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Ranbaxy mulls spin off of R&D testing facilities

Local media reports say that Indian generics manufacturer Ranbaxy Laboratories may decide to separate the testing and development services part of its R&D facility into a separate company

Local media reports have said that Indian generics manufacturer Ranbaxy Laboratories may decide to separate the testing and development services part of its R&D facility into a separate company and partner with a clinical trials firm.

A second option under consideration is that Ranbaxy may expand its partnership model in core drug discovery research. The company already signed an agreement with UK-headquartered GlaxoSmithKline (GSK) for drug discovery research in February 2007.

An unnamed senior executive at Ranbaxy said that the move could turn the research infrastructure, including the technical capability and the scientific pool, to its optimum use along with ensuring a regular cash flow by way of service fee and also milestone payments from discovery partners.

Ranbaxy's current annual R&D spend is six to seven per cent of its revenue

Ramesh L Adige, Ranbaxy's director of corporate affairs and global corporate communications, said that the R&D set-up was an integral part of the company that that there were no plans to separate it. However, he qualified the statement by saying that Ranbaxy was open to taking up new opportunities on the R&D front, which would ultimately enhance shareholder value.

Ranbaxy's generic drugs R&D pipeline has approximately 88 drug applications pending with the FDA. It also has about 20 first-to-file generic drug candidates which will be commercialised in the short term, as well as four new drug compounds at various development stages.

ASK Raymond James Securities analysts have said that if Ranbaxy could share the investment risk with another partner and sustain current R&D spending levels, future growth would be strengthened. It would also be a wise move if Ranbaxy can share the investment risk to sustain the high-cost R&D, which would help guarantee future growth.

Other restructuring activities at Ranbaxy include the transfer of all of its bio-equivalence studies from the US to Gurgaon, in the Indian state of Haryana. In July, the company closed down its facility in Pune. Both activities were designed to enable maximum capacity use of existing facilities in order to help save on operational costs, according to the company.

The changes have been prompted by a significant drop in US-derived profits in FY05, as generic erosion of prices on that market, in addition to a number of regulatory and patent-related issues.

The possible R&D spin off follows that of Indian competitors Dr Reddy's and Sun Pharmaceutical, both of which spun off their R&D operations into separate companies in 2006.

30th September 2008

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