ANALYSIS : Kodak Makes Its Move Into Biotechnology With Sterling

“We are actively pursuing acquisitions in the pharmaceutical field,” Kay R. Whitmore, president of Eastman Kodak Co., said in a recent interview.

On Friday, that pursuit ended as Kodak, the world leader in photography, agreed to acquire Sterling Drug Inc. for $5.1 billion.

Why does the company that invented the snapshot want to buy a pharmaceutical firm? Because Kodak wants to build a whole new business in biotechnology, the industry with almost limitless potential to change human medicine, agriculture and industry. Kodak already has roughly $250 million invested in biotech, mostly in backing research of small companies.

But it is buying Sterling, a company with almost $2 billion in sales of prescription drugs as well as off-the-shelf products like Bayer aspirin, because it wants Sterling’s sales network and the benefit of its long experience in getting new drugs through the Food and Drug Administration.

Lots of companies, American and Japanese, are scrambling to enter biotech, of course. But Kodak’s reasons for doing so tell you a lot about the long-term thinking at a company trying to assure its future and about the long-term consequences of missing a technological turn, as American industry did when it gave up on consumer electronics.

Kodak, a company with roughly $13 billion in sales annually, is already diversified in activities that stem broadly from its film business--chemicals, copying machines, X-rays and blood analyzers. But it is going into biotechnology, a complete departure from its basic business, because Kodak sees a long-term threat.

Though film photography continues to grow strongly--with Kodak film taking more than half of the world’s 42 billion pictures a year--the company sees electronic, or video, photography one day cutting into the market. Electronic photography takes pictures with videotape, as a television camera does. It is decades away, say most experts, from invading Kodak’s domain--the still picture market.

But Kodak can see it coming. “We felt we wanted another business opportunity,” said Whitmore, 56, a chemistry graduate of the University of Utah. “When technological change challenges your basic business, you protect that area and look for new things.”

Then why doesn’t Kodak simply go into video?

Because it’s a different industry. “We don’t want to be in television sets and audio recorders,” said Whitmore, explaining that, unless a company is in the hard-fought and thinly profitable TV set business, it doesn’t develop the know-how to make advances in videotape and videocassette recorders. That know-how has belonged to Sony, Matsushita, Toshiba and others since the early 1970s, when much of U.S. industry saw few possibilities in radios and TV sets.

Including Kodak, in a way. In the early 1970s, a Kodak subsidiary that made magnetic heads for electronic data storage came up with an early, experimental VCR. But the company, devoted since the days of founder George Eastman to developing low-priced cameras for the mass market, believed that people wouldn’t buy such an expensive product and didn’t pursue it. So now Kodak keeps up with changing technology by selling Matsushita’s video cameras and TDK’s videotape, but it’s too late for more of an effort. “That ship has sailed,” Whitmore said.

Biotechnology, on the other hand, is in its infancy, meaning that Kodak, which already gets $1 billion in sales from health care, can develop products and know-how as well as any other company.

“We felt we had an opportunity with our research and chemical manufacturing base to enter this new technology on even terms with the major pharmaceutical companies, like Merck,” Whitmore said just a few weeks ago. “We’re in the process of creating a research capability in biotechnology and in traditional pharmaceutical research as well.”

The late George Eastman would probably approve. As he told Kodak’s managers in 1926, “The world is moving, and a company that contents itself with present accomplishments soon falls behind.” With the Sterling acquisition, Kodak is taking a big step in following his advice.