GlaxoSmithKline (NYSE: GSK) has made a strategic alliance with Aspen PharmaCare, a South African generic drug company, as a means of penetrating emerging markets such as China. GSK noted that 40% of the expected growth in pharmaceutical markets worldwide will be in emerging countries.

The new strategy for GSK is a dramatic change from its traditional reliance on high-cost patented drugs. Instead, Glaxo is turning toward vaccines, OTC medications, consumer healthcare and, now, branded generic drugs. The blockbuster model that has traditionally been the basis for big pharma’s profits has fallen apart as the blockbuster drugs have lost their patent protection. Big pharma has been unable to develop new billion dollar medications to replace them.

GSK will be in charge of obtaining approvals for drugs in Aspen’s portfolio of 1200 products. Aspen will retain the right to promote its products in sub-Saharan Africa. Glaxo said it expects to be able to start marketing its branded generics in 2010. One area of focus for Aspen is the anti-retroviral treatments for AIDS.

GSK did not pay an upfront fee in its arrangement with Aspen, but will make a small upfront payment for each product that it elects to register and then pay royalties, as the big pharma extends the marketing range of Aspen’s products into new territories.

Aspen says it is the largest pharmaceutical company in Africa and in the southern hemisphere. It is also one of the top 20 makers of generic drugs worldwide.

Reportedly, Glaxo was looking at acquiring the Indian generic drug company, Ranbaxy Labs, which was recently acquired by Daiichi Sankyo of Japan.

Showing that it has not completely given up on patented drugs, Glaxo announced in July 2007 that it would spend $40 million to build an R&D center in Shanghai. The near-term goal was to hire between 50 and 100 scientists, with the eventual target of having 1,000 researchers working for the firm in China, following an even greater investment. The Shanghai facility would be the designated center in Glaxo’s system for research in neurodegenerative diseases such as Alzheimer’s.