Ranbaxy to hive off R&D

Pharma major plans to sell equity in new entity.

Ranbaxy Laboratories, India's largest drug maker by sales, may soon hive off its research and development activity into a separate company and raise resources by selling some equity in the new entity.

This strategy is being increasingly favoured by Indian pharmaceutical companies as a tool not only to raise resources but also to reduce risk, much of which stalks the high-reward area of research and development.

The significant aspect is that both the objectives can be achieved without diluting the promoters' holding in the mother company.

Three of the country's 10 biggest drug makers - Dr Reddy's, Nicholas Piramal and Sun Pharma - have already embraced variants of this strategy.

Dr Reddy's has a tie-up with ICICI Ventures to part-fund its early drug discoveries. The other two have spun off their R&D into separate entities.

According to sources, Ranbaxy is working out a long-term strategy to infuse more funds into its new chemical entity (NCE) research with an emphasis on clinical research.

The company reduced its R&D spend by about 20 per cent to Rs 398 crore in 2006 from Rs 505 crore in 2005, explaining that the intention was to optimise the cost structures by extending the productivity of its innovation cycle. The plans for alternate investment models to fund research will be a continuation of this strategy.

Refusing to give details, a Ranbaxy spokesperson said the company's "current R&D model equally emphasises generic research and NCE research programmes." By encouraging additional investment in R&D, the risk in new drug research could be shared, he added.

Ranbaxy is known to be exploring various models to determine the one most suited to clinical research.

"Any move to de-risk its mature business from R&D is encouraging. Indian generic players are strongly following this trend which will help them attract long term investments from a different set of equity providers. The companies will also be able to run more R&D projects through such decisions," said Sujay Shetty PricewaterhouseCoopers.

Ranbaxy's research collaboration with GlaxoSmithKline, a multinational giant, provides the Gurgaon-based company expanded drug development responsibilities and financial opportunities.

This alliance envelops a range of therapeutic areas that interest GSK, including anti-infective and metabolic, respiratory and oncology.

A joint team of GSK and Ranbaxy recently approved a compound for treating respiratory inflammation and Ranbaxy will take it forward to the pre-clinical stage.