Eli Lilly Turns to Japan

The U.S. has long been the promised land for pharmaceutical companies. The U.S. features many plusses for drug makers, including its status as the lone market among developed countries that doesn't regulate prescription drug prices, high drug utilization among the public, and easy flow of capital. The combination of positive factors has attracted resources from around the globe, as seen in European drug giants such as GlaxoSmithKline (NYSE: GSK) and Novartis (NYSE: NVS) moving their research headquarters to the U.S.

In light of recent events, though, one might question whether the U.S. is so great for pharmaceutical giants. Merck (NYSE: MRK) probably faces huge liability costs from the Vioxx issue. The general public and the payors that foot the bill for medicines have been increasingly unhappy about drug prices. Meanwhile, the Food and Drug Administration will likely be more cautious than ever in approving new treatments given the post-approval revelations about Vioxx, Pfizer's (NYSE: PFE) Celebrex, and BiogenIdec (Nasdaq: BIIB) and Elan's (NYSE: ELN) Tysabri.

All of these developments make Eli Lilly's (NYSE: LLY) plan to double its sales in Japan seem like a wise move. Reuters reported earlier this week that the company intends to increase promotion and drug launches over the next six years. Eli Lilly's goal is to double its sales from approximately $646 billion to more than $1 billion by 2010. It's clear that the firm has room to grow: The $76 billion Japanese pharmaceutical is the second largest in the world, and even if it meets its 2010 goal Eli Lilly will control just 2% of the market.

For now, Eli Lilly's efforts seem fairly modest. However, given the disruptions in the U.S. market, more aggressive moves in Japan may be possible. What's more, regulatory changes in Japan should allow foreign companies to more easily acquire domestic Japanese firms. Eli Lilly's renewed focus on Japan could be just a beginning.

Fool contributor Brian Gorman is a freelance writer in Chicago. He does not own shares of any companies mentioned in this article.