A ¥180.9bn write-down, half the North American headcount and a trimmed pipeline (2023)

How much loss you can afford to take decides the strategy

An impairment of $1.3B (¥181bn) is more than half that year’s revenue of ¥314.6bn. What the company chose was to take that loss in one year rather than spread it over several. Spread out, it would have meant losses every period and continuing breaches of financial covenants. Taken at once, the following year’s income statement is unburdened — and the numbers for the year to March 2025, net income of ¥23.6bn and an improvement of ¥338.6bn, show exactly how that works. It is a case where an accounting treatment created the entrance to a turnaround.

What decided how much loss could be taken, though, was not the company. Having breached its covenants at year-end, Sumitomo Pharma kept the benefit of term through debt guarantees from its parent, Sumitomo Chemical. The judgement to take the write-down in one go presupposed the capital standing behind it. The counterparty to which Dainippon Pharmaceutical handed a majority of its shares in 2005 had, eighteen years later, become the party keeping the company alive. What it meant for a firm that walked 106 years as an independent mid-tier to acquire a parent showed more plainly in these two years of folding back than in all the years of expansion.