Roche and Chugai have entered new dealmaking territory. This is the first time a Western company has taken over a Japanese counterpart in one go, and on a friendly basis. The deal grants Chugai enough independence for it to save face, while allowing Roche to leapfrog into the top ten in Japan. As such, the deal should in theory provide a template for others. But in Japan few CEOs are as open-minded as Chugai's leader. Equally, few Western companies can boast Roche's aptitude for arm's-length management.

Germany's Schering AG is betting it can crack the US market using a franchise of smaller products, rather than relying on a single blockbuster. It reckons this strategy--which few have used before--is best suited to its size and strengths.

Most western drug firms have shunned the Japanese market, regarded as highly problematic. But short on new products and with diminishing returns on investment at home, many are now taking a fresh look at the world's second largest health care market.

Two of Japan's largest pharmaceutical companies, Tanabe Seiyaku and Taisho Pharmaceutical, are merging in response to hard times in the Japanese pharma industry. Their union, which will take at least a year to complete, will create a combined company with $4.3 billion in sales, ranking it third in Japan in revenues. The move won't solve both companies' weak pipeline problems, but it will increase their total R&D budget and give them more sales clout in the domestic market. And as many Japanese pharma companies struggle for survival, analysts believe more merger activity is inevitable.