Strange Bedfellows

Go figure. GlaxoSmithKline (NYSE: GSK  ) is teaming up with none other than its arch-nemesis: generic-drug maker Dr. Reddy's Laboratories (NYSE: RDY  ) .

Pharmaceutical companies like Pfizer (NYSE: PFE  ) and Novartis (NYSE: NVS  ) have been moving into the generic-drug world, but this is actually a deal for Dr. Reddy's branded drugs. Glaxo has licensed more than 100 branded drugs from Dr. Reddy's to sell in emerging markets, excluding Dr. Reddy's home country of India, of course.

Terms of the agreement weren't disclosed, but it looks like a good idea for both companies. Dr. Reddy's gets to expand its sales with minimal effort -- it'll co-market the drugs in some markets and take royalties in the rest. For Glaxo, the expanded portfolio of drugs will help the drugmaker use its international sales, marketing, and distribution system more effectively.

Big pharma -- Glaxo, Pfizer, and sanofi-aventis (NYSE: SNY  ) in particular -- have been making a major push into emerging markets lately. I can see the appeal; it's a relatively low-risk way to boost revenue, because the drugs have already been shown to work in developed countries. The money spent to develop the drugs are sunk costs, so why not eke out a little more from the useful life of the drug?

But until the emerging markets actually emerge and can pay top dollar for these drugs, the added bonus for selling there isn't likely to be that great. Development of new drugs will still be what drives drug companies for the foreseeable future.

Fortunately, with its numerous partnerships with development-stage drugmakers, Glaxo has that covered too.

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