Some 17 years ago, Merck rocked the Japanese pharmaceuticals industry by buying a controlling stake in Banju. The 1983 manoeuvre by the US company was a daring attempt to prise open the lucrative, but elusive, Japanese drugs market.

Its audacity has not been repeated. Since then, in spite of oft predicted foreign-led consolidation, there has been nothing to compare.

Foreign companies have instead engaged in a patchwork of sometimes fractious alliances with Japanese companies. Alternatively, like Pfizer, they have sought to build up a presence through wholly-owned subsidiaries.

Yet in recent months, several foreign companies, including Bristol-Myers Squibb of the US and AstraZeneca of the UK, have begun quietly sounding out possibilities. Once again, the talk in Tokyo is of possible mergers and acquisitions.

But is M&A talk realistic? As old hands point out, such rumours are not new. For years now, people have been talking about the necessity for consolidation - but so far little has happened.

There are tentative signs this may be changing. Last year, Boehringer Ingelheim acquired a 36 per cent stake in SSP, while Schering took over the tiny Mitsui Pharma.

Welfide, itself the product of a merger, has provisionally agreed to merge with Mitsubishi Tokyo Pharmaceuticals, although the deal has yet to be completed. It has gone so far AS to say that, if it merges again, it will be with a foreign company.

Some investment bankers, perhaps as much in hope as conviction, insist these are signs of real change. One or two of the bigger ones have established fully-fledged healthcare teams.

Certainly, as Japan opens its pharmaceuticals market to an increasingly competitive global industry, its companies will find it difficult to remain aloof from international consolidation.

By almost any measure, Japanese companies are lagging their most successful international peers.

Even Takeda, by far the biggest Japanese company, only just sneaks into the global top 20. Shionogi and Yamanouchi, mighty by local standards, come well down the international pecking order.

Western pharma companies have their own reasons for investing in a Japanese partner, although it has become easier for them to operate subsidiaries capable of attracting the best Japanese talent. Nonetheless, even the most successful underperform in Japan relative to their international standing, losing hundreds of millions of dollars in potential revenues.

Japanese research is also a largely untapped resource. Tachi Yamada, the Japanese-American R&D director of GlaxoSmithKline, speaks passionately about the quality of Japanese science. His company has recently scrambled to license as many Japanese drugs as possible.

And Japanese companies are cheap, says Mitsuo Ohmi, industry analyst at JP Morgan, even allowing for a 50 per cent premium. Apart from Takeda, few have a market capitalisation of much more than $10bn, with many much smaller than that. By contrast, Pfizer is capitalised at about $250bn.

What is more, the financial crisis has made companies more vulnerable to takeover, says Kenji Masuzoe, analyst at Goldman Sachs in Tokyo. As banks have unwound their cross-holdings in pharmaceutical companies - one of their few profitable investments - foreign institutions have grabbed a larger slice.

Foreign shareholders own about 40 per cent of Yamanouchi and Chugai and about 30 per cent of many other companies. Some, including the troubled Sankyo, have received polite, behind-the-scenes inquires from foreign companies. In 1999, Asahi Chemical Industry was on the verge of selling a big stake in its pharmaceuticals division to SmithKline Beecham before SB scaled back its Japanese plans to merge with Glaxo Wellcome.

Few observers are predicting hostile takeovers any time soon. "I can't think of any company which is ready to step into the Japanese market in a hostile fashion," says Osamu Nagayama, president of Chugai. "The people who run them are much smarter." Hatsuo Aoki, president and chief executive of Fujisawa, agrees that foreign companies are likely to make a more subtle approach.

"They understand the Japanese culture is different from the more aggressive American way and so they come softly softly," he says. "But that might change."

The thought of foreign ownership remains anathema to many executives. "People are still grappling with the idea that western firms want to buy what have often been family-owned businesses for 100 years," says an M&A specialist.

Nor do many companies, even those in the second tier, feel much need to merge. Even though their profitability badly lags international norms, Japanese pharma companies are doing well by the standards of other local industries.

Many enjoyed a surge in share prices last year, and continue to eke out a reasonable profit from a stable of old drugs. That could change if the new pricing scheme, due to start next year, begins to discriminate against older drugs. The outcome of a current review on pricing could determine the pace of consolidation.

In the meantime, says John Wilson, an analyst with HSBC in Tokyo, most Japanese executives, many with a good share-price run behind them, are not feeling under pressure.

"Their managers are patting themselves on the back," he says. "Their share of the market will whittle away over a very long period. There will be no sudden crunch."