The Hindu Business Line : Merck deal: Fruits for Ranbaxy R&D arm

Ranbaxy Laboratories’ product development tie-up with Merck has the potential to bring in payments totalling more than $100 million. These payments would be linked to the reaching of various research, development and regulatory approval milestones for ‘each target’ included in the partnership.

The Ranbaxy management has indicated that they are currently working on more than two targets. Ranbaxy will carry out drug discovery and clinical development through Phase-II (A) clinical trials, with Merck conducting development and commercialisation of drug candidates thereafter.

The companies are collaborating on the therapeutic area — ‘anti-infectives’, which essentially encompasses antibacterials, antibiotics, antifungals, antiprotozoans and antivirals. Merck has only one anti-fungal drug currently in the market and naturally, seems keen on this area.

R&D skills

Although it is Ranbaxy Labs that has signed the deal with the foreign company, it will be Ranbaxy’s recently hived-off New Drug Discovery Research unit Ranbaxy Life Science Research that will rake in a major portion of revenues from the new drug deal. The deal is for five-year period 2008-2012 but could be extendable over a longer period. Merck has made an ‘undisclosed’ upfront payment to Ranbaxy, but it is unclear how and if this will be passed on to Ranbaxy Life Science Research.

Deals such as these are expected to lend revenue visibility to R&D-focussed companies such as Ranbaxy Life Science Research. However, the earnings from this deal, which would be ideally spread across four-five years, cannot be assured as molecules could potentially be discarded, if they fail to comply with tests.

In that light, today’s 2 per cent correction in the stock of Ranbaxy appears logical after the 5 per cent spike in the stock on Monday, after the deal was announced. Ranbaxy has given an optimistic guidance of over 20 per cent sales and profit growth this year, which would have to be achieved without taking into account Ranbaxy Life Science Research’s expected earnings. The latter is expected to be listed separately on the stock exchanges after the second-half of 2008.

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Ranbaxy, Merck in pact for anti-infective drugs

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