Sumitomo Pharma Shares Fall After Gotham City Research Alleges ¥165 Billion Revenue Misstatement

Shares of Sumitomo Pharmaceutical (TYO:4506) and its parent company, Sumitomo Chemical (TYO:4005), fell in Tokyo trading on Monday after short seller Gotham City Research published a report accusing the pharmaceutical firm of misstating its fiscal 2025 financial statements by as much as 165 billion yen ($1.05 billion).

The Allegations

In its report, Gotham City Research, which disclosed it holds a short position in Sumitomo Pharma, alleged the company manipulated its receivables to inflate profits. The firm pointed to a significant discrepancy related to a payment from Sumitomo Pharma’s Swiss subsidiary, SMPS.

Gotham highlighted the following points:

• In March, Sumitomo Pharma announced a 48 billion yen dividend from its Swiss unit.
• This announcement preceded a 116.4 billion yen public offering by the company in April.
• However, Gotham noted that financial statements for the parent company, Sumitomo Chemical, disclosed a 164 billion yen "distributions-in-kind" payment from the same Swiss unit for the same fiscal period.

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The short seller claimed this larger 164 billion yen figure was not reflected on the non-consolidated income statement, despite being described as a non-operating transaction. Gotham concluded that both companies' fiscal 2025 earnings were artificially inflated by non-recurring sources.

Market Impact

Following the report's release, shares of Sumitomo Pharma and Sumitomo Chemical dropped between 3.5% and 4% in Tokyo trading. This decline significantly underperformed the broader Japanese market, with the Nikkei 225 index falling a more modest 0.6% during the same session.

Gotham City Research stated in its report that it considers shares of both companies to be "uninvestable" and argued they face a potential "50%-100% downside risk." Sumitomo Pharma had not immediately responded to an emailed request for comment on the allegations, according to Investing.com.