Allegation Overview
Gotham City Research released a report on Monday accusing Sumitomo Pharmaceutical Co., Ltd (TYO:4506) of misstating its fiscal 2025 financial statements by up to ¥165 billion (approximately $1.05 billion).
Details of the Discrepancy
The short seller claims the discrepancy originates from a dividend paid by Sumitomo Pharma’s Swiss subsidiary, SMPS. SMPS announced a ¥48 billion dividend in March, shortly before Sumitomo Pharma’s ¥116.4 billion public offering in April. Gotham alleges that the FY2025 notes to the parent‑company financial statements record a ¥164 billion “distribution‑in‑kind” from SMPS, a figure that does not appear on the non‑consolidated income statement despite being described as a non‑operating transaction within the FY2025 reporting period.
Impact on Earnings
According to Gotham, the inclusion of the ¥164 billion distribution inflates the earnings of both Sumitomo Pharmaceutical and its parent, Sumitomo Chemical Co., Ltd (TYO:4005). Removing these non‑recurring sources, the short seller asserts, would sharply reduce the reported earnings.
Market Reaction
Following the report, Sumitomo Pharma and Sumitomo Chemical shares declined between 3.5 % and 4 % in Tokyo trading, underperforming the Nikkei 225 index, which fell 0.6 % on the same day. Gotham warned that the shares are “uninvestable” and face a downside risk of 50 % to 100 %.
Company Response
Sumitomo Pharmaceutical did not immediately respond to an emailed request for comment.
Additional Information
Gotham City Research disclosed that it holds a short position in Sumitomo Pharma. The article also notes ticker‑specific price movements of 2.09 % for TYO:4506 and 3.20 % for TYO:4005.