchases. The basic cash-allocation policy of balancing growth investment and shareholder returns remained unchanged. (Annual Securities Reports, 2022–2025)

Progressive Dividend Policy Introduced under the Sixth Plan

Under the Five-Year Business Plan (FY2026–FY2030), the shareholder-return policy changed further. The company shifted from a policy of “dividend increases in line with profit growth” to a progressive dividend policy under which dividends are, in principle, maintained or increased, clarifying its intention to make shareholder returns more stable and continuous. (Annual Securities Report, 2026)

The metric used to determine the dividend level also changed from DOE to “adjusted DOE.” Adjusted DOE is calculated based on adjusted shareholders' equity, which excludes components of other equity that fluctuate with share prices, foreign exchange rates, and other factors. Under the Five-Year Business Plan (FY2026–FY2030), the company uses adjusted DOE of at least 10.0% in each fiscal year as an indicator for determining the dividend level. (Annual Securities Report, 2026)

Share repurchases remain an option for shareholder returns. Under the Five-Year Business Plan (FY2026–FY2030), however, progressive dividends take priority, with flexible share repurchases to be conducted after comprehensively considering financial conditions, market conditions, and other factors. (Annual Securities Report, 2026)

Across the five years, the underlying principles of balancing shareholder returns with growth investment and maintaining stable dividends remained unchanged. At the same time, the annual dividend increased from ¥27 to ¥78 per share, while share repurchases also expanded. Under the Five-Year Business Plan (FY2026–FY2030), the company shifted from dividend increases tied to profit growth to a progressive dividend policy that generally maintains or increases dividends, with adjusted DOE of at least 10.0% as a clearer benchmark for the dividend level. (Annual Securities Reports, 2022–2026)

Key Financial Indicators

Trends in Revenue and Profit

Revenue increased for 5 consecutive fiscal years, rising from JPY 1,044.9 billion in the fiscal year ended March 31, 2022 to JPY 2,123.0 billion in the fiscal year ended March 31, 2026, approximately doubling over the five-year period. Profit attributable to owners of the parent also increased from JPY 67.0 billion in the fiscal year ended March 31, 2022 to JPY 295.8 billion in the fiscal year ended March 31, 2025. (Annual Securities Report, 2026)

In the fiscal year ended March 31, 2026, revenue continued to increase, while profit before income taxes and profit attributable to owners of the parent were lower than in the previous year. Basic earnings per share decreased from ¥155.96 to ¥151.17, and ROE declined from 17.9% to 16.9%. The decline in profit included one-time expenses such as loss compensation related to ADC contract manufacturing, as discussed in the Financial Overview section. (Annual Securities Report, 2026)

Trends in Assets, Equity, and Cash Flow

Total assets increased from JPY 2,221.4 billion at March 31, 2022 to JPY 3,996.3 billion at March 31, 2026. The increase was particularly large in the fiscal year ended March 31, 2024, when the upfront payment under the Merck agreement was received and contract liabilities increased. (Annual Securities Report, 2026)

Equity attributable to owners of the parent increased over the five-year period, but total assets increased by more, and the ratio of equity attributable to owners of the parent declined from 60.8% to 42.1%. From the fiscal year ended March 31, 2024 onward, higher contract liabilities affected the financial position, while provisions and bonds and borrowings also increased in the fiscal year ended March 31, 2026. (Annual Securities Reports, 2024–2026)

Cash flow fluctuated substantially by year. Cash flows from operating activities increased sharply to JPY 599.3 billion in the fiscal year ended March 31, 2024 before declining to JPY 53.8 billion in 2025 and JPY 77.7 billion in 2026. The substantial increase in 2024 included the upfront payment received under the strategic alliance with Merck and did not arise solely from cash inflows from ordinary product sales. (Annual Securities Reports, 2024–2026)

Cash flows from financing activities were negative in all 5 fiscal years. In the fiscal year ended March 31, 2025 in particular, financing activities resulted in a JPY 377.8 billion outflow, including share repurchases and dividend payments. Cash and cash equivalents fluctuated from year to year and stood at JPY 449.8 billion at March 31, 2026. (Annual Securities Reports, 2022–2026)

Across the five years of key indicators, revenue and profit expanded substantially through the fiscal year ended March 31, 2025, while revenue continued to grow in the fiscal year ended March 31, 2026. From the fiscal year ended March 31, 2024 onward, however, large alliance upfront payments, share repurchases, and provisions related to ADC contract manufacturing caused larger movements in assets, liabilities, and cash flow. (Annual Securities Reports, 2022–2026)

Five-Year Review

Across the five years from the fiscal year ended March 31, 2022 through the fiscal year ended March 31, 2026, the Daiichi Sankyo Group's basic structure, with pharmaceuticals at the center of its business, did not change significantly. In Japan, however, changes in the ownership of Daiichi Sankyo Espha and the absorption of manufacturing subsidiaries led to a more consolidated legal-entity structure within the group. (Annual Securities Reports, 2022–2026)

The strategic direction of positioning DXd ADCs at the center of growth remained consistent. At the beginning of the 5-year Business Plan (FY2021–FY2025), the company focused development on the 3ADCs—ENHERTU, Dato-DXd, and HER3-DXd—but the scope expanded to the 5DXd ADCs following the alliance with Merck. Under the Five-Year Business Plan (FY2026–FY2030) formulated in the fiscal year ended March 31, 2026, the group moved into a stage of continuing to maximize the product value of its existing DXd ADCs while exploring new drug-discovery technologies for the next phase of growth. (Annual Securities Reports, 2022–2026)

This business expansion was also reflected in the financial figures. Revenue increased from JPY 1,044.9 billion in the fiscal year ended March 31, 2022 to JPY 2,123.0 billion in the fiscal year ended March 31, 2026. R&D expenses increased from JPY 260.2 billion to JPY 466.0 billion, showing that investment in future growth expanded alongside the scale of the business. (Annual Securities Reports, 2022–2026)

At the same time, as the business centered on DXd ADCs expanded, alliances with external companies and manufacturing and supply agreements had a greater financial impact. In the fiscal year ended March 31, 2024, the large Merck alliance generated an upfront payment that was reflected significantly in operating cash flow and contract liabilities. In the fiscal year ended March 31, 2026, a provision for loss compensation was recorded following a revision of the ADC supply plan. As management resources became increasingly concentrated in growth areas, risks related to collaboration with partners and manufacturing and supply capacity also became more visible in the financial figures. (Annual Securities Reports, 2024–2026)

For shareholder returns, the company maintained its basic policy of balancing returns with growth investment, while the annual dividend increased from ¥27 per share in the fiscal year ended March 31, 2022 to ¥78 per share in the fiscal year ended March 31, 2026. Share repurchases were also conducted. Under the Five-Year Business Plan (FY2026–FY2030), the company introduced a progressive dividend policy under which dividends are generally maintained or increased and adopted adjusted DOE of at least 10.0% as the benchmark for the dividend level. (Annual Securities Reports, 2022–2026)

Across the five years, Daiichi Sankyo expanded the scale of its business around DXd ADCs and deepened its involvement in R&D, manufacturing and supply, and alliances with external companies. In the fiscal year ended March 31, 2026, it formulated the Five-Year Business Plan (FY2026–FY2030), continuing to grow its existing DXd ADC portfolio while broadening its scope to the creation of new drug-discovery technologies. At the same time, the expansion in business scale increased the financial impact of items such as contract liabilities and provisions related to contract manufacturing. The five-year period therefore shows both the progress of the growth strategy and the accompanying financial and operational changes. (Annual Securities Reports, 2022–2026)

Source: Daiichi Sankyo Company, Limited Annual Securities Reports, 2022–2026.