Ranbaxy Laboratories may dilute up to 60% stake in its new research company, which will be formed by hiving off its R&D unit into a separate entity in 2008. They are looking for an investor willing to pick up either a 40% or a 60% stake in the new research company, according to the valuation they are able to get from either a pharma company or a private equity fund. The company is also planning to start a Contract Research Organisation (CRO) that will come under the company’s new research entity; this is the strategy behind their plans of hiving off te research entity. This will include Ranbaxy’s ongoing collaborative research programmes with UK drug giant GlaxoSmithKline (GSK), but the company will also seek new contracts with global pharmaceutical companies. While drug discovery services will be provided by Ranbaxy’s new research company, clinical trials will be conducted by Fortis Healthcare, a Ranbaxy promoter group company, said Dr Sen. The new company will also conduct bio-equivalence studies for Ranbaxy’s generic drugs pipeline, for which the research company will receive a fee. After the hive-off, the second step will be to acquire a CRO in the US or in Europe. According to the US Food and Drug Administration (FDA), only 30-40% of clinical trials for a new drug can be conducted in India. Therefore, to conduct all the trials required for a new drug’s clinical development, Ranbaxy will need to set up operations in the US or Europe. Ranbaxy is looking for a head for its new hived-off entity. Along with contract research services, the new research entity will continue to work on its own discovery research programmes, for which it will seek external funding. Ranbaxy Lab has a new malaria drug, currently in late phase II trials in Africa, Thailand and India, and eight to ten experimental drugs are still in early stages of development. The company is looking for external funding to develop these molecules further. According to industry estimates, it costs USD 800 million to USD 1 billion and takes 10 to 12 years for a drug to travel from the labs to the market. The move may allow the company to decrease its annual R&D spend by 30%. Ranbaxy spent Rs 386.3 crore (recurring expense) towards research and development of its generic and new chemical entity (NCE) pipeline in 2006, compared with Rs 486.4 crore in 2005. R&D capital expenditure stood at Rs 97.5 crore and Rs 153 crore in 2006 and 2005, respectively.

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