Fujifilm Focusing on Healthcare Market with SonoSite Purchase

Japan’s only manufacturer of camera-friendly film paper is entering a new realm of photography—ultrasound imaging.

Fujifilm Holdings Corp. is purchasing ultrasound equipment maker SonoSite Inc. for nearly $1 billion in an effort to boost its lifescience business and overtake General Electric Co. as the dominant supplier of portable ultrasound machines. Analysts believe the company chose wisely in acquiring SonoSite—the Bothell, Wash.-based firm bills itself as a world leader in bedside and point-of-care ultrasound equipment with a distribution network that covers more than 100 countries. In addition, SonoSite holds a 37 percent share of the global portable ultrasound market, a sector that is growing more than 10 percent annually, FujiFilm President Shigetaka Komori said.

“This transaction significantly accelerates Fujifilm’s full-scale entry into the fast-growing, hand-carried ultrasound equipment market,” Komori told reporters at a briefing in Tokyo, Japan, noting the global market for portable ultrasound machines is projected to reach 85 billion yen ($1.1 billion) in 2014 from 50 billion yen ($542 million) in 2009.

The SonoSite purchase also accelerates Fujifilm’s attempts to expand into the diversified but competitive healthcare market and wean itself off its dependency on photo film paper revenues. Recognizing the growth potential from an aging population in both Japan and the United States, Fujifilm has partnered with lifesciences companies domestically and internationally to fortify its healthcare and biopharmaceutical business. In November, the company negotiated an agreement with Tokyo-based pharmaceutical firm Kyowa Hakko Kirin Co. Ltd. to develop biopharmaceuticals, and it also has a deal with Indian pharmaceutical company Dr. Reddy’s Laboratories Ltd. to create generic drugs for the Japanese market—the world’s second-largest (surpassed only by the United States).

Executives of both Fujifilm and SonoSite claim the acquisition will enable the combined company to capture “significant growth opportunities” arising from new applications in point-of-care ultrasound diagnosis and treatment. Specifically, the new entity will be able to:
• Develop and produce products for both the point-of-care and traditional diagnostic markets;
• Drive the geographic expansion of point-of-care ultrasound devices (through a worldwide sales force and reciprocal distribution channels); and
• Accelerate the development and commercialization of next-generation compact, high-quality medical imaging devices.

“This transaction…will position ultrasonography as a strategic pillar for the future growth of our medical systems business, Komori said in a news release. “Beginning with the sales of X-ray films in 1936, Fujifilm gradually developed its business in the medical field. Since the release of the world’s first FCR digital X-ray diagnostic imaging system in 1983, the company has continuously pursued one central goal—providing easy-to-interpret, high-quality images at the medical frontline. We are confident that, together with SonoSite, we will further enhance our technological expertise to develop medical imaging devices that contribute to the improvement of medical diagnostics and care quality for patients worldwide.”

SonoSite President and CEO Kevin Goodwin said the acquisition would help his company “significantly accelerate” its international business and product development efforts, and better respond to doctors’ needs. “We believe the performance, size, ease of use, and cost-effectiveness of our products will drive further growth in existing ultrasound markets, and are opening new markets as they bring ultrasound visualization out of the imaging lab and to the point-of-care, whether at the patient’s bedside or the physician’s examination table.”

Fujifilm has agreed to pay $54 a share in cash for SonoSite, an offer that was 28 percent higher than the ultrasound manufacturer’s closing price of $42.24 when the deal was announced Dec. 15. Including debt, the acquisition is valued at $995 million.

SonoSite reported $75.7 million in third-quarter 2011 revenues, a 10 percent increase compared with the $68.5 million the firm generated in the same period of 2010. During the first nine months of 2011, revenues jumped 18 percent to $219.5 million, according to the company’s most recent earnings report. Sales in North America were particularly robust, with revenue swelling 24 percent in the third quarter and 19 percent during the first nine months of last year.

British investment bank Barclays Capital is the financial advisor for Fujifilm, while Shearman & Sterling LLP is acting as legal counsel. SonoSite has retained J.P. Morgan Securities LLC and GCA Savvian Advisors LLC as its financial advisors and Fenwick & West LLP as its legal counsel.