IHS Global Insight Perspective | |
Significance | GlaxoSmithKline (GSK, U.K.) and Dr. Reddy's (India) have signed an emerging market alliance which will see GSK market over 100 of the latter's products in Africa, the Middle East, Asia-Pacific, and Latin America. The firms will also co-market the drug in undisclosed markets. The deal excludes Dr. Reddy's domestic market. |
Implications | The deal will add to the list of inorganic growth options carried out by GSK to boost contributions from emerging markets, which are largely generics driven. It also comes at the right time for Dr. Reddy's as it looks for new sources of revenues outside the United States and Europe. |
Outlook | Increasing presence in emerging markets has become the new mantra for Big Pharma, and this current initiative taken by GSK could be just the first of many deals announced this year. Meanwhile, given that the deal is effective immediately, the partnership will positively affect the topline of both firms over the second half of the year. |
GSK and Dr. Reddy's Join Hands in Emerging Markets
Indian generic major Dr. Reddy's and GlaxoSmithKline (GSK, U.K.) have announced the formation of a partnership to develop and market select generic products in emerging markets outside India. The partnership will see GSK gain access to over 100 branded drugs in Dr. Reddy's current and future generic portfolio. The deal will focus on products in the cardiovascular, diabetes, gastroenterology, pain, and oncology segments. The U.K. giant will market the generic drugs in countries in Africa, the Middle East, Latin America, and Asia-Pacific, with both firms co-marketing the products in certain unspecified markets.
While the exact terms of the deal are not known, there has been no cash payment or transfer of equity stake. Revenues from the deal will be reported by GSK and shared with Dr. Reddy's as per the undisclosed terms of the agreement.
The partnership is effective immediately, both firms confirmed. The press release on the deal can be viewed here.
Outlook and Implications
The latest deal is by no means surprising given Big Pharma's recent desire to expand into emerging markets. GSK itself has engaged in several inorganic growth options, including acquiring Bristol-Myers Squibb's (U.S.) mature portfolio in Egypt and Pakistan to expand into these markets. The U.K. firm has also sought to foray into Sub-Saharan Africa's generics market through recent marketing alliances and through the acquisition of a minority stake in Aspen Pharmacare (see South Africa - United Kingdom: 12 May 2009: GSK to Strengthen Foothold in Emerging Markets Through 16% Stake Acquisition in Aspen).
GSK's push into emerging markets has been driven by the fact that the firm is facing increasing generic competition in the United States, with close to 30% of its topline exposed to generic threat over the 2010-14 period (source: Rahul Garella, Glenmark, SMI generics conference 2009). GSK's choice of inorganic growth in generics as a way into emerging markets is logical given that less than 4% of total sales are derived from Brazil, Russia, India, China, and Mexico (BRIC plus M) markets, and generics growth outstrips that of innovative products in all except the U.S. and U.K. markets (source: IMS health as of December 2008). The deal is also in line with Chief Executive Officer Andrew Witty's strategy to reduce risk, move focus away from research and development (R&D), and show a re-invigorated performance over the second half of 2009.
Meanwhile, the deal has come at the right time for Dr. Reddy's after it recently reorganised its business operations, divesting from smaller distribution markets and closing down R&D facilities in an effort to optimise resources. With Indian firms not performing as expected in the recession hit U.S. market, they have also begun to turn to the more lucrative emerging markets outside India (see United States - India: 12 May 2009: Downturn Pummels Indian Exports to U.S. by 40% over Five-Month Period). Dr. Reddy's has a strong presence in Russia, with the firm yet to build a strong formulations base in South Korea, Mexico, Turkey, Brazil, and China. The deal will therefore boost the firm's revenues from these markets.
Given their strong presence in the global generics industry, Indian firms have become lucrative acquisition and alliance targets for innovative pharma firms, with Pfizer (U.S.) signing a similar alliance with Aurobindo Pharma (India). Such deals are set to gain pace over the year, with IMS forecasting that the United States will make no growth contributions to the pharma industry over the year, while emerging markets are set to contribute 51% of overall growth.
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