This paper has discussed the strategic response of Japanese pharmaceutical firms to the major challenges of the 1980s and 1990s, namely harmonization of the institutional framework and increased cost consciousness in Japanese health policy. We have argued that Japanese firms reacted with considerable investment in the intangible capital required to build up the scientific competence needed for a successful presence in global markets. R&D investments were associated with international market expansion to compensate for declining domestic sales.
In an empirical exercise, it was shown that such efforts have only partly been rewarded in financial markets. While the patent stock had the expected positive impact on a firm's Tobin's q, scientific journal publications were negatively correlated with a firm's market value. This result was explained by possible path dependencies aggravating the diversification of a firm's knowledge base. Although efforts towards the acquisition of long-term absorptive capacity have not fully been rewarded by financial markets, Japanese pharmaceutical firms had no alternative. Thus, the future will certainly bring no reversion of the observed development.