Sumitomo Pharma has launched a detailed rebuttal of a report by short seller Gotham City Research, rejecting allegations that the Japanese drugmaker inflated earnings through questionable accounting, aggressive revenue recognition and transactions designed to bolster profits.
The company’s response comes days after Gotham City Research published its August 3 report, titled “Sumitomo Chemical and Sumitomo Pharmaceutical: The ¥116 billion Swiss Shuffle.” Sumitomo Pharma says the report contains assertions about its operations and accounting that are “clearly inconsistent with the facts.”
Gotham City Research disclosed in the report that it and its partners and related persons “hold short positions in the covered issuers’ stock and stand to profit in the event the covered issuer’s stock price declines.”
Sumitomo Pharma said it is taking the report seriously because of its potential impact on investors and has set out detailed explanations addressing what it considers the report’s principal claims.
The company also warned that it may pursue legal action against inaccurate or misleading information.
One of Gotham City Research’s claims concerns Sumitomo Pharma’s ¥49.0 billion gain from the partial transfer of its interest in its Asia business.
The report suggested that the company’s fiscal 2026 profit was inflated by non-recurring sources.
Sumitomo Pharma rejected that characterization, saying the ¥49.0 billion gain was recognized in accordance with applicable accounting standards. It also said the transaction had been disclosed through multiple filings, including a May 13, 2025 notice concerning the expected gain.
The company argues that the gain was therefore neither hidden nor improperly recognized.
Gotham City Research also questioned a sharp increase in accounts receivable as of March 31, 2026, suggesting it could point to channel stuffing, aggressive revenue recognition or fictitious revenue.
Sumitomo Pharma says that conclusion rests on an inappropriate comparison between revenue growth and accounts receivable growth.
According to the company, the two figures are calculated on different bases and therefore do not necessarily move in tandem.
It identified three factors behind the apparent discrepancy.
First, a North American subsidiary had used receivables factoring as of March 31, 2025, reducing its accounts receivable balance at that year-end. No comparable factoring transactions took place at March 31, 2026.
Second, revenue is reported net of returns, discounts, rebates and other deductions, while accounts receivable is recorded at gross amounts before those deductions. That difference alone can cause the two figures to move at different rates.
Third, the partial transfer of the Asia business affected the year-on-year comparison. Accounts receivable associated with the Asia business had been classified as assets held for sale and therefore excluded from the March 31, 2025 receivables balance, while its revenue remained included in fiscal 2025 consolidated revenue.
Sumitomo Pharma said that treatment complied with International Financial Reporting Standards.
The company therefore maintains that the rise in accounts receivable has reasonable accounting and business explanations and does not indicate improper revenue recognition.
The most significant dispute centers on dividends paid by Sumitomo Pharma Switzerland GmbH (SMPS), a consolidated subsidiary.
Gotham City Research questioned why the amount of dividends distributed to Sumitomo Pharma differed from the dividend income recognized in the parent company’s standalone accounts. The report also suggested the transaction may have been structured to generate profits in connection with financing activities, including a public offering.
Sumitomo Pharma says that interpretation is wrong.
SMPS paid a total of ¥164.5 billion in dividends during the fiscal year ended March 31, 2026. Under Japanese GAAP, Sumitomo Pharma said it accounted for that amount in two parts:
¥116.2 billion was deducted from the carrying amount of its investment in SMPS shares.
¥48.3 billion was recognized as dividend income in the company’s non-consolidated profit-and-loss statement.
The company said the accounting treatment is reflected in its standalone balance sheet, where the carrying amount of its investment in affiliates fell by ¥109.5 billion from the previous fiscal year-end.
Sumitomo Pharma said this demonstrates that there is no inconsistency in its non-consolidated financial statements. It also said the ¥164.0 billion figure cited by Gotham City Research appears to be a rounded version of the actual ¥164.5 billion dividend.
Sumitomo Pharma also rejected the suggestion that the dividend was engineered to manufacture profits.
It said the assets underlying the dividend consisted primarily of receivables held by SMPS from Sumitomo Pharma following the intra-group transfer of assets linked to three key U.S. products and certain other assets in August 2025.
Because those were intra-group transactions, the company said they were eliminated from its consolidated financial statements and had no impact on consolidated results.
The company therefore argues that the dividend cannot reasonably be characterized as a mechanism to generate profits for financing purposes or a public offering.
Sumitomo Pharma said it remains committed to transparent financial reporting and timely disclosure, while emphasizing that it will take steps to protect investors and ensure what it considers a fair assessment of the company’s value.
That could include legal action, the company said, if necessary to address information it believes is inaccurate or misleading.
The response sets up a direct clash between the drugmaker and Gotham City Research over the interpretation of Sumitomo Pharma’s financial statements, particularly its fiscal 2026 earnings, receivables and the ¥164.5 billion dividend from its Swiss subsidiary.
