One of Abbott's latest drug launches is a fruit-flavored gummy bear containing a laxative for children with sluggish bowels.
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But the bears won't be appearing in any U.S. pharmacies: They were developed exclusively for the emerging markets, rolling out in Russia, Eastern Europe, the Middle East and Africa.
The product, known as Duphabears, is part of Abbott's big shift three years ago toward "branded generics," essentially off-patent medicine launched with the sort of brand name and marketing more typical of a patented drug. In many cases, the drugs are aimed squarely at fast- growing markets like Eastern Europe, the Middle East and Latin America.
The sector isn't one of Big Pharma's highest-profile businesses, though most generic drug giants make branded generics in one form or fashion. The category has long been caught somewhere in between the industry's two bigger, core businesses: patented medicines, which drug firms spend heavily both developing and then marketing; and generics, where they do little of either.
Still, branded generics have given Abbott and a handful of other players a relatively cheap font of growth -- allowing them to repackage off-patent drugs and extend their commercial lifespan.
Novartis AG's generic drug arm Sandoz, Valeant Pharmaceuticals Inc. and India's Sun Pharmaceutical Industries Ltd. are among the big drugmakers that also sell them.
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They require much less of the expensive research and development that goes into prescription drugs. Abbott and others can tweak things like how the medicine is delivered -- for instance, in liquid form or in gel caps -- for relatively little.
Branded generics, while much cheaper than patented medicines, can command higher prices than their unbranded counterparts in the developing world. In richer countries, pharmacists, insurers and health-plan administrators tend to guide patients toward cheaper generics, regardless of the brand's supplier or manufacturer. But in poorer countries -- where government budgets are strained and health-care infrastructure spotty -- spending for medicine tends to come mostly out of a patient's pocket. That gives them discretion to shell out on brands they trust.
Sales are "very much driven by promotion," says Susan Ringdal, head of corporate strategy at U.K.-based Hikma Pharmaceuticals PLC, which sells branded generics in the Middle East and North Africa.
"Frankly speaking, people here spend very, very much money on medicine," said Natalia Kosheleva, a Moscow-based pharmacist.
All that can translate into fatter margins. The Hikma division, which sells mostly branded generics, boasts margins of around 18.4%, versus 6.9% for its unbranded oral generics business. Abbott made an operating margin of 18.7% on its branded generics business last year, according to Wall Street Journal calculations.
In India, branded generics accounted for about 63% of all drug sales by value in 2015, according to Unmesh Lal, a health care specialist at consultancy Frost & Sullivan. In China, that figure stands at 55%. In the U.S., by contrast, branded generics only comprise around 11% of all drug sales.
QuintilesIMS, a market intelligence firm, expects branded generics sales to grow at an annual rate of 9%-12% over the next five years, versus 3%-6% for both patented drugs and unbranded generics. By 2021, it expects the branded generics market to be worth around $323 billion, compared with around $823 billion for patented drugs and $176 billion for unbranded generics.
The sector isn't for everyone. Emerging markets can be volatile: Abbott last year took a $480 million write-down on currency exchange losses related to its business in crisis-torn Venezuela. Drugmakers that focus on innovative medicines largely stick to marketing their old, off-patent brands in the emerging markets rather than developing new branded generics.
What's more, many expect governments around the world to raise regulatory standards, adding to costs, while local competition is forecast to increase.
"I don't expect the growth we've seen in the past will carry on unfettered," said Hikma's Ms. Ringdal.
Abbott, once one of the world's biggest prescription-drug pharmaceutical firms, has made branded generics a priority since slimming down four years ago. In 2013, it spun off its patented medicines business into what is now AbbVie Inc. and two years later sold its developed-market generic drugs business to Mylan NV.
That has left a drugs business focused on emerging markets. It has snapped up a string of well-known, local, branded generic drugmakers, such as Russia's Veropharm and Chile's CFR Pharma. Abbott still makes medical devices, diagnostics and nutritional supplements for sale across the globe.
Its own drug-development pipeline is now strictly branded generics, too. Big sellers include Duphaston for menstrual disorders and ibuprofen brand Brufen. Both are sold in dozens of countries across the emerging market.
Last year, Abbott's drug sales grew 10.5%, excluding currency fluctuations, to $3.9 billion last year, a rate of growth that beat out most of its pharmaceuticals competitors.
"It's hard to find that with any business of scale," says Barclays analyst Matthew Taylor.
Duphabears' main constituent is a decades-old laxative called lactulose. Abbott has for years sold a syrup version of lactulose under the brand name Duphalac. It developed the gummy-bear reformulation after parents, doctors and pharmacists in several emerging markets told its market researchers that children didn't like the taste of the syrup.
Abbott doesn't disclose its development costs, but Barclays analyst Doug Tsao estimates that branded generics require a few million dollars to develop, versus the hundreds of millions that go into bringing a completely new, patented drug to market.
"I think of innovation as everything outside the molecule," said Todd Chermak, Abbott's head of innovation and development for the emerging markets.
Abbott ran online and TV advertisements and hired a sales force to promote Duphabears to doctors and pharmacists.
Ms. Kosheleva, the Moscow pharmacist, started selling Duphabears three months ago after a visit from Abbott sales representatives.
"I heard something about these bears," said Muscovite mom Shakhnoza Usmanova, who gives her 5-year-old son liquid Duphalac to deal with constipation. "If our pediatrician tells me they're good, well, I'll probably start giving it to my boy."
--Olga Padorina in Moscow contributed to this article.
Write to Denise Roland at Denise.Roland@wsj.com
Corrections & Amplifications
This article was corrected at 1454 GMT because the original incorrectly misspelled Todd Chermak's surname in the 24th paragraph. It is Todd Chermak, not Chermark.
Abbott's head of innovation and development for the emerging markets is called Todd Chermak. "Drug Makers Find 'Branded Generics' Are a Source for Growth," at 1225 GMT incorrectly stated his surname as Todd Chermark in the 24th paragraph.
(END) Dow Jones Newswires
October 23, 2017 11:03 ET (15:03 GMT)