New Delhi: The to-be-hived-off research arm of drug maker Ranbaxy Laboratories Ltd will look to list its shares in overseas exchanges, acquire research firms and have multinational pharma companies buy into it.
The idea behind hiving off the research and development (R&D) division—this was announced last month—was not merely to list its shares on Indian exchanges, said Malvinder M. Singh, managing director, Ranbaxy. “It is just the first activity in a series of value-creating activities that will follow. These could include alliances, partnerships, listing in overseas markets, even acquisitions of companies that have intellectual property (IP),” he added.
Ranbaxy Laboratories Ltd managing director Malvinder Mohan Singh
Singh said the company would look to raise money on stock exchanges in Singapore or the US, or on speciality exchanges such as the London Stock Exchange’s Alternative Investment Market (AIM), because these “place value on intellectual property much more” than Indian exchanges.
The Gurgaon-based Ranbaxy will spin off its new drug discovery business, including a drug discovery partnership with GlaxoSmithKline Plc., and emulate its peers Dr Reddy’s Laboratories Ltd, Sun Pharmaceutical Industries Ltd and Nicholas Piramal India Ltd. Sun Pharma has already listed its new research entity, while Nicholas Piramal is in the process of acquiring regulatory clearances to do the same.
Ranbaxy spent a total of Rs639.3 crore on research in 2005 and Rs483.8 crore in 2006. The company spends $20-25 million (Rs78.6-98.25 crore) every year on research to develop new drugs, and once it hives off the R&D division, this amount will be off its books, immediately boosting its profit. For the nine months ended September, Ranbaxy recorded a net profit of Rs602.3 crore on sales of Rs4,840.2 crore. In the year to December 2006, it recorded a net profit of Rs520.4 crore on sales of Rs6,069.8 crore.
John Morris, head of the global pharma practice of audit and consulting firm KPMG International had, in an earlier conversation with Mint, said that Indian markets might not be mature enough to reward research focused firms.
“I’m not sure listing is the right answer. The spun-off research and development units need a critical mass. They are going to need numbers like $100-200 million” and the Indian markets may not have a risk appetite equal to that, Morris had added.
Singh said Indian markets do understand the R&D business. However, he is still looking for some equity participation in Ranbaxy’s R&D business by multinational pharma companies. “Global drug companies are looking to leverage India’s pharmaceutical capabilities in every way,” he said.
Sanjiv Kaul, managing director with ChrysCapital Investment Advisors, said such models were “good, India-specific” ones, but added that these ought not to be driven by a need to simply make higher profits for the parent company by parking high-risk assets into a separate loss-making company. On Wednesday, shares of Ranbaxy on the Bombay Stock Exchange closed at Rs427.90 each.