| Metric | This Period | Prior Year | YoY |
|---|---|---|---|
| Revenue | ¥4996.8B | ¥4382.7B | +14.0% |
| Operating Income | ¥1667.2B | ¥1566.0B | +6.5% |
| Pre-tax Income | ¥2389.2B | ¥2007.5B | +19.0% |
| Net Income | ¥2059.1B | ¥1695.3B | +21.5% |
| ROE | 12.2% | 12.4% | - |
For the fiscal year ended March 2026, the company achieved record-high results since its founding: Revenue ¥4,996.8B (YoY +¥614.1B, +14.0%), Operating Income ¥1,667.2B (YoY +¥101.2B, +6.5%), Ordinary Income ¥1,383.2B (YoY +¥291.8B, +26.7%), and Net Income attributable to owners of the parent ¥2,059.1B (YoY +¥364.7B, +21.5%). Revenue grew double digits driven by the domestic integration of Torii Pharmaceutical, growth of cefiderocol, and expanded HIV royalties. At the operating level, margins contracted due to about a 200bp decline in gross margin (83.5%) and aggressive R&D investment of ¥1,228.4B (24.6% of sales). However, non-operating items contributed materially—financial income ¥807.9B and other income ¥471.5B (including negative goodwill gain equivalent to approximately ¥438.7B)—resulting in double-digit increases in Ordinary and Net Income. Operating Cash Flow was ¥2,135.7B, a strong cash conversion at 1.04x of Net Income, while Investing CF was a large outflow of -¥5,061.4B (including equity acquisition of ViiV ~¥4,164.5B and costs to assume the U.S. edaravone business), producing Free Cash Flow of -¥2,925.7B. Financing CF was +¥5,993.2B due to short-term borrowings of ¥6,600B, and cash and cash equivalents increased to ¥7,114.0B. Guidance for the next fiscal year forecasts Revenue ¥7,000B (+40.0%), Operating Income ¥2,200B (+32.0%), and Net Income attributable to owners of the parent ¥2,100B (+2.4%), anticipating substantial operating growth while factoring in a reversal of this period’s one-time non-operating gains, resulting in only modest growth in final profit.
[Revenue] Revenue ¥4,996.8B (+14.0%) grew across all three business areas. Domestic prescription pharmaceuticals expanded rapidly to ¥123.5B (+25.0%), supported by the Torii Pharmaceutical integration contribution of ¥40.5B in September and new product expansion including Cubivic (HIV treatment) ¥2.6B (+224%) and Zavzbay (pulmonary non-tuberculous mycobacteria) ¥0.5B. Acute respiratory infection drugs declined to ¥33.8B (-34.8%) due to reduced incidence, but the share of QOL disease sales increased to 62%, stabilizing revenue. Overseas subsidiaries & exports reached ¥65.0B (+9.9%), with U.S. Fetroja ¥27.8B (+39.5%) and Europe Fetcroja ¥16.3B (+26.3%) both showing double-digit growth for cefiderocol; China ¥6.2B (-28.3%) declined amid difficult market conditions. Royalty income was ¥278.6B (+13.9%), led by the HIV franchise ¥261.3B (+8.7%) with growth in long-acting formulations Cabenuva and Apretude; other royalties ¥17.3B (+305%) were driven by increased royalties related to Roche and the former JT pharmaceutical business. Contract manufacturing ¥15.1B (-12.7%) and OTC ¥15.0B (-10.5%) declined due to integration preparations and market contraction. Gross profit margin was 83.5% (about 85.5% prior year), down approximately 200bp; higher cost of goods was mainly due to U.S. edaravone inventory valuation impacts and product mix changes from the Torii integration.
[Profitability] From gross profit ¥4,172.3B, SG&A ¥1,269.0B (25.4% of sales, +¥167.1B YoY) and R&D ¥1,228.4B (24.6% of sales, +¥120.2B) were deducted, resulting in Operating Income ¥1,667.2B (operating margin 33.4%, down ~230bp from 35.7% prior year). SG&A increased due to the Shionogi Inc. U.S. business launch and PMI costs; R&D rose with pipeline expansion and integration of former JT pharmaceutical assets. Other income ¥471.5B (prior year ¥5.3B) includes negative goodwill gain of approximately ¥438.7B from provisional accounting for the Torii and JT pharmaceutical M&A; other expenses ¥418.1B (prior year ¥37.0B) include impairment losses on development projects of ¥35.0B. Non-operating items saw financial income ¥807.9B (prior year ¥531.7B) increase significantly driven by higher ViiV dividends; financial expenses ¥86.1B (prior year ¥90.3B) fell slightly. Pre-tax Income was ¥2,389.2B (+19.0%); after income taxes ¥330.0B (effective tax rate 13.8%, prior year 15.6%), Net Income was ¥2,059.1B (+21.5%), and Net Income attributable to owners of the parent was ¥2,051.6B (+20.4%). The uplift in final profit was mainly due to one-time increases in financial and other income, leaving scope for further improvement in recurring operating profitability.
The Group manages strategy and resource allocation centrally as a single prescription pharmaceutical business and does not disclose formal segment classifications. For reference, revenue can be analyzed across five categories: Domestic Prescription Pharmaceuticals ¥123.5B (24.7% of total, prior year ¥98.8B), Overseas Subsidiaries & Exports ¥65.0B (13.0%, prior year ¥59.2B), Royalty Income ¥278.6B (55.8%, prior year ¥244.6B), Contract Manufacturing ¥15.1B (3.0%, prior year ¥17.3B), and OTC ¥15.0B (3.0%, prior year ¥16.7B). Royalty income is the largest profit contributor—its low fixed-cost base and high margins are estimated to account for the majority of operating profit. The combined HIV franchise ¥261.3B (+8.7%) and other royalties ¥17.3B (+305%) totaling ¥278.6B are the main source of the company’s Operating Income ¥1,667B, effectively the core business. Domestic prescription pharmaceuticals saw revenue uplift of ¥24.7B from the Torii integration but profit margins were diluted due to higher SG&A and PMI costs. Overseas subsidiaries & exports remain in an investment phase, where cefiderocol growth and U.S. Radicava launch costs coexist, making operating margin improvement a medium-term challenge.
Profitability: ROE 13.5% (prior year 13.1%, +0.4pt), Operating Margin 33.4% (prior year 35.7%, -2.3pt). Net Income Margin 41.1% (prior year 38.9%, +2.2pt) improved due to non-operating gains, though operating-level margins were compressed by lower gross margin and higher SG&A and R&D ratios. Cash Quality: Operating Cash Flow / Net Income 1.04x (healthy above 1.0x), FCF -¥2,925.7B (Operating CF ¥2,135.7B - Investing CF ¥5,061.4B). Operating CF continues to generate cash above accounting profit, while Investing CF was substantially negative due to strategic investments, resulting in negative Free Cash Flow. Investment Efficiency: Capex / Depreciation 0.54x (Capex ¥14.46B / Depreciation ¥26.97B), indicating capex remained within depreciation and tangible asset accumulation is modest despite growth investments. Financial Soundness: Equity Ratio 65.4% (prior year 88.7%, -23.3pt), Current Ratio 158.3% (Current Assets ¥1,310.3B / Current Liabilities ¥827.4B). Equity ratio declined due to short-term borrowings of ¥66.0B but remains high; liquidity buffer is strong with cash ¥711.4B and liquid financial assets ¥310.7B, limiting short-term maturity risk.
Operating CF: ¥2,135.7B (1.04x of Net Income ¥2,059.1B). From Pre-tax Income ¥2,389.2B, adjustments included depreciation & amortization ¥26.97B, impairment losses ¥350.4B, negative goodwill gain -¥438.7B, financial income/expense adjustments -¥710.6B, etc. Working capital changes were a headwind due to increases in accounts receivable and inventories (-¥15.31B), and after income tax payments -¥40.98B, the company generated solid cash. Investing CF: -¥5,061.4B, driven by acquisition of equity-method investments -¥4,164.5B (additional ViiV shares), tangible fixed asset acquisitions -¥14.46B, intangible asset acquisitions -¥16.84B, investment acquisitions -¥72.38B, loans -¥45.0B, etc. Net change in time deposits was an inflow of ¥2.50B. Financing CF: +¥5,993.2B, primarily from short-term borrowings ¥66.0B (bridge loans for ViiV investment and edaravone acquisition), and included dividend payments -¥56.18B and lease repayments -¥4.16B. FCF: -¥2,925.7B (Operating CF - Investing CF), a significant negative figure as strategic investments led to a temporary cash outflow. Cash generation requires monitoring: Operating CF is strong but large Investing CF outflows turned FCF negative; normalizing investment pace and improving working capital efficiency will be key to CF recovery.
The gap between Ordinary Income ¥1,383.2B and Net Income ¥2,059.1B is large at +¥675.9B (+48.9%), primarily driven by non-operating items rather than pre-tax other comprehensive income. Other income ¥471.5B (including negative goodwill of approximately ¥438.7B) and other expenses ¥418.1B (including impairments ¥350.4B) produced a net ¥53.4B, while the difference between financial income ¥807.9B and financial expenses ¥86.1B was ¥721.8B—these account for the bulk of non-operating profit. Compared with Operating Income ¥1,667.2B, the sum of financial income and other income ¥1,279.4B (about 76.7% of Operating Income) is substantial; notably the negative goodwill gain is a one-time benefit from provisional M&A accounting. Since Operating CF exceeds Net Income (1.04x), the cash backing of accounting profit is sound and accrual concerns are limited, but the uplift in Net Income is non-recurring. Therefore, assessing sustainable earnings power should be based on Operating Income. The recurring earnings base comprises Operating Income ¥1,667B and dividend-equivalent portions of financial income, and the FY2026 Net Income guidance growth slowing to +2.4% reflects the expected reversal of this period’s one-off gains.
FY2026 full-year guidance: Revenue ¥7,000B, Operating Income ¥2,200B, Net Income attributable to owners of the parent ¥2,100B. Progress against the H1 cumulative results stands at Revenue 71.4%, Operating Income 75.8%, and Net Income 97.9% of full-year guidance—Revenue and Operating Income are substantially ahead of a standard pace (Q2 cumulative 50%), and Net Income is nearly achieved. This reflects concentration of Torii integration effects, cefiderocol growth, and higher HIV royalties plus significant non-operating income in H1. In H2, full-year contribution from U.S. Radicava and domestic launch of Radicut will be added, but H1’s one-off gains (negative goodwill, etc.) and cost pressure from edaravone inventory valuation are expected to offset some benefits, normalizing operating margin in H2. No forecast revisions have been announced; given H1 results, full-year Revenue and Operating Income achievement probability is high, while Net Income is expected to be flat due to one-time gain reversal. While backlog data is not disclosed, the continuity of royalty contracts and new product launch schedule provide reasonable visibility into future revenue. FX assumptions are USD ¥153, EUR ¥184, GBP ¥205—set more depreciated yen vs. FY2025 actuals (USD ¥150.67, GBP ¥201.86), representing upside risk to earnings from FX moves.
Annual dividend is ¥71 (interim ¥33, year-end ¥38), up +18.3% YoY (prior year ¥60, after stock split adjustment), marking the 15th consecutive year of dividend increases. Payout Ratio is 30.6% (based on Net Income attributable to owners of the parent ¥2,051.6B), at an appropriate level; cash dividend payments ¥56.18B represent approximately 3.8x coverage by Operating CF ¥2,135.7B, indicating high sustainability. Total dividends amounted to ¥56.18B, up ¥3.45B from prior year ¥52.73B—driven by the dividend increase and a slight rise in shares outstanding (e.g., disposal of treasury stock). Share buybacks were executed but immaterial (¥0.005B), leaving Total Return Ratio roughly in line with the payout ratio at 30.6%. Management plans further dividend increases next fiscal year and has affirmed continuation of returns despite negative FCF this period, supported by cash on hand ¥711.4B and capital capacity. Once strategic investments settle and FCF turns positive, raising the Total Return Ratio and resuming share buybacks will be considered.
[Short-term]
[Long-term]
Profitability & Returns
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| ROE | 13.5% | -19.7% (-58.1%–4.6%) | +33.2pt |
| Operating Margin | 33.4% | -94.2% (-358.4%–8.6%) | +127.6pt |
| Net Income Margin | 41.2% | -101.5% (-373.7%–5.9%) | +142.7pt |
The company ranks at the top within the pharmaceuticals industry across profitability and return metrics, substantially outperforming medians for ROE, Operating Margin, and Net Income Margin.
Growth & Capital Efficiency
| Metric | Company | Median (IQR) | Delta |
|---|---|---|---|
| Revenue Growth Rate (YoY) | 14.0% | -0.6% (-22.4%–13.3%) | +14.6pt |
Revenue growth also exceeds the industry median by 14.6pt, driven by M&A effects and expansion of core products.
※ Source: Company aggregation
R&D success uncertainty: High R&D intensity at 24.6% (¥122.84B) continues, but Zatolmilast Phase 2/3 faces the risk of not meeting primary endpoints with a decision on continuation expected in H2 2026; approval delay or termination risk remains. Although impairment of development assets ¥350.4B has been recorded, additional impairments could occur depending on prioritization.
Inventory buildup and working capital deterioration: Inventories ¥99.39B (+51.8%) and DIO of 440 days have lengthened substantially. Inventory increases for U.S. Radicava and Torii integration effects are primary drivers, raising obsolescence and disposal risks and pressuring Operating CF. Accounts receivable ¥159.77B (+32.5%) with DSO 117 days have also lengthened, producing a CCC of 459 days—normalizing cash collection efficiency is urgent.
Short-term borrowing dependence and refinancing risk: Short-term borrowings ¥66.0B (bridge loans for ViiV investment and edaravone acquisition) reduced the equity ratio from 88.7% to 65.4%. Estimated Debt/EBITDA ~4.1x is elevated and poses potential maturity mismatch risk. Liquidity remains ample with cash ¥711.4B, but confirmation of refinancing strategy is needed if duration extends.
Operating base shifting to high margin and stable growth: The share of domestic QOL disease sales rose to 62%, and Torii integration established a two-pillar structure of infectious disease and QOL disease. HIV royalties ¥278.6B (55.8% of total sales) are core and, given low fixed costs, support an industry-leading Operating Margin of 33.4%. However, current period saw a 200bp decline in gross margin and increases in SG&A and R&D, dampening operating leverage—margin improvement potential post-FY2026 merits attention.
One-off non-operating gains and assessment of sustainable earnings power: Of Net Income ¥2,051.6B, financial income ¥807.9B and other income ¥471.5B (negative goodwill ~¥438.7B) were major contributors, indicating significant one-off uplift. FY2026 Net Income guidance (+2.4%) is modest, reflecting expected reversal of one-time gains; recurring earnings should be evaluated on the basis of Operating Income ¥1,667B. Increased ViiV dividends are sustainable and positive, with prospective transition to equity-method profit recognition that would have lasting B/S effects.
Working capital efficiency and cash flow normalization are medium-term priorities: DSO 117 days, DIO 440 days, and CCC 459 days indicate weakened efficiency; despite solid Operating CF, FCF was -¥2,925.7B. Strategic investments (ViiV equity acquisition ~¥506.1B scale) are a temporary factor, but unless inventory and receivables normalize, Operating CF could be pressured. Securing repayment sources for short-term borrowings ¥66.0B necessitates FCF improvement and working capital compression, making CF recovery trends post-FY2026 the most important monitoring items.
This report is an automated earnings analysis document generated by AI through integrated analysis of XBRL financial statement data and PDF earnings presentation materials. It does not constitute a recommendation to invest in any specific security. Industry benchmarks are reference information compiled by the company from public financial statements. Investment decisions are your responsibility; consult professionals as appropriate.