By Ben Hirschler

PARIS, June 19 (Reuters) - Germany's Bayer AG expects to overtake AstraZeneca Plc as the biggest supplier of prescription drugs in China this year, underlining its strength in emerging markets.

Healthcare head Arthur Higgins also said on Thursday he was confident anticoagulant Xarelto would go on sale in Europe by the end of the year and that no side-effect problems had been seen with the medicine.

Chinese sales were growing at an annual rate of more than 40 percent and would exceed $500 million in 2008, he told Reuters on the fringes of the annual meeting of the European Federation of Pharmaceutical Industries and Associations.

Bayer would continue to look for new acquisition opportunities to diversify its healthcare business and could do a couple more small deals this year, he added. Target areas for growth include medical devices, diabetes care, animal health and regional opportunities in over-the-counter medicines.

"I don't think you'll see us doing anything necessarily huge this year but you could see us doing another couple of smaller deals," he said.

"We have the capability to do small, medium and even pretty significant deals."

There has been speculation that more drugmakers may follow the lead of Novartis AG -- and more recently Daiichi Sankyo Co Ltd -- by moving into generics. But Higgins said buying a generics firm was unlikely to make sense.

"I don't think diversification into generics is going to be the answer for the majority of us (in the industry)," Higgins said.

Some analysts have argued that owning generics capacity helps drugmakers win sales in emerging markets. But Higgins said Bayer's success in China -- built largely on the back of older, off-patent products -- showed this was not necessary.

XARELTO SALES THIS YEAR

Higgins said Bayer was on track to have its big new drug hope, Xarelto, on the market in Europe by the end of the year and would file the product in the United States in conjunction with partner Johnson & Johnson "imminently".

Most analysts have been anticipating approval of the drug in Europe this year, since it was filed for approval at the European Medicines Agency in October 2007.

The initial use of Xarelto will be in preventing blood clots among patients after knee- and hip-replacement surgery. But the big commercial potential lies in using it to prevent strokes in people with atrial fibrillation, a common heart arrhythmia.

In this second indication, the drug's safety profile will be critical, since it will be taken on a long-term basis.

Higgins said Bayer and Johnson & Johnson would give an update on long-term safety data over the summer, adding: "So far, this product has got an ideal profile."