The Japanese Pharmaceutical Industry in Transition: Has Higher Research Orientation Resulted in Higher Market Value?
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The Japanese Pharmaceutical Industry in Transition: Has Higher Research Orientation Resulted in Higher Market Value? Jo¨rg Mahlich Austrian Economic Chamber, Wiedner Hauptstr. 63, 1045 Vienna, Austria. E-mail: [email protected]
We analyze here the determinants of market value for 34 listed Japanese pharmaceutical companies between 1987 and 1998. During this period, Japanese pharmaceutical firms increased their investments in basic R&D in the process of preparing for international market expansion. We provide evidence that international patents significantly contribute to a firm’s market value, expressed in Tobin’s q, while publications in the scientific literature do not contribute to this value. In contrast to earlier studies on the US pharmaceutical industry, such as Gambardella (1992), our findings also suggest that in Japan a firm’s publications and patents are not inter-related. Asian Business & Management (2007) 6, 75–94. doi:10.1057/palgrave.abm.9200206 Keywords: pharmaceutical industry; Tobin’s q; R&D strategy; Japan
Introduction The Japanese pharmaceutical industry exemplifies the nation’s general drive towards a dominant global standard, a model characterized by high research intensity and high innovative readiness. Pharmaceutical companies that do not follow this lead are destined to forfeit market power. This trend emerged in the late 1980s, up till when Japan’s pharmaceutical firms found themselves in an ideal environment for their immediate intents and purposes. Protected from international competition, these firms were able to charge excessive prices for products for which there would be little or no demand on a global scale. The regulatory regime made the pharmaceutical industry by far the most profitable activity in Japan at the time (Odagiri and Yamawaki, 1986). However, times have changed, as the Japanese government has successfully reduced prices for pharmaceuticals and reduced entry barriers for foreign firms. As a result, Japanese companies have witnessed a dramatic decrease in their domestic
Received 12 January 2006; revised 4 May 2006; accepted 21 June 2006
Jo¨rg Mahlich The Japanese Pharmaceutical Industry in Transition
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market share. To offset this trend, they have started to redefine their strategies towards a higher degree of internationalization. However, striving for internationalization is easier said than done, since global pharmaceutical markets are intensely science-based and competition is mainly driven by innovative new drugs offering additional value to patients. The Japanese regulatory regime, however, has favoured incremental innovation and thus local firms had only limited experience with research excellence. Moreover, it was all too often good personal relations with the health authorities that secured fast-track approval of new drugs in Japan, thereby giving Japanese firms a competitive edge over foreign rivals. Success factors in international markets have been totally different. Consequently, it has been difficult for most Japanese pharmaceutical companies to na
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