Daito Pharmaceutical Co.,Ltd.

Business Details

Daito Pharmaceutical Co., Ltd. Group handles everything from the manufacturing and sale of active pharmaceutical ingredients (API), which are raw materials for pharmaceuticals, to contract manufacturing of formulations for generic drugs, OTC drugs, and originator drugs. It serves domestic and overseas pharmaceutical manufacturers as customers, with a strength in high-quality manufacturing systems that satisfy FDA and EMA standards. The company has adopted a unique business model in which it does not employ MRs (medical representatives), instead concentrating management resources on manufacturing and R&D, and outsources sales for each product to partner manufacturers. Net sales of ¥50,650 million, operating profit of ¥3,637 million (FY2026, ending May 2026).

Recent Overview

Operating profit recovered significantly, up 38.8% year on year, due to improvement in inventory valuation losses and thorough cost management through smart spending

In FY2026 (ending May 2026), net sales were ¥50,650 million (up 0.0% year on year), essentially flat, but cost of sales decreased due to a significant improvement in inventory valuation losses and thorough cost management through smart spending, resulting in a substantial recovery in profitability with operating profit of ¥3,637 million (up 38.8% year on year) and net income of ¥3,161 million (up 65.7% year on year). In addition, a change in the depreciation method (revision of the timing for commencing depreciation of production equipment) increased operating profit by ¥210 million. Daiwa Pharmaceutical Industry was absorbed through merger and excluded from the scope of consolidation. Major customers are Felzen Pharma (¥5,597 million) and Towa Pharmaceutical (¥5,075 million). For FY2027 (ending May 2027), the company forecasts net sales of ¥54,000 million (up 6.6% year on year) and operating profit of ¥4,000 million (up 10.0% year on year).

Key Products

Growth Drivers

• Expanding demand driven by the government's roadmap to promote the use of generic drugs (targeting a volume share of 80% or more and a value share of 65% or more by the end of FY2029)
• Acceleration of substitution toward generic drugs due to the expansion of the 'Selected Medical Care System' for long-listed products starting in June 2026
• Response to changing market conditions as authorized generics (AG) newly listed from October 2026 onward will be subject to the same drug price as originator products
• Strengthening of competitive advantage through an integrated manufacturing system from API to formulations (Japan-China collaboration)
• Advancement of 'efficiency improvement of existing business,' 'strengthening of China business,' and 'entry into new business' based on the medium-term management plan DTP2027
• Full-scale government support for companies ensuring quality and stable supply through the establishment of the 'Fund for Improving Generic Drug Manufacturing Infrastructure'
• Improved profitability through thorough cost management via smart spending and improvement in inventory valuation losses
• Measures to address the sub-1x PBR issue and enhanced capital allocation (share buybacks and cancellations) as well as investment in human capital

Risks

• Continuous decline in product unit prices due to annual drug price revisions (including mid-year revisions)
• Risk of profit pressure due to upfront recognition of depreciation expenses (costs incurred before sales recognition during the validation period)
• Deterioration in profitability due to prolonged supply instability, mainly for generic drugs, and excessive competition
• Surging raw material costs and energy prices, mainly due to the weak yen
• Risk of write-downs on long-term inactive inventory
• Risk of sales concentration on major customers (Felzen Pharma: ¥5,597 million; Towa Pharmaceutical: ¥5,075 million)
• Adverse economic impact from supply shocks in crude oil, naphtha, etc., due to escalating tensions in the Middle East
• Uncertainty in the business environment due to the impact of trade policies (tariffs, etc.) in various countries
• Impact of the change in depreciation method (change in accounting estimate) on the comparability of business results
• Changes in market structure due to the introduction of patient cost-sharing for OTC-similar drugs starting in March 2027