A68 That is not the only thing that is needed. The Japanese pharmaceutical market is valued at about 6.7 trillion yen and is the world's second-largest market after the United States. Yet, over the past 10 years, the market has remained flat because the aging of Japan's population has led to a massive and ongoing rise in the cost of national medical expenditure, which now exceeds 30 trillion yen annually. Since the fixing of drug prices has kept the overall cost of pharmaceuticals low, medical expenditure cannot be expected to rise to adequately cope with the growing number of elderly people without industry realignment. Thus, to survive in a market that is not growing, companies have to rationalize their activities and either merge with, or acquire, other companies. In addition, Japan's domestic pharmaceutical manufacturers face another significant problem: Between 2008 and 2011, the patents on their main products will expire. After a patent expires, the market is flooded with generic dru
gs that are made of the same compounds but often priced between 30% and 80% below the cost of the patented drug. This could completely change the industry landscape. Up to now, the major companies have introduced new drugs before patents on their main products have expired, and have thereby managed to maintain their levels of sales. However, it appears unlikely that the drugs currently being developed will become blockbusters to the extent that new drugs did in the past.


The dilemma of the pharmaceutical companies is that, if they don't develop new drugs, their sales will decline. Yet, developing one new drug costs some 50 billion yen. As a result, companies are trying to merge to secure new-drug development funds.