Daiichi Sankyo expects full-year profit to decline significantly in fiscal 2025 due to a 95 billion yen ($610 million) hit, primarily related to its prophylactic antibody-drug conjugate (ADC) manufacturing strategy.
The Japanese pharmaceutical company said on Friday that although sales exceeded previous forecasts and are on track to reach new highs, two major costs due to changes in ADC supply plans are expected to result in an extraordinary loss of 149.4 billion yen ($950 million) in the company’s 2025 non-consolidated financial results (PDF).
Daiichi recently postponed its annual report to unravel the specific impact of changes in supply, a move that worried investors and sent the company’s stock price down more than 10% on April 24.
This decrease reflects payments to contract manufacturers of 75.7 billion yen and impairment losses and compensation of 19.3 billion yen related to capital equipment at the Daiichi Odawara Plant.
The first story says the downward revision reflects the cost of the company’s prevention program. First, we aggressively allocated production capacity to ensure stable supply, which left us vulnerable to changes in demand for our ADC portfolio.
First, in late 2019, Enhertz, which is partnering with AstraZeneca, received its first ADC approval from the FDA. As the portfolio grew, estimated demand grew significantly more than expected. For this reason, Daiichi “has adopted a policy of ensuring sufficient manufacturing capacity to meet maximum demand without risk adjustment, with the highest priority being ‘ensuring stable supply to all patients,'” the company explained in a May 8 release.
As a result, Daiichi entered into a long-term contract with the CMO, committing to a minimum amount of purchases while securing a dedicated production line. The company was likely trying to avoid a potential shortage, given the small number of CMOs with ADC capabilities and the infancy of its own manufacturing capabilities.
However, while the target patient population was revised based on clinical trial results, the initial demand forecast was further reduced due to delays in the launch schedule.
The TROP2-directed Datroway, the first ADC brought to market in partnership with AZ, showed limited efficacy against second-line non-small cell lung cancer, leading to an amended FDA submission last summer and eventual approval in the EGFR mutation niche market.
Based on the findings from this result, First Line and AZ have fine-tuned several of Datroway’s Phase 3 trials, including the closely watched Avanzar trial in first-line NSCLC, to include AI-powered analysis of TROP2-related biomarkers as a primary endpoint.
“Based on the aggregate data we have seen to date across multiple datasets, we have seen consistent performance improvements in both (progression-free survival) and (overall survival) in the biomarker-positive patient population for both monotherapy and first-line (immuno-oncology) combination therapy,” Dr. Susan Galbraith, Arizona’s head of oncology research and development, said during the company’s first quarter earnings call last week.
Additionally, the launch schedule for Daiichi and partner Merck & Co.’s HER3 ADC, patritumab deruxtecan, appears to be significantly delayed, if the drug ever comes to market. The pair withdrew their application last year, citing overall survival errors for EGFR-mutated NSCLC, following an FDA rejection in 2024 due to issues with a contractor’s manufacturing facility. In partnership with Merck, Daiichi is responsible for manufacturing.
Meanwhile, another first project in collaboration with Merck, the B7-H3 ADC ifinatamab deruxtecan (I-DXd), is awaiting an FDA decision by October 10, 2026, for previously treated advanced-stage small cell lung cancer. However, competition in the B7-H3 field is intensifying.
First, we updated our ADC supply plan to incorporate risk adjustment. The 75.7 billion yen compensation to contractors reflects short-term differences from the old strategy. As for the medium- to long-term gap, the company said Daiichi has not yet adjusted it “due to high uncertainty.”
At the same time, as part of its supply chain redesign, Daiichi reviewed its manufacturing base and decided to cancel the planned investment in ADC-related equipment at its Otawa factory, resulting in a one-time expense of 19.3 billion yen.
The first step is to halt the expansion of production in Japan, as the Trump administration is promoting the domestication of pharmaceutical manufacturing through tariffs. First, the company is reportedly investing up to 56 billion yen ($351 million) to build additional equipment at its Ohio factory.
First, the company is scheduled to report its official financial results for fiscal year 2025, which ends in March 2026, and a new five-year business plan on May 11.
