Tanabe Seiyaku Co. Ltd. 's planned merger with Japan's largest OTC player Taisho Pharmaceutical Co. Ltd. is yet more evidence—should anyone need it—of hard times in the Japanese pharmaceutical industry. A weak economy, increasing pressure on already falling drug prices, historically low R&D investment, and growing competition from foreign companies have left many Japanese players—for the most part highly dependent on the domestic market—struggling for survival. Despite cultural resistance to consolidation of any kind, local companies have no choice but to join forces. In March Mitsubishi Chemical Corp. 's Mitsubishi Tokyo Pharmaceuticals Inc. and Welfide Corp. agreed to merge and most analysts believe there will be more such activity to come.
Tanabe is Japan's tenth largest pharmaceutical company with 2001 sales of $1.5 billion. The mainstay of its business, accounting for...