North American-based drug companies are scouring Central and Eastern Europe, Turkey and the Middle East for prospective midsize takeover targets in the generic medicines arena to help expand their global footprints and offset the impact of health-care reforms in their home market.

Investment bankers say the trend is new and should intensify, putting upward pressure on prices for quality takeover targets in those regions.

Two deals announced last week echoed that theme.

One saw Canada's Valeant Pharmaceuticals International Inc. (VRX) buy AB Sanitas of Lithuania for EUR314 million ($441.5 million). In another, U.S.-based Watson Pharmaceuticals Inc. (WPI) acquired Greek generic-drug maker Specifar Pharmaceuticals SA in a deal valued at EUR400 million. These auctions were dominated by U.S. buyers.

Tommy Erdei, managing director of health-care investment banking at Jefferies and who advised on both the sale of Sanitas and Watson on the acquisition of Specifar, said that "a theme of both these transactions is that the buyer was a U.S. company. We are seeing increasing appetite in general, and in these processes, by U.S. companies for European specialty pharma companies."

Until recently, especially in Central Europe, most transactions went to the local or a European or Indian player.

But that may be changing.

Pharma players in North America, like their rivals elsewhere, are increasingly relying on emerging markets to generate sales growth as key branded products lose patent protection and mature markets stagnate amid health-care reforms as governments around the world expand their proportion of spending on generic drugs. That is prompting many of them to identify midsize targets, bankers say.

UBS told clients this week that investors have under-appreciated the fact that "many emerging markets are seeing dramatic health-care insurance expansion and infrastructure building at levels that have been associated with health-care and pharma consumption outgrowing GDP by two to three time."

The bank identified 17 "local" pharma companies in emerging markets to watch going forward. They included companies that many believe could become takeover targets, such as Middle East generic drug maker Hikma Pharmaceuticals PLC (HIK.LN) and Hungarian drug maker Gedeon Richter Nyrt. (RICHTER.BU).

Bankers say Gedeon Richter is of interest to many large pharma companies despite the fact the Hungarian government owns a 25% stake. Bankers say that the right suitor might still be able to negotiate their way around that issue, especially if Hungary's budgetary problems become more severe.

Europe's numerous midsize family controlled drug companies are also being monitored.

Bankers say the harsh business landscape in the health-care and pharma world is causing soul-searching among many of the type of company. Generational change within families can also be a catalyst.

"Lots of times it's more the realization that actually the health-care space in Europe is becoming tougher," noted Erdei, who advised Watson on the takeover of the family owned Greek group.

A problem for prospective North American acquirers and others is the short supply of quality assets in these new regions. There's now a "scarcity premium" apparent in the consolidation process.

"That was especially so in the case of Sanitas, because there are not many specialty pharma assets in Central Europe," said Erdei, adding: "This will become even more pronounced going forward."

-By Sten Stovall, Dow Jones Newswires; +44 207 842 9292; sten.stovall@dowjones.com