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Business

Fujifilm sees health care profits in Ebola crisis

TOKYO -- The stock market is favorably responding to a promising product from Fujifilm Holdings' health care business, which the firm hopes to develop into its next cash cow.

Avigan, an influenza drug developed by Fujifilm group company Toyama Chemical, could be effective against Ebola.

     As the deadly Ebola virus disease which started in West Africa spreads to other parts of the world, Fujifilm Holdings' stock continues to surge -- as of Oct. 24, it was 21% higher than at July-end, in sharp contrast to the 2% drop of the Nikkei Stock Average amid the uncertain global economy.

     The rise in stock price was largely due to the reported use of the drug Avigan as a treatment for a patient infected with the Ebola virus. Based on results of experimental use on animals, it has been reported that the anti-influenza agent, developed by Fujifilm's group company Toyama Chemical, could also be effective against Ebola.

     Although the drug has not yet been approved as an Ebola drug by any national regulatory agencies, the World Health Organization has permitted it to be given to some patients in Europe.

    As a result, in line with increased reports of Ebola infections since August, Fujifilm's stock price started to jump.

    On Oct. 21, Fujifilm's shares rose following the announcement the previous day of a decision to increase production of Avigan. On Oct. 24, when it was reported that a New York doctor who came back from West Africa tested positive for Ebola, the stock again went up, this time by 2.5%.

     Fujifilm has been intensively investing in its health care business since the 2000s in a bid to make up for quickly declining photographic film and printing paper business. Chairman and CEO Shigetaka Komori said that it was a crisis that might result in the loss of the firm's core business.

     As part of its turnaround initiative, the company bought Toyama Chemical for a little over 130 billion yen in 2008, hoping to make a full-scale entry into health care business.

No cash cow yet

However, medical products have yet to generate a profit for the company, and it is still waiting to see if drugs will really spur the growth of the entire health care division.

    Currently, Fujifilm's health care business has three main offerings -- medical devices, drugs and cosmetics/supplements. Sales for the fiscal year ended in March 2014 have risen 13% on the year to 382 billion yen ($3.51 billion), a little below 20% of total sales. The company, however, has an ambition to earn as much as 1 trillion yen from its health care business in fiscal 2018.

     One concern is that drugs that require hefty research and development spending continue to post losses. Profits from advanced medical devices, including X-ray diagnostic imaging units and endoscopy equipment, have been offsetting the losses.

     Both the market and health care stakeholders are increasingly pinning high hopes on Avigan as a treatment for Ebola. However, the future of the drug may not be as rosy as they expect.

     First, Avigan has not been designated as primary medicine for influenza in Japan, despite the fact that its production and distribution was approved by Japan's health ministry. Avigan is meant to be administered only after existing influenza drugs such as Tamiflu are found to be ineffective.

     Secondly, it is unlikely to bring huge profits to the company, if it is used to cure Ebola. According to Nomura Securities analyst Tetsuya Wadaki, Avigan is expected to generate an annual profit of around 1 billion yen in the current fiscal year and thereafter, compared with the firm's projected fiscal 2014 group operating profit of 160 billion yen.

     Fujifilm plans to release a new midterm management plan soon. To achieve sustainable growth in its share price, it is crucial for the company to present a feasible plan for growth, such as more merger and acquisition deals.

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