Fujifilm Expanding into Pharmaceuticals

Nigel · Feb 13, 2008

Article at:

http://www.reuters.com/article/marketsNews/idINT20590720080213?rpc=44

The article notes:
"Fujifilm is flush with cash and has made a string of acquisitions in the past few years to cultivate new growth drivers while shifting resources away from unpromising businesses such as photographic film."

On the one hand, I can construct an argument that there are synergies in applications of organic chemistry. But I don't really believe it. It looks like a scotch tape deal* put together by investment bankers.

* a transaction in which two poorly related companies are merged in an attempt to create a company of suitable size to be attractive to investors

keithwms · Feb 13, 2008

This is one of many indiations of how forward thinking Fuji has become, and how they are financially able to do forward thinking. If Kodak or Polaroid had the cash, they might well devote as much of it to research, but unfortunately they don't.

My understanding of their situation is this: Fuji wants to keep their film market alive as a matter of service to their customers and also to protect their good name. They want to find a way to do this even if it means downsizing the film operation over time. Meanwhile, they are also very realistic about the market and are seeking "adjacencies" that spin off their film expertise and their other sectors. As I mentioned another thread, they are now the big player in privacy screens for laptops via polarizing film sheets... a technology that they spun directly out of their film sector. Another example: they brought out a dslr with somewhat better dynamic range and emulation modes that at least approximate film response curves... no, of course it's not a substitute for film, nor should it be; rather it is a strategy to capitalize on a reputation and thus generate enough funds to keep their primary markets alive and fresh, and in fact is has some dslr users now looking back to velvia in medium and alrge formats. Another example: Fuji is of course the leader in disposable cameras, and that is a huge market for them and another way that they can keep their film sector alive.

Sorry to sound like a Fuji mouthpiece but as a scientist I do really appreciate what they are doing for r&d in the photo sector and beyond. At a time when governments are very clearly turning their backs on research toward "peaceful" or consumer-targeted science & technology, Fuji is marching on with a big, fat r&d budget and a highly educated workforce.

Neanderman · Feb 13, 2008

Kodak went this route years ago, with Sterling Drug. At the time, it probably seemed to make sense, but they've since totally bailed on it, I think.

Ed

richard ide · Feb 13, 2008

The following may have some gaps and possible inaccuracies, but is what I remember hearing from my Agfa representative:

IIRC Due, in part, to WW2 Sterling Drug produced and sold Aspirin under the Bayer name and possibly other products. In the mid 90's Sterling Drug was bought by Bayer through the backdoor from Kodak. Until that time Bayer did not operate in North America under the Bayer name. The film division was Agfa Gaevert which was owned by Bayer. Very shortly after the deal was completed, Bayer had a large presence in North America. I can remember the invoices suddenly appeared from Bayer not AG. When picking up orders from their warehouse I noticed that they had created a high security section of their warehouse which handled pharmaceuticals.

Photo Engineer · Feb 13, 2008

Kodak has sold the Sterling drug division. They still occupy several buildings at Kodak Park West and in B-59 where they maintain a research level coating machine. The facility in KPW is doing very well and they are building a new coating machine to ramp up volume.

They use what was originally Kodak coating technology and chemistry to make a very high end blood analyzer. When I was required to get two complete physicals each year, the blood work was done using this instrument backed up with chemical analyses for early quality assurance.

When Stirling separated out, many Kodak people went with them. Up until I retired, I used to see many Stirling(Kodak) people in the halls of B-59.

PE

copake_ham · Feb 13, 2008

richard ide said:
The following may have some gaps and possible inaccuracies, but is what I remember hearing from my Agfa representative:

IIRC Due, in part, to WW2 Sterling Drug produced and sold Aspirin under the Bayer name and possibly other products. In the mid 90's Sterling Drug was bought by Bayer through the backdoor from Kodak. Until that time Bayer did not operate in North America under the Bayer name. The film division was Agfa Gaevert which was owned by Bayer. Very shortly after the deal was completed, Bayer had a large presence in North America. I can remember the invoices suddenly appeared from Bayer not AG. When picking up orders from their warehouse I noticed that they had created a high security section of their warehouse which handled pharmaceuticals.

Actually, Bayer's "Aspirin" manufacturing operation in the US was seized during WW1 (not WW2) as enemy property and ultimately sold to Sterling via an auction. Sterling originally owned both the Bayer brand in the US and the exclusive rights to use the term Aspirin to describe its product.

However, in the 1920's the term Aspirin lost it's copyright status due to the fact it wad determined that it had come into "common usage"*. Thereafter, many manufacturers of salacylic acid-based headache compounds were able to sell their products as "Aspirin".

Certain competitors, having already built brand names, did not attach "aspirin" to their product names (e.g. Bufferin and Anacin) even after "aspirin" was ruled a common term.

There were advertising campaigns over the years to claim that only Bayer's aspirin was the "real" and "pure" thing - and they were able to hold a price edge with that for many years.

As a starving grad student in the late 1970's I worked for Sterling for a few weeks and learned the history of the company. [This was when it was still independent.] But, I also realized that by then - they were on a downhill slide as fewer and fewer consumers really cared about the Bayer label on a bottle of aspirin.

I don't know why Kodak ever thought it would be a good fit to buy Sterling. Particularly since by the time they did - there was no value left. But sometimes, when companies are flush with cash that they don't want to return to sharholders in the form of dividends they instead do stupid things

*BTW, the "lesson" of how you can lose a copyright due to "common usage" is why forever during the 20 C. the Xerox Corp. litigated against anyone who claimed their copy machines made "xeroxes". Of course the problem for Xerox is that no one cares anymore about their brand so they "saved" the name but "lost" the business!

pauliej · Feb 13, 2008

Who knows what companies are up to when they purchase other companies that seemingly have NO relevance to their business. Press releases always tout "synergies", as if that is the magic bullet that will spout the fountain of endless profit streams, and other favorable outcomes. Spending our money, to fund their ideas. It works for Warren Buffet, but will it work for Fuji? Does this spell the end of their new 6x7 prototype camera?

Paul

Photo Engineer · Feb 13, 2008

In the early history of photography, cameras of all types were sold as "Kodaks" and EK would sue just as Xerox does about this infringment of the proper use of the word Kodak. It is a brand, not an object or type of object.

PE

johnnywalker · Feb 13, 2008

pauliej said:
Does this spell the end of their new 6x7 prototype camera?Paul

That's a bit of a leap. They don't have to put all of their eggs in one basket.

aldevo · Feb 13, 2008

This is old news. I believe FujiFilm has been in this venture for some time...certainly the past several years. As I recall, they launched that line of business with gobs of cash from MITI...not their own.

tim_walls · Feb 14, 2008

I believe Ilford also do work involving coating which isn't actually photographic-film based. It makes sense.

Personally, from a business perspective, I take the view that it is sensible for a business to identify its core competencies (such as coating) and then look at ways to diversify the applications of those competencies; e.g. into pharma as well as photography. Any way in which you can capitalise on existing assets and abilities has to be a good thing.

On the other hand, I worry about brand-led diversification. In which a company branches out into an area which is entirely outside its competency, purely because the brand will fit. E.g. (hypothetically) Ilford deciding to manufacture cameras. What exactly does making cameras have in common with manufacturing film? Short answer - precisely bog all.

I'd worry far more about Fujifilm pouring all the money they make from film manufacture into a camera manufacturing business, than I will about them finding ways to further monetize their film manufacture/coating expertise.

Steve Smith · Feb 14, 2008

keithwms said:
My understanding of their situation is this: Fuji wants to keep their film market alive as a matter of service to their customers and also to protect their good name.

Hopefully this is true. Remember that the company we are referring to as Fuji is actually called Fujifilm.

Steve.

Alex Bishop-Thorpe · Feb 14, 2008

I'm sure I've read about Harman having some hand in Nanotechnology or solar panels or the like - I'd have to check their website.
Traditional photographic companies have a lot of experience working in a microscopic scale, decades of it, and have their own patents, methods and personal concoctions in the chemical world. Kodak alone has enough research to fill a sizeable library, I'm sure. Pharmaceuticals and film don't seem that far apart to me.

Steve Smith · Feb 14, 2008

Fleath said:
Pharmaceuticals and film don't seem that far apart to me.

This is true. Coating technology is used in many products other than film.

The company I work for is essentially a high quality industrial screen printer and we make conductive electronic circuits on flexible polyester film, basically the same polyester as used for photographic film. Our main money making products though are medical products such as blood sugar sensor strips for diabetic testing.

Steve.

PHOTOTONE · Feb 14, 2008

I seem to recall about a year ago or more, a story about Fuji getting into cosmetics manufacturing. If so, this is another area where expertise in chemistry is needed, and plays on the strengths of a large research and chemistry based manufacturing organization.

keithwms · Feb 14, 2008

When considering whether these acquisitions make sense, one has to consider the researcher's perspective, which precedes the market perspective by quite a few years. Now, I am not in pharma or bio per se, but I am a researcher and I see a lot of overlap between Fuji's current sectors and bio/health. Everything from bio-friendly polymer coatings to instant test platforms to lab-on-a-chip diagnostics... and then on the fundamental chemistry side, there is significant overlap in organics, almost regardless of the final product which might be some drug or some organic LED or flexible panel displays - very diverse product opportunities there, it's just a matter of getting all the right expertise under one roof.

But even if there weren't some direct synergy between Fuji's current work and the pharma industry, you have to look at the market in Asia for flu-related medicines and diagnostics. One can truly imagine an almost instant check for various things that people will want to implement in public spaces, and Fuji may well be poised to lead that. Here's a futuristic, but I think, also realistic scenario: imagine that you could spot SARS just by taking a "snapshot" of a subject with the ease of a polaroid... N.b. I am not saying that the diagnosis is done visually!!! I am saying that a piece of diagnostic film contains multiple tests and the person coughs on it or a nasal swab is done or whatever and a technician armed with an instant "developing" system gives their results in a minute or two and designates treatment or isolation. If you step back from the clinical details of the test itself, I think you see that in terms of mechanics, a pack-film / develop-on-the-spot diagnostic approach starts to make alot of sense. Rapid individual multitesting, on the spot results. With flu it's much more complex issue than a pregnancy test, you need to be able to test for many, many possibilities and very quickly and inexpensively. In areas of high population density, I think this is the clear future. The flu market is exploding and the US cannot even keep up with its own production needs. My layman's feeling is that there is a pressing need for SARS diagnostics and treatment, as well as more conventional flu. So... this looks like a very good purchase to me, even if it has no immediate overlap with Fuji's current holdings.

Photo Engineer · Feb 14, 2008

Keith;

Actually, the crossover is much more difficult than you might expect. Photography requires physical chemistry, rheology, engineering and organic chemistry along with lots of math. Biosciences need Biochemistry, organic chemistry, rheology and engineering. Some overlap but some different. There was a lot of cross training needed at EK to get into the biosciences division and I almost ended there due to my biochemistry, but I managed to avoid it.

There is a small congruence in coating and organic chemistry, but in large part they are quite different.

PE

Nigel · Feb 14, 2008

Photo Engineer said:
Keith;

Actually, the crossover is much more difficult than you might expect. Photography requires physical chemistry, rheology, engineering and organic chemistry along with lots of math. Biosciences need Biochemistry, organic chemistry, rheology and engineering. Some overlap but some different. There was a lot of cross training needed at EK to get into the biosciences division and I almost ended there due to my biochemistry, but I managed to avoid it.

There is a small congruence in coating and organic chemistry, but in large part they are quite different.

PE

This is my reason for looking at it as a scotch tape deal. An argument can be constructed for synergies in pharmaceuticals, but in reality, there is likly little. Note that the deal is in pharmaceuticals - drugs. There is nothin in this that indicates diagnostics or anything else. Diagnostics is a very differnt business from drugs.

keithwms · Feb 14, 2008

I see your point(s), it is a very different business, but Fuji is flush with cash at a time when the buying is good, so it looks like this makes sense for them. If a synergy emerges, then great; if not, well at least the film products have a greater chance of staying on the shelf.

There is a similar (but different!) case that I have mentioned here before, it's worth considering. RJ Reynolds is, without a doubt, making a profit at a time when their market is being forcefully shrunk. They aren't even allowed to advertise, consider that! What they are doing is aggressively pursuing the last market niches and consolidating what remains of that market. The enormous cash reserves that they are building by that strategy are being used for massive reinvestment in areas that have nothing at all to do with cigarettes.... e.g. pharma and medicine and such (ironically enough). The point is that even with the US cigarette market in net decline, it is possible for a company to gain market share and profit and support research... and to invest.

For the record, I visited Reynolds with a business school team from my university and will freely admit that I arrived at Reynolds holding them in great contempt for their product and the way they have treated their customers. I bit my lip for quite a while. But setting that aside, I left impressed by a very positive and creative business plan.

So.... in summary, I sincerely wish the very best outcome for researchers at Fuji. And Kodak. And Polaroid. And Ilford....

Photo Engineer · Feb 14, 2008

Let me give some concrete examples in this. Since pharmaceuticals need to be human consumable and compatible and photochemicals don't have to be, there must be an "Iron Curtain" between production areas. By this, I mean that a machine used to coat film cannot be used to "coat" a human contact item. You cannot blend a pharmaceutical in a blender intended for photochemicals and vice versa, so it involves creating a new clean lab isolated from the photo area.

In the US, you would be forbidden to manufacture cosmetics in a photo lab and vice versa. This is due to the possibilities of cross contamination, a very costly barrier to overcome before any R&D and production can begin. In fact, you have to virtually build a new plant.

I think you are all over simplifying these huge problem areas. It requres what ammounts to a separate plant before you can begin operations.

PE

keithwms · Feb 14, 2008

But Ron, the plants can be in different cities, even different countries.... My Volkswagen has parts from just about every country on this planet and is assembled (I think) in Mexico. What do I care, it gets 50 mpg.

In my area, I see the "traditional boundaries" between the basic sciences and engineering and the bio areas steadily vanishing. The workplace doesn't want technicians skilled in just one field, rather they want flexible people who can work in broader areas like... "energy." That's a funny one to me; I have a "traditional" degree. Who would have said ten or tweny years ago that they want a PhD specialized in "Energy".... what does that mean exactly?! But this is the trend I see. I see double and even triple majors and interdisciplinary degrees becoming a norm, and businesses taking on well-rounded students by the busload. People my age and younger no longer have the expectation that they will work in the same field for a lifetime; they expect to move around and work in different areas and perhaps retrain etc. I don't know yet if it's a good thing or a bad thing- it's just different. I think big industries like Fuji want diversity above all else, and the ability to pour resources into new, developing sectors at the drop of a hat. The most adaptable company survives. If a company has its own large inertia, it can by sheer market force cause other companies to conform to its practices... and government is less and less likely to get involved.

N.b. Ron, as you know, and I will openly admit, my perspective is 100% academic, so, take what I say with the requisite grains of salt. All I do is try to figure out what kinds of students the business world wants and try to prepare them for that as best they will let me.

Photo Engineer · Feb 14, 2008

Keith;

You are correct!

However, re-read some posts about using Fuji coating or making equipment to make pharmaceuticals. I think you missed that. You can only use the know-how, not the plant or equipment. So, again, I emphasize, you are correct, but the need for a new plant will drive up costs. This is just what Kodak found.

PE

MattKing · Feb 14, 2008

But PE (Ron):

Don't you agree that this might be the way to preserve and enhance the "know-how" - if you can make the knowledge useful in other endeavours, you can enhance the role of "Photo Engineer(s)".

Matt

Steve Smith · Feb 15, 2008

Photo Engineer said:
Let me give some concrete examples in this. Since pharmaceuticals need to be human consumable and compatible and photochemicals don't have to be, there must be an "Iron Curtain" between production areas. By this, I mean that a machine used to coat film cannot be used to "coat" a human contact item.

That is true. The areas we use to make our blood sugar detection strips are very high quality cleanrooms (as are all of our print rooms) with a controlled 5% humidity for all processes up to placing in sealed packaging.

The print machine which is actually owned by the customer is not allowed to be used to make anything else.

Steve.

Photo Engineer · Feb 15, 2008

MattKing said:
But PE (Ron):

Don't you agree that this might be the way to preserve and enhance the "know-how" - if you can make the knowledge useful in other endeavours, you can enhance the role of "Photo Engineer(s)".

Matt

Matt;

Very good Idea.

But, every engineer you take away from the photo product line is one less making photo product. And, right now people want Fuji to expand their Polaroid line. So, lets put everyone on the Polaroid and Pharmaceutical lines and shut down film? Is that what you suggest?

Now I know you will say "hire more people", but then you get two things, namely; lower profits due to increased payroll, and untrained people. It isn't as if you can go out on the street and hire a 'photo engineer'. That takes several years of training. No schools teach it. The closest is Chiba University in Tokyo.

PE

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