As for the Fujifilm-Merck deal, it gets Merck out of the contract biologics business. Merck will retain some upside in the deal according to Willie A. Deese, evp and president, Merck manufacturing division, as it continues to hang on to potential revenues with Fujifilm as a customer.
By all reports, although unconfirmed by Fujifilm, the deal cost $490 million for Merck’s business, which had estimated annual sales of about $160 million. The acquisition marks Fujifilm’s biopharmaceutical contract manufacturing debut but its second deal in the area of drug R&D. The company is likely targeting this industry in an attempt to counteract rapidly waning demand for its photo film and paper business. Fujifilm reported a decrease of 16% last year in the sales of digital cameras, color films, and imaging solutions.
The company has said that it plans on tripling its size over the coming decade and moving into a highly profitable and growing market. The market for drugs and biologic vaccines is projected to increase at a rate of 15% each year in the coming decade. Fujifilm initially entered the pharmaceutical business by buying a majority stake in Japan’s Toyama Chemical that makes over-the-counter products but whose main draw is an experimental avian influenza medicine, T-705. Toyama became a consolidated subsidiary of Fujifilm in March 2008.
While some analysts think the deal for Merck’s biomanufacturing businesses is a risky bet, others say it provides a lifeline for Fujifilm’s sinking financial fortunes. “Fujifilm is planting seeds in healthcare for future growth as its existing digital cameras and film material businesses are dwindling,” said Kogo Horie, an equities analyst at Daiwa Securities Group, in Businessweek. “The purchase makes sense.”