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Audacious makeover helps Fujifilm put best face forward

A general view of the Fujifilm booth at the 2014 International CES at the Las Vegas Convention Center on January 7, 2014 in Las Vegas, Nevada.
David Becker | Getty Images
A general view of the Fujifilm booth at the 2014 International CES at the Las Vegas Convention Center on January 7, 2014 in Las Vegas, Nevada.

As fears grew over a widening Ebola outbreak in west Africa, it was an unlikely company to which the world turned for help: Japan's Fujifilm.

A newcomer to the pharmaceutical industry, the Japanese rival of Eastman Kodak was thrust into global spotlight when its anti-influenza drug emerged as a potential treatment for Ebola patients.

"If requested, we are ready to quickly produce mass amounts," said Shigetaka Komori, Fujifilm's chief executive.

The drug, called Avigan, helps block replication of viral genes within an infected cell, and was approved in Japan in March to treat influenza. Researchers have hopes it can work for a range of other diseases including Ebola, West Nile and Marburg virus.

This month, a French nurse recovered from Ebola after being treated with Avigan, and the French and Guinean governments will begin clinical trials of the drug to treat Ebola from November.

Read MoreHow Ebola can quickly mutate: 'Hot Zone' author

The company has a stockpile to treat 20,000 people and said this week that it will ramp up production from next month to meet overseas demand.

Shares in the company are up 16 percent since the first week of August, when news of the drug's wider potential emerged.

Fujifilm's venture into medicine was part of a corporate makeover that began when its analogue film business crumbled with the advent of the digital age. Global demand for photo film peaked in 2000 and the market shrivelled to one-twentieth of its heyday by 2013.

It was that year that Mr Komori, now 75 years old, became Fujifilm's president and bulldozed through the radical – and often painful – changes that have proved vital for its survival.

Under Mr Komori, Fujifilm branched out into pharmaceuticals and cosmetics, which helped to cushion the fall of its photo film sales.

Read MoreTrial Ebola vaccine set for January rollout in West Africa, WHO says

In a reversal of fate, Kodak, the US arch-rival that Fujifilm had frantically chased after in the postwar period, filed for bankruptcy two years ago, unable to keep up with the industry's changes.

Fujifilm's audacious transformation is now an often cited case study for executives looking to diversify their businesses. The company's nimble turnround also trumped Japan Inc's reputation for slow restructuring, underscored by Sony's decade-long entrapment in layoffs and cost cuts.

"You have to do it at one go. Or else it will take time and the wound will keep getting bigger," Mr Komori said in an interview.

Mr Komori carried out two major rounds of restructuring, one begun in 2006 to offset the decline of its photo film business and another from 2009 in the wake of the global financial crisis. That led to the loss or replacement of 10,000 jobs and a combined restructuring charge of more than Y350 billion ($3.3 billion).

"Who's going to oppose when the boat is about to sink? It's better than sacrificing the entire company," he says.

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In choosing new growth drivers, Mr Komori focused on six areas where Fujifilm could apply its existing technology and in which it was likely to remain competitive over time.

With cosmetics, the company utilised its knowledge of collagen – a material used to stop film deteriorating, a job it does similarly on skin. Its anti-oxidation technology to prevent fading in photos was used to create an anti-aging skincare product line called Astalift.

Fujifilm flopped in its first foray into pharmaceuticals in the mid-1980s – when it was still thriving on hefty film sales. For its second try, Mr Komori took a shortcut: a $1.4 billion deal in 2008 to buy loss-making midsize drugmaker Toyama Chemical.

"You don't start climbing Mt Fuji from the base, but you start from the 5th station," Mr Komori says, referring to the midway point where the hiking course for the summit starts.

By improving the production efficiency of plants, Fujifilm turned Toyama Chemical profitable three years after its purchase. In addition to the anti-influenza drug Avigan, the company is also developing a drug to treat Alzheimer's disease.

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Fujifilm's healthcare business – which includes medicine, cosmetics and medical equipment – now generates 16 percent of its total revenue of Y2.4 trillion, its second-biggest division following copy machines and office products.

Photo films make up less than 1 percent. By 2018, the company, which has a market capitalization of $16 billion, aims to nearly triple healthcare sales to Y1 trillion.

Still, Mr Komori admits his blueprint for corporate rebirth is only 75 percent complete. Operating profit and revenue of 32 percent and 14 percent, respectively, are below a previous peak in the fiscal year through March 2008.

Fujifim's overseas sales ratio is below 60 percent, a figure Mr Komori wants to raise to 80 percent in five years. Considering its vast product portfolio, analysts say the ratio is still too low and that Fujifilm will need to increase sales of office equipment in other parts of Asia.

"From the outside, progress appears to be a little over 50 percent," says Nomura analyst Tetsuya Wadaki. "Mr Komori will need to push through until the radical transformation he's envisioning becomes more concrete."