FUJIFILM Holdings Corp, faced with dwindling demand for photographic film, forecast profitability at its medical business will rise, helped by new drugs developed by subsidiary Toyama Chemical Co.
"Toyama Chemical will introduce two or three new drugs in the next two to three years, which will improve our profitability," Fujifilm president Shigetaka Komori, 68, said in an interview with Bloomberg Television. "Drugs aren't commoditized items."
Komori forecast the medical division may contribute 150 billion yen (US$1.45 billion) to annual operating profit in 10 years as Fujifilm expands in the 77-trillion-yen global pharmaceutical market to counter losses from film and camera-related products.
Komori is counting on Toyama Chemical, which has lost 12 billion yen in the past five years, to help spur earnings through new drugs such as a potential treatment for bird flu.
Lack of funds
"Toyama Chemical used to license its drug candidates in the early stages to make up for a lack of funds, a sort of bargain sale of intellectual property," said Hisashi Moriyama, a Tokyo-based analyst at JPMorgan Chase & Co, who rates Fujifilm "outperform." "With Fujifilm's backing, the company doesn't have to do it any more, and profitability is expected to rise."
Sales at Fujifilm's medical division will triple to about 1 trillion yen and generate an operating margin of 15 percent in 10 years, Komori said. Revenue from Tokyo-based Fujifilm's medical business, including X-ray machines and endoscopes, totaled 290 billion yen last fiscal year.
Fujifilm, which currently doesn't break out medical earnings from the information unit, has dropped 20 percent this year, compared with the 8.5-percent decline by the benchmark Nikkei 225 Stock Average.
Still, the 15-percent operating margin would be below profitability levels at Takeda Pharmaceutical Co, Japan's largest drug maker, which had a 31-percent profit margin last fiscal year on sales of 1.37 trillion yen. Astellas Pharma Inc, the second biggest, had a margin of 28 percent.
Fujifilm said on February 13 that it will buy 66 percent of Toyama Chemical for 130 billion yen, or about US$1.3 billion. Toyama Chemical earned operating profit of 948 million yen last fiscal year.