October 18, 2007 6:05 pm

Ranbaxy to spin off drugs R&D unit

Ranbaxy, one of India’s largest drugmakers, plans to spin off a research unit devoted to developing original medicines, as part of an effort to expand beyond its core generic drugs business.

A separate research and development business would be more attractive to potential investors and partners, and would lift millions of dollars in expenses from Ranbaxy, the company said on Thursday as it unveiled quarterly results.

Through the proposed spin-off, about $20m-$25m budgeted annually for “drug discovery” research would move off the company’s balance sheets and “reflect better on our market capitalisation”, said Malvinder Mohan Singh, chief executive of Ranbaxy.

He expects the new R&D company to be listed next year but said details on its structure would be finalised by year-end. He declined to estimate how much the spin-off could fetch.

Ranbaxy said a standalone research company would “unlock value” by creating an “independent pathway for drug discovery research with dedicated resources”.

Although Indian pharmaceuticals companies are best-known for making generic drugs, Ranbaxy and rivals such as Dr Reddy’s intend to develop more profitable original medicines to compete with global drugmakers.

Bringing a new drug to market can cost global pharmaceuticals companies up to $1bn. But Ranbaxy believes creating a new drug in India could be a fifth of the cost of doing so in the developed world because of the country’s large pool of skilled yet comparatively inexpensive scientists. It claims that, out of 1,200 scientists at Ranbaxy, 300 are devoted to drug discovery research.

Ranbaxy is attempting to develop an original anti-malarial drug and treatments for oncology, respiratory, metabolic and infectious diseases. Arterolane, a potential anti-malarial treatment, is in mid-stage clinical studies in Africa, Thailand and India.

To strengthen its future pipeline of drugs, Ranbaxy this month agreed to pay about $54m to raise its stake in Zenotech Laboratories, an Indian drugmaker, from 7 per cent to 45 per cent.

Dr Reddy’s, another leading generic drugmaker, has also embarked on new models to fund R&D. To help separate the high costs of innovation from its main business, it formed Perlecan Pharma, a joint venture with the venture capital arms of Citigroup and ICICI, India’s largest private-sector bank.

The new group finances drug research and reduces Dr Reddy’s risk. In return, the venture capital groups can co-license future products.

Ranbaxy, which makes 80 per cent of its sales in international markets, said third-quarter revenues grew 15 per cent to $406m compared with last year. Net profit rose 65 per cent to $50m.

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