Otsuka, one of Japan's largest pharmaceutical companies, will build a genetic engineering research laboratory near Rockville, state officials confirmed yesterday.

According to both Maryland and Japanese embassy spokesmen, this would mark the first time a Japanese company had ever set up a research and development facility on American soil.

The Japanese firm plans to build its $5 million facility in the Shady Grove Life Science Center, recently established by Montgomery County as a biotechnology industrial and research park.

Otsuka officials declined to comment on the company's plans. Montgomery County officials have called a press conference later this month to announce a Japanese investment in the new research center, but yesterday declined to confirm Otsuka as their new recruit.

The decision to build the U.S. research center is a sign that the Japanese pharmaceuticals industry recognizes that it lags behind the United States in the cutting edge of biotechnology research, industry sources said.

Japan's Ministry of International Trade and Industry (MITI), which is encouraging Japanese efforts to develop a "Fifth Generation" computer to establish Japanese supremacy in the world's computer markets, has announced that biotechnology will be another industry targeted for special investments.

Research in biotechnology centers on the development of enzymes and other organic chemicals by using various techniques of genetic engineering. The resulting products have applications ranging from medical diagnostics and a potential cure for cancer to producing the ingredients for the new artificial sweetener aspartame.

Many biotechnology companies are betting that genetic engineering will lead to mass production of insulin and interferon for controlling and curing cancer and other diseases.

Currently, American companies and universities are regarded as the pioneers of both the science and technology of recombinant DNA engineering.

"With respect to the basic science, we in the United States are a few years ahead," says Harvey S. Price, the executive director of the Industrial Biotechnology Association, "However most people believe that in the fermentation technologies the production methods , we are perhaps equal--and some people believe the Japanese are slightly better. That's why so many American companies, such as Genex of Rockville and Cetus, have combined with them on joint ventures."

Otsuka is a closely-held company with revenues in excess of $782 million a year. The firm, which gets the bulk of its income from pharmaceuticals, also manufactures medical instruments. It is known to consumers in this country only for a soft drink it sells in California called "Porcari Sweat"--a sort of Japanese Gatorade.

The Tokyo-based company has moved very aggressively in biotechnology research. In June, it completed a $25 million genetic engineering research facility in Tokushima. In July, it was the first Japanese company to set up a research office in Europe..

According to the Ioanna Morfessis, director of the Montgomery County office of economic development, the firm chose Montgomery County over Boston and California because it is "the world capital of life science and medical science research."

According to county data, there are over one hundred medical science research companies in Montgomery County. Between them, they receive $82 million--or more than one quarter--of the research funding from the National Institutes of Health, the key federal agency supporting biological research.

Geographically, Otsuka would be well situated to take advantage of the network of people and programs involved in the basic molecular biology available to the biotechnology industry in Maryland.

The lab will be staffed by several of Otsuka's senior scientists and will focus on gentic engineering applications to food processing, production of monoclonal antibodies and interferon. Eventually, Otsuka would employ American scientists.