Private equity funds, including DE Shaw, Temasek Holdings and HBM Partners, are believed to have approached Nicholas Piramal to fund the pharma major’s discovery research programme. The exact terms of the partnership remain unclear, but people close to the situation said that private equity players have shown interest in picking up stake in Nicholas Piramal’s discovery research division. In that case, Nicholas Piramal would need to hive off its discovery R&D activity into a separate entity.
“Nicholas Piramal has an expanding R&D programme, which will need higher funding over time. To address this need, different funding options are presented to us from time-to-time, which we keep evaluating,” a company spokesperson said.
Analysts estimate Nicholas Piramal’s discovery R&D division value at over $200 million. NPIL’s anti-cancer lead, a protein molecule involved in the regulation of the cell cycle and cell proliferation, is currently in phase I and II clinical trials in Canada and India.
A highly potent antibiotic drug candidate — active against methicillin resistant Staphylococcus aureus (MRSA) and vancomycin resistant Enterococcus (VRE) — is in late preclinical development. The company is also working on two herbal drugs in phase II of clinical development, targeted at inflammation and infectious diseases, respectively.
“Domestic companies have started investing in research prompted by India’s new patent regime. As their R&D spend increases, domestic pharma companies have to explore alternate means to fund their research, in order not to strain their core business,” said Sarabjit Kour Nangra, VP-research, Angel Broking. “If they can find a partner willing to take that long-term bet, they can significantly mitigate the risks and costs of their discovery research programme.”
Demerging their discovery R&D activity also enables pharma companies to offer investors an option to separately hold investments in businesses with different return characteristics, depending on their risk and return expectations. While discovery research involves significant risks an costs, potential rewards are considerable.
New drug discoveries are the pharmaceutical equivalent of an alchemist’s search for a magic formula to turn base metals into gold. It takes 12 years on an average for a new drug to travel from the lab to the patient, and costs an estimated $800 million in the process. Indian pharmaceutical companies are in various stages of that quest, none have made the grade yet.
India’s top 10 pharma companies have already spent close to 7% of their sales on research and development. With Rs 492 crore spent on research in 2005-06, Ranbaxy Labs is the industry’s largest R&D spender, followed by Dr Reddy’s with a Rs 234 crore R&D spend.
Nicholas Piramal spent Rs 78 crore or close to 5% of its sales on R&D in 2005-06. These figures, however, also include research expenses incurred by the generic division. According to analysts, Indian pharma companies spend one-third to half of their R&D budget on discovery research.
This move comes close on the heels of Sun Pharma’s demerger of its R&D business. The Mumbai-based pharma major will shortly spin off its R&D division, estimated at around $450 million, into a new company called Sun Pharma Advanced Research Company (SPARC). Sun Pharma will infuse $45 million into the new company, which should enable it to sustain its operations until revenues from outlicensing deals start flowing in.
However, Sun Pharma could be looking at raising funds for its new company through equity or debt. Ranbaxy is also exploring new ways to fund their research. When contacted, Ranbaxy’s spokesperson said: “R&D is very much an integral part of our organisation. With the changing business dynamics, we are open to newer models for continued investments in R&D and maximisation of long-term shareholders value.”
In 2005, Dr Reddy’s had set up a new drug development company, Perlecan Pharma. The new entity, to which Dr Reddy’s transferred four of its new research molecules, got equity commitment of $45 million from Citigroup and ICICI Venture. “This deal has given Dr Reddy’s visibility in terms of cash flow,” said Ms Nangra. “The company will know at each stage, how to fund its molecules’ development.”
Source : Economic Times