Ranjith Gopinathan, program manager of life sciences and healthcare practice at Frost & Sullivan, adds, "Strongly backed by the government, the generics market is encouraged by initiatives such as relaxing registration procedures and providing incentives to doctors prescribing them over branded drugs."

Interestingly, foreign presence has reshaped the business strategies of domestic players. Jamie Davies, head of pharmaceuticals and healthcare at Business Monitor International, says, "Typically, Japanese pharmaceutical companies are conservative in nature and focus primarily on the domestic market and have limited exposure in less developed states. However, the dual effect of patent expiries and reduced research productivity has forced them to increasingly look abroad for sales growth. As a result, several are looking to emerging markets to generate new growth."

Domestic companies have started to forge strong links with international firms and foreign markets. All the leading Japanese firms derive around 40% of their revenue from overseas markets, mainly the US, although exposure to emerging markets is increasing, adds Davies. In October 2010, Takeda Pharmaceutical in Tokyo announced plans to form alliances with Indian companies to sell its patented drugs and to offer basic business services.

Of course, there are exceptions. Recently, Eisai, based in Tokyo, has shifted its focus back to East Asia, citing the region's enormous potential, especially now that the Japanese market is becoming attractive again thanks to government initiatives. Likewise, Sawai Pharmaceutical in Osaka is concentrating on the Japanese market and exploring partnerships with larger pharmaceutical companies to expand its therapeutic range.

Thomas adds, "From a portfolio perspective, Japanese pharmaceutical companies will put their focus on speciality pharma, oncology, and biological platforms. This acquisition activity will gain momentum as a strategy for market entry and portfolio expansion." Although domestic firms control 66% of the Japanese pharmaceutical market share, the market remains attractive to foreign big players for its lower risk and exposure compared with other markets. In fact, a Bloomberg source indicates that the prominent companies are doing quite well. Pfizer grew Japanese sales to $7.3 billion last year and GlaxoSmithKline figures were up by 28% in the same year. Large-scale companies are well-positioned due to their strong late-stage pipelines and aggressive launch objectives to continue to grow over the next two to three years. On the other hand, smaller-scale players with no presence in Japan may have to opt for out-licensing or partnering to maintain growth.

Jane Wan is a freelancer writer based in Singapore