This week Abbott (Abbott, Park, IL) joined a growing list of Big-Pharma companies that have formed licensing and supply pacts with drug companies in emerging markets as a way to capitalize on growth in those markets. But in looking at the Abbott deal and others, will the calculus of emerging-market and established-product growth strategies really add up to true gains?

Before answering that question, a look at the recent deals. In an announcement this week, Abbott signed a licensing and supply agreement with the pharmaceutical company Zydus Cadila (Ahmedabad, Gujarat, India) for a portfolio of pharmaceutical products that Abbott will commercialize in 15 emerging markets. Under the agreement, Abbott gains the rights to at least 24 Zydus products and will have an option for an additional 40 products. Abbott anticipates that the agreement will produce the first product launches in 2012.

In signing the agreement, Abbott also announced the formation of a stand-alone established products division that will concentrate on expanding Abbott’s sales outside the United States. Abbott estimates that its established-product division accounts for roughly $5 billion in sales and that roughly 20% of its overall pharmaceutical sales are now in emerging markets. The company also offered industry data to support its decision. Pharmaceutical sales in emerging markets are expected to increase three times the rate of developed markets and account for 70% of the industry’s growth over the next several years. Branded generics now account for 25% of the global pharmaceutical market, have the majority of market share in the large emerging markets, and are expected to outpace growth of patented and generic products, according to a company press release.

So how viable is Abbott’s dual strategy of emerging and established-product growth? Other pharmaceutical majors are banking on a similar approach. In March 2010, AstraZeneca (London) signed a license and supply agreement with the Indian drug company and manufacturer Torrent Pharmaceuticals, under which Torrent will supply to AstraZeneca a portfolio of generic medicines for emerging markets. In 2009, GlaxoSmithline (GSK, London) partnered with India’s Dr. Reddy Laboratories (Hyderabad, Andhra Pradesh, India) under which Dr. Reddy will manufacture and supply drugs to GSK, which will license and comarket the drugs in various countries in Africa, the Middle East, Asia-Pacific, and Latin America. In December 2009, GSK extended its strategic relationship and acquired a 19% stake in the South African pharmaceutical company Aspen PharmaCare to serve emerging markets.

Earlier this year, Pfizer (New York) formed a collaboration with India’s Strides Arcolab under which Pfizer will commercialize off-patent sterile injectable and oral products in the US. The finished dosage-form products will be licensed and supplied by Strides, Onco Laboratories, and Onco Therapies, two joint ventures between Strides and Aspen PharmaCare. And in 2009, Pfizer partnered with two Indian pharmaceutical manufacturers: Aurobindo Pharma and Claris Lifesciences. Under the deal with Aurobindo, Pfizer acquired the rights to 55 solid oral-dose products and five sterile injectables in 70 emerging markets and will commercialize those products. Pfizer also acquired the rights to 15 generic injectables from Claris Lifesciences.

Also, sanofi-aventis (Paris) enhanced its generic-drug portfolio and position in emerging markets during the last two years with several acquisitions of generic-drug companies: Zentiva (Czech Republic), Kendrick (Mexico), and Medley (Brazil). And the Japanese pharmaceutical company Daiichi Sanyko (Tokyo) acquired a majority stake in the Indian pharmaceutical company Ranbaxy Laboratories (Gurgaon, Haryana, India) in 2008. Novartis (Basel, Switzerland) through Sandoz, its generic-drug business, had 2009 sales of $7.5 billion in generic drugs and added to that position in 2009 by acquiring the generic oncology injectables business of EBEWE for EUR 925 million ($1.3 billion).

But what are the caveats? Admittedly, growth in emerging markets is greater than established markets in North America and Western Europe, but the value of the product mix is lower and competition in these emerging markets is already well established. Consider this. Seventy-five percent of global generic sales are found in 14 markets, all of which already have generic-drug market penetration in excess of 70% on a volume basis, according to recent analysis by Thomson Reuters Healthcare and Science. For example, China’s generic-drug market is valued at $14.6 billion and has a 70% market penetration of generic drugs, and India’s generic-drug market is valued at $9.2 billion with a 99.8% penetration of generic drugs. As a result, there is flat or negative growth for generic drugs in virtually all highly genericized markets. Such markets with negative or flat growth include Russia (–13.0%), Brazil (–4.9%), and India (0%). A few countries with highly genericized pharmaceutical markets still have positive growth in generic drugs, most notably, China with growth of 19.5%. But overall, growth is more favorable in smaller countries, such as South Korea, Greece, Venezuela, where although the markets are smaller on a value basis, offer higher growth rates because of lower generic-drug market penetration.

So, as often is the case, the key for growth in emerging markets is product differentiation in the larger markets as well as tactical positioning in smaller markets. But whether a focus on branded generics, nongeneric established products, or more complex established products such as injectables and biosimilars will be enough to counter already highly competitive drug markets in emerging markets and to sustain growth in those markets is a crucial question that remains to be answered.