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LONDON (Reuters) - GlaxoSmithKline, the world's second largest drugmaker, took a bold step into the branded generics marketplace on Wednesday via an alliance with South Africa's Aspen Pharmacare Holdings.
The move, paving the way for the sale of cheap medicines in emerging markets, is the latest sign of Glaxo diversifying the focus of its business in the face of tough conditions for patented drugs in the United States and Western Europe.
Under the terms of the deal -- which Glaxo hopes will drive its emerging market growth -- the British-based group gains access to a broad range of low-cost branded but unpatented drugs.
Glaxo will register them in markets where they have not already been approved and expects to start selling the first from 2010. Aspen will continue to market these products in sub-Saharan Africa and some other countries.
Aspen, whose shares gained more than 4 percent on the news, will receive limited upfront payments from Glaxo but the majority of payments will be made through a profit-sharing arrangement based on actual sales.
The tie-up marks a break from Glaxo's past strategy of concentrating on high-priced patented drugs and reflects the growing importance of emerging markets to the pharmaceuticals industry as sales in developed markets stall.
"Emerging markets are showing strong growth in volumes and branded generics in emerging markets do a lot better than they do in western markets," said Ben Yeoh, an analyst at Dresdner Kleinwort.
Speculation that major drug companies might use generics as a way to gain access to key growth markets, particularly in Asia, has grown since Daiichi Sankyo Co Ltd's bid for control of Ranbaxy Laboratories Ltd last month.
Two people familiar with the situation told Reuters at the time that Glaxo had also weighed a deal with Ranbaxy.
Glaxo Chief Executive Andrew Witty, who took over in May, has already made emerging markets a top priority and recently hired an Eli Lilly and Co manager, Abbas Hussain, to head a unit focused on such countries.
"This collaboration gives us access to a renewable, high quality and competitively priced source of branded pharmaceuticals," Witty said of the Aspen deal.
Glaxo said emerging markets were forecast to grow by 13 percent a year -- triple the rate of traditional Western markets -- and account for 40 percent of growth in the worldwide pharmaceutical market by 2020.
Healthcare information group IMS Health believes emerging market drug sales will hit $400 billion (200.5 billion pounds) by then.
Witty is expected to outline his overall strategic vision for the British-based group when he presents second-quarter results at noon.
Reporting by Ben Hirschler; Editing by Paul Bolding