Nicholas Piramal India Ltd said it will spin off its discovery research unit into a separate company and list the same on Bombay and National Stock exchanges by June.
The company, which approved a new de-merger plan on Friday, will hold 18% equity in the new company, while 41% each will be held by the promoters and existing public shareholders.
Company chairman Ajay Piramalsaid each shareholder of the parent company will get shares in the ratio of 1:10 in the new research entity.
“This move will facilitate bringing in strategic or financial investors in future who may wish to invest directly in the discovery research programme,” said Piramal.
The spin-off is expected to save up to Rs73 crore in research costs for the company, which would add Rs3 per share to its 2007-08 profit, said N. Santhanam, president finance and chief financial officer.
The company’s stock surged 7.8% to Rs270 a share on the Bombay Stock Exchange.
The decision tracks similar moves by rival firms. Dr. Reddy’s Laboratories Ltd and Sun Pharmaceutical Industries Ltd have hived off their research units to help lower risk exposure to high drug development costs and to unlock value. Sun’s research unit, Sun Pharma Advanced Research Co. Ltd, listed on the stock exchange last month.
Under the de-merger scheme, the research company with net assets (at book value), inclusive of unutilized money collected under a rights issue in 2005 for R&D investment, of Rs95 crore, will be transferred from the parent company to the new research entity.
In consideration, the new company will issue fully paid-up equity shares aggregating to Rs20.9 crore to the shareholders of the parent company. Nicholas will hold equity capital of Rs4.55 crore in the new company.
Nicholas Piramal has four new drug candidates in the clinical trial stage and another four in the pre-clinical stage. The company’s basic research currently is focused on four therapeutic areas, including cancer, diabetes and cardiovascular.
“The company expects to have eight compounds in clinical trials by end of the current financial year,” said Piramal. “This will result in increased spend as clinical development costs constitute about two-thirds of the total R&D cost of a drug. We want to complete development of these drugs up to proof-of-concept (end of Phase II) and bring to market certain niche compounds on our own.”
The new company also will explore various options including capital market, private equity funds, among others, for raising additional funds to meet its business requirements, Piramal added.
“The dynamics of discovery R&D are different from the company’s branded formulations or custom manufacturing businesses,” said Kirit Gogri, a pharma analyst at ASK Raymond James Securities India Pvt. Ltd.“Investment in discovery research calls for sharper research focus, longer time horizon and higher risk appetite.”
Nicholas has strengthened its efforts on the new chemical entity (discovery) research front since 2003.
The pharma company’s new chemical entities pipeline has expanded from five compounds in 2002 to 13 compounds this year.
The company’s investigational new drug application for its lead molecule P-276 (a cancer drug candidate) has recently been approved by the US Food and Drug Administration and the clinical trials of this drug candidate will soon commence.
Bharghavi Nagaraju of Reuters contributed to this story.