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Pfizer (NYSE:PFE) and Eli Lilly’s (NYSE:LLY) recent deals with Indian generic companies signal an increased focus by large pharma towards emerging markets, industry executives told Pharmawire.

Last week, Pfizer, the world’s largest drug maker, signed two licensing deals with India-based Aurobindo and Claris, strengthening the company’s position in emerging markets and significantly expanding its portfolio in solid dose and sterile products in developing countries. The products fall under therapeutic segments such as anti-infective, cardiovascular and central nervous system disorders.

Eli Lilly also recently forged a cardiovascular-focused research deal with India’s Zydus Cadila.

David Simmons, president and general manager of Pfizer’s Established Products Business Unit, said the company is open to discussions with pharmaceutical companies in emerging markets that offer unique capabilities and product offerings.

Pfizer is interested in companies in emerging markets that offer unique capabilities and technology platforms in the areas of transdermals, biosimilars or inhalables, Simmons noted.

”Although these two recent deals add 128 new off-patent products to Pfizer’s portfolio, it’s still not enough for us,” Simmons said. Pfizer remains committed to increasing its portfolio of products, and options include developing the products in-house, conducting similar partnerships, or acquisitions, he said.

The potential company should have a unique capability relative to Pfizer’s existing partners, and should have a strong basis of quality systems, Simmons said. In addition to low-cost manufacturing capabilities, the partner should work with Pfizer in an integrated, collaborative partnership related to quality systems, product development, supply chain and manufacturing, he added.

”In terms of Pfizer’s established product strategy, and how we evaluate potential partners, for these two deals, we started the screening process last year,” said Simmons. Chinese and European pharmaceutical companies were also part of its initial list of over 100 potential partners, he said.

Pfizer’s partnership criteria includes an evaluation of the breath of the partner’s dossier portfolio, cost of manufacturing, level of quality standards, and agreement to work with Pfizer in an integrated way, Simmons said. Based on these four elements, the list decreased from 100 to 20 targets very rapidly, he added.

”To conduct outright acquisitions, like other companies, we may be left with less then what we fell in love with in the first place,” Simmons said, explaining that a lot of the driving force behind the current growth in emerging markets is the entrepreneurial spark of the families behind these companies.

Dr Sam Azoulay, senior vice president, medical & development, in Pfizer’s Emerging Markets Business Unit, said based on the new vision, the company is trying to fill the gaps in its current pipeline. The recent deals have been focused on three main areas: cardiology, CNS and infectious diseases.

”We consider partners who can provide quality to a high standard reflective of Pfizer, and look at the quality of the data,” said Azoulay.

Ana Maria Luque, vice president in Pfizer’s Established Products Business Unit, said the company is interested in companies that make established, quality products in emerging markets, and that have a solid supply chain management process. The potential partner or target should provide new line extensions or formulations from existing marketed products, she added.

There is currently no particular country Pfizer is targeting in terms of future deals, Azoulay said. ”We are not making the markets available in that much detail, but in terms of timing, we’re looking at opportunities anywhere from 9-12 months and beyond,” he said.

Pfizer currently has a four percent market share in the emerging markets, which was a USD 160bn market opportunity in 2008, according to Luque. In the next four years, this market is expected to grow to an estimated USD 230bn. ”The off-patent market is the fastest growing segment in emerging markets,” she said.

Pfizer is not locked into a specific geography, but has a certain comfort level with India, said Simmons, and there are some reasons for that. Currently, 23% of Pfizer’s global volume comes from outsourced clinical research organizations in India, he added.

Les Funtleyder, a healthcare strategist at the brokerage house Miller Tabak & Co. in New York, said Pfizer’s interest in emerging markets is part of an increasing trend in the pharma industry as developing countries are currently under-penetrated. ”As the middle class develops in these countries, they will demand more medical products, and at least initially, off-patent brands will make up the majority of sales,” he said. Operationally, due to differences in corporate culture, supply chain management and politics in developing countries, there may be some challenges, he said.

Thomas Li, senior director of technology management at Roche Diagnostics in Pleasanton, California, agreed that there is increasing trend for large pharma to set up their own R&D facilities in Asia - in addition to continued clinical trial outsourcing. ”Companies such as Pfizer and Roche even have their own departments to conduct Phase I trials directly in local hospitals,” Li said. Because these investigational agents are being tested in humans for the first time, patients are required to stay in the hospital in case of an adverse event, so the emergency teams in hospitals can provide immediate assistance, he explained.

Ding Ding, a senior equity analyst of China Healthcare at Susquehanna Financial Group, said most of the large pharma have currently established a R&D presence in Shanghai. ”GSK and Novartis in particular, have their own extensive R&D teams in China, but there is still the need for research outsourcing, as some functions especially analytical chemistry work, do not make sense to do in-house,” she said.

Generic biologics in emerging markets will be a key segment for large pharma, said Ding. ”The generic biologic market has a high barrier to entry, but China holds huge cost advantages to product development and manufacturing, in addition to its untapped market potential,” she said.

The European regulatory agencies have more established regulatory guidelines in place in terms of approving biosimilars. The US FDA has been behind in this respect, Ding said.

China-based Simcere Pharmaceuticals (NYSE:SCR), is one of the few companies in China that are starting to invest in biogenerics. Simcere recently bought 35 percent of Shanghai Celgen which has generic Enbrel pending approval by the Chinese sFDA. There is market demand for biogenerics in emerging markets, but companies will have to price their products significantly lower compared to the US. The population in countries such as China and India cannot afford the same prices that patients are paying here in the US, or in Europe, she noted.

Jim Datin, executive vice president of Safeguard’s Life Sciences Group, said Pfizer’s recent deals are just the tip of the iceberg, and the number of deals will increase. There are a number of generics companies in China that are also diversifying into branded drugs, similar to Teva Pharmaceutical’s success story (NASDAQ:TEVA) . “There is no doubt that China will probably dominate the biosimilars market in the future,” he said.

Paul Boni, chief research officer of Grail Research, who has conducted extensive research on the Chinese healthcare market, said historical key markets for large pharma, the US, Europe and Japan, have all flat-lined on growth. Emerging markets such as China, Brazil, Russia and India are all reporting 12-15% annual growth, and have shown major demographic shifts, and faster economic growth.

”There’s a preconception that China has a lot of people and no money. That’s clearly not true anymore,” said Boni.

The IP protection in China and India has also improved significantly over the last five years, industry sources noted. ”Large pharma still struggles with the IP issue, but you have to accept this as a risk. The trade-off in cost savings is too large to let this issue divert you,” Boni said, adding that companies will have to price their products competitively in China.

Gregg Brandyberry, former vice president of procurement for GlaxoSmithKline, said the major move to source active pharmaceutical ingredients in both India and China started five to six years ago and a lot of the IP worries are over. ”We would typically see up to 70% reduction in cost by making the switch to Asian suppliers,” he noted.

From a supply chain perspective, many of the bigger companies have a lot more high quality procurement organizations in India and China, Brandyberry said. It makes a lot of sense to be in India and China, he explained. ”If you’re not part of that new society in a very meaningful way, it’s going to be more difficult to sell your products into those countries,” he said.

Pfizer expects to reinforce its market leadership and increase its market share in Asia by two to six percent in 2012, Luque said. ”We’re not taking a one-size fits all approach to emerging markets,” Simmons said.

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