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Fujifilm pictures new pharma-heavy identity with Avigan

Looming end to Xerox tie-up strains push into health care

Fujifilm Chairman and CEO Shigetaka Komori has been a driving force behind the transformation of the company. (Photo by Akira Kodaka)

TOKYO -- Propelled by the wave of keen interest in promising treatments for the coronavirus, Fujifilm Holdings is ready to shed its image as a camera film and copier maker and become known as an operation centered on health care.

The company announces its results for the year ended March on Friday. Market watchers are particularly interested in any comments regarding the flu drug Avigan, one of the most-talked-about candidates to treat COVID-19.

"We are at the point where health tech, not office documents, becomes the primary factor for Fujifilm's valuation," said analyst Masahiro Ono of Morgan Stanley MUFG Securities.

The Japanese government aims to approve Avigan as a COVID-19 treatment by the end of May, despite birth defects as a potential side effect and recent reports casting doubt on its effectiveness against the new coronavirus. Fujifilm is expected to file an application soon.

Preparations to boost output are underway. Fujifilm is working with 15 or so companies to produce enough doses for 100,000 patients a month by July, up 150% from March. The Japanese government has allocated 13.9 billion yen ($129 million) in its supplementary budget to expand its stockpile of Avigan so that there is enough to treat 2 million patients.

With the world abandoning film cameras for digital alternatives, Fujifilm bet on drugs and medical equipment to drive its rebirth. It has actively acquired players like Toyama Chemical, now Fujifilm Toyama Chemical, and will complete the acquisition of Hitachi's image-diagnostics business by July.

Competition in the field has been fierce. Fujifilm spent 92.6 billion yen on capital investment and research in its health care and material solutions business in the April-December period -- about 80% the segment's operating cash flow, which came to 118.2 billion yen for the period. Support from other operations is critical.

But Fujifilm's mainstay document solutions business faces heavy headwinds. The division is currently run by Fuji Xerox in partnership with U.S.-based Xerox. This tie-up expires at the end of March 2021, meaning that the unit will be renamed Fujifilm Business Innovation and no longer be able to use the Xerox brand.

To prepare, Fujifilm had been negotiating with original equipment manufacturers to expand into the European and U.S. markets. But market watchers believe that use of copiers and similar equipment will shrink over the medium to long term -- a trend only expected to accelerate as people work from home during the pandemic. It is unclear whether Fujifilm can demonstrate a clear path forward for its core division over the rest of this fiscal year.

As of early February, Fujifilm projected a 5% increase in operating profit to 220 billion yen for the year through March on a 3% drop in revenue to 2.37 trillion yen. But the company is now expected to log a decline in operating profit, with sales of copiers and Instax instant cameras both down as people stay home.

Meanwhile, Fujifilm stock has traded at around 5,000 yen since touching a 10-year high of 6,420 yen in intraday trading April 6. Ono on May 12 raised the price target to 6,500 yen while adding a 30% premium on the average enterprise multiple among copier manufacturers.

A Fujifilm unit recently announced that it will set aside drugmaking capacity for the COVID-19 Therapeutics Accelerator, an initiative launched by the Bill & Melinda Gates Foundation and others to speed the efforts against the pandemic. The idea is for the unit to quickly start mass-producing future treatments. But first, the parent will need to ensure that has enough cash to meet expectations.

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