Lilly sinks $20M into Chinese firm for ‘branded generic’ drugs

Eli Lilly and Co. has invested $20 million in a Chinese pharmaceutical company in an effort to build up a portfolio of branded generic medicines in the fast-growing Asian market.

Indianapolis-based Lilly already held an unspecified equity stake in Novast Laboratories Ltd., which manufactures specialty and generic drugs from its headquarters in Nantong, a short distance north of Shanghai. It announced the new investment Tuesday.

Lilly intends to work with Novast to develop a catalog of generic versions of medicines not created by Lilly that will be branded with the Lilly name. Such a category of drugs—which is rare in the United States—is an important class of drugs in China.

That’s because brand-name drugs have social cache among wealthy Chinese, in a similar way that luxury cars, watches or handbags do in the United States. Sanjay Behl, a pharmaceutical consultant at Deloitte Consulting, said it’s common at cocktail parties in China to hear people talk about the brand of the medicines they’re taking.

Lilly also hopes that by branding a generic drug with the Lilly name, Chinese customers will view it as a mark of quality.

Both factors allow Lilly to earn higher profit margins on branded generics than fully generic drugs, although the margins are still lower than what Lilly earns on its own pipeline of drugs.

"In Lilly's emerging markets business, we are focused on providing patients with innovative medicines from our own pipeline, as well as select Lilly branded generic medicines that meet our quality standards,” said Jacques Tapiero, Lilly’s president of emerging markets, in a prepared statement.

Down the road, Novast also may take on manufacturing responsibilities for new drugs Lilly launches in China and other Asian countries. Since 2009, Lilly has rapidly ramped up sales and research functions in China, and now employs more than 3,000 people there.

In June, Lilly announced the opening of a new research and development center in China focused exclusively on diabetes. It employs a staff of 150.

Lilly's sales in China have been modest but growing fast. They increased 31 percent in China last year, according to Lilly officials, to nearly $420 million.

"This long-term strategic partnership will combine Lilly's expertise in innovation, commercialization and operations with Novast's strengths in product development and quality manufacturing," Novast CEO Dr. Guohua Zhang said in prepared statement. "We are committed to helping Lilly bring high-quality medicines to patients in China and potentially other countries.”

Lilly first invested in Novast after establishing a $100 million Asian venture fund five years ago. The amount of Lilly’s initial investment has not been disclosed. But Lilly officials said they planned to plow the money into 12 to 15 companies.