Toyama acquisition shows Fujifilm's pharma ambitions

Toyama, a medium-sized Japanese drug company whose core business is over-the-counter (OTC) products but whose main draw is an experimental avian influenza medicine, T-705, will become a consolidated subsidiary of Fujifilm as of 26 March 2008. Last month Fujifilm announced a tripartite agreement with Toyama and its largest shareholder/joint venture partner, Taisho Pharmaceutical, on a "strategic business alliance"​ under which, through a series of share transactions, Fujifilm and Taisho will eventually own 66 per cent and 34 per cent respectively of Toyama. In line with this agreement, Fujifilm now intends to acquire the rest of Toyama's shares and, by early 2009 at the latest, sell some of them on to Taisho so that the 66/34 ownership split can be realised. Following the tender offer, Taisho's stake in Toyama came to 24.13 per cent of the latters voting rights. Fujifilm purchased 132,864,533 Toyama shares in the tender offer at 880 yen apiece, giving a total cost of 116,92m yen ($752.5m). Previously Fujifilm had acquired 28,990,000 new shares issued by Toyama in a third-party allocation at 683 yen per share, for a total cost of 19,800m yen. The companys move to diversify out of its traditional base in photographic equipment, as sales flag in the face of digital technology, and to build on the established capabilities of its Medical Equipment/Life Sciences Business (e.g., endoscopes, X-ray imaging) is an expensive one. The tender offer was at a 39 per cent premium to Toyamas closing price the day before the agreement with Fujifilm and Taisho was announced. This has prompted questions about why Fujifilm would want to pay so much for a middling drug company that recorded a 5,797m yen operating loss in the year ended 31 March 2007 and whose activities are mostly confined to the domestic market. Other analysts were more positive, though, and Fujifilm sees the acquisition as the third strand in a strategy to position itself as a "comprehensive healthcare company"​ running the gamut from diagnosis to prevention to treatment of disease. The first of these areas has until now been the focus of business development in the Medical Systems/Life Sciences unit, while Fujifilm has started to make some forays into prevention by entering the functional foods and functional cosmetics sectors. Toyama will be the treatment part of the equation, although Fujifilm already runs a radiopharmaceuticals business and has a fine chemicals unit supplying pharmaceutical intermediates. Toyamas research and development efforts are focused on anti-infectives (a particular speciality), anti-inflammatories and cardiovascular/cerebrovascular therapies. Apart from the aforementioned bird flu compound, the companys drug pipeline includes the antirheumatic agents T-614 and T-5224, the oral quinolone antibacterial T-3262, and T-817MA for Alzheimers disease. One vote of confidence in that pipeline was the licensing agreement struck by Toyama and Roche in June 2007 for the worldwide research, development and commercialisation of T-5224, an Activator-Protein-1 inhibitor now in Phase II clinical trials. Roche agreed to pay up to $370m (240m), plus potential future royalties, for exclusive rights to the then Phase I compound outside Japan. T-705, described as a unique viral RNA polymerase inhibitor that acts on viral genetic copying to prevent its reproduction, is now in Phase II trials and Fujifilm believes it could be on the market by 2009. Phase I clinical trials were launched in the US in March 2007. With an avian influenza pandemic expected to hit as much as 25 per cent of the worlds population, some analysts believe T-705 could bring in global sales of up to $800m. Fujifilm also plans to bolster Toyamas drug development pipeline and reduce clinical trial timelines by applying the core technologies it has accumulated over the years through its photography business, such as diagnostic imaging, nano-level emulsification and diffusion, precision synthesis, collagen/gelatin technologies and radioisotope-labelled antibodies. The new owner also brings to the table formulation, targeting and delivery technologies for breaking down ingredients to more manageable consistencies, protecting then against dissolution or triggering optimally timed breakdown/absorption. Annual sales of Fujifilm's Medical Equipment/Life Sciences Business currently stand at around 300bn yen, a figure the company wants to boost to 1 trillion yen within 10 years.