[Editor's Note: This is the second part of a two-part series. Also see "Fujifilm’s Tender Offer for Toyama Chemical Begins (Part 1 Of 2)" - Scrip, 22 February, 2008. covered the specifics of the offer.]

TOKYO - Fujifilm Holding's recent tender offer for Toyama Chemical could have a big impact on Toyama minority shareholder Taisho Pharma, according to analysts who spoke to PharmAsia News. However, experts were torn over which of the three companies will benefit the most from the transaction.

Fujifilm is looking to expand into new markets as digital cameras have taken over the film industry, analysts said. The Tokyo-based company wants to enter the pharma industry because the healthcare sector has high growth potential, according to Morningstar research analyst Takao Goto.

"Fujifilm has emulsification and dispersion technology and they intend to combine that with Toyama Chemical's ability to develop drugs to create a new type of medication," Goto says. "I think that sort of outlook is the basis for this arrangement."

Although the arrangement is designed as a strategic alliance, Taisho may be perplexed by Fujifilm's move, Goto says. Taisho, the top over-the-counter drug company in Japan, formed its relationship with Toyama Chemical to develop new drugs, the Morningstar analyst said.

"This is just my personal view, but I think it's very possible that the three-way relationship, depending on the dynamics going forward, could change," Goto say. "In the long run, Fujifilm might be looking at taking over both Toyama and Taisho."

Goto says the takeover bid will probably go as planned.

"We welcome Fujifilm's proposal to use their in-house technology to help develop Toyoma Chemical's drugs," Taisho spokesperson Hiroya Hamano told PharmAsia News. "We're hoping that the capital alliance with Fujifilm will speed up drug development."

Hamano denies any possibility of Taisho being bought out by Fujifilm. "I don't know about that and have never heard of such a thing until now," Hamano said.

Toshihide Yoda, managing director of Lehman Brothers' equity research division in Tokyo believes Taisho wouldn't allow Fujifilm to buy them out.

"Taisho Pharma is the leading over the counter drug company in Japan and is a cash rich company," Yoda said.

Yoda finds Fujifilm's move baffling. "I think Toyama Chemical is a very unstable and difficult company to survive. Toyama Chemical can't carry the burden of its own research and development costs and their products, including the influenza drug T-705, have no assurance of making it to the market. They are a high-risk company. By having Fujifilm bring in capital, Taisho Pharma's finance stabilizes, and they get to shoulder a lower risk. Taisho Pharma is the one that benefits from this situation."

Yoda, however, says he can't comprehend Fujifilm's move, as Fujifilm probably didn't have to buy out a company that was partially owned by Taisho.

If Fujifim's intent was to buy out Taisho's prescription drug division, that would have been understandable, Yoda said. The cost to maintain the prescription drug operation, which includes the arrangement with Toyama Chemical, is becoming a burden to Taisho Pharma. But in this deal, Taisho Pharma is proposing to increase Toyama Chemical shares - not unload them - therefore the arrangement is puzzling, Yoda added.

"I don't know what synergy there is between Fujifilm and Toyama Chemical," Yoda says. "I don't think diagnostic imaging technology can be used that much to develop drugs. Fujifilm, sure, is in the medical equipment industry, but the pharmaceutical industry is a very different industry."

More M&A Activity in Japan to Come

Meanwhile, both analysts agree that more entrants to the pharma business are very likely.

"I think there will be more deals with companies crossing over industries and we'll see activity from foreign capital to invest in Japanese pharma," Goto says. "Many Japanese pharma companies are not that competitive when compared on a global level. For a foreign pharma company, doing an M&A with a mid- to small-size Japanese pharma would allow them to enter the Japanese market. The Japanese government is also hoping for the birth of a huge pharma company [here] that can be competitive on a global level."

- Yuriko Nagano (pharmasia@elsevier.com)

Fujifilm’s Tender Offer For Toyama Chemical Begins (Part 2 Of 2)

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