Nicholas Piramal hives off R&D unit

Nicholas Piramal India (NPIL) has demerged its new chemical entity (NCE) and research unit, currently called Nicholas Piramal Research Centre (NPRC), into a new company.

Nicholas will initially invest Rs 4.5 crore in the new company, and transfer the novel drug research business assets worth Rs 90 crore at book value and cash of Rs 95 crore to the new firm.

The new drug discovery unit of NPIL, a two-lakh sq ft facility at Goregaon in Mumbai, employs 300 scientists and has 13 molecules under various stages of development in the pipeline. Of this, four drugs are in the clinical trial stage. The company will be listed on the BSE and the NSE by June 2008 after statutory clearances.

Post-demerger, NPIL will hold 18 per cent in the new company and 41 per cent each will be shared between promoters and the public. NERC will issue fully paid-up equity shares aggregating Rs 20.9 crore to the shareholders of NPIL in the ratio of 1:10, which is one equity share of Rs 10 for every 10 equity shares of Rs 2 each held in NPIL.

The stock markets reacted positively to the demerger and the share price of NPIL went up by 7.83 per cent today to Rs 270 on the BSE, up from the previous day's close of Rs 250.40.

"The dynamics of NCE research are different from NPIL's branded formulation business or custom manufacturing business. Investment in NCE calls for sharper research focus, longer time horizon and higher risk. This move will help our shareholders options for taking the risk involved in drug R&D. Further, it will facilitate bringing in strategic or financial investors in the future who may wish to invest directly in the NCE business," said Ajay Piramal, chairman, NPIL.

He said the company would look at various options for funding till the new company gets steady revenues, possibly by 2010. "We are looking at the option of raising funds by teaming up with PE funds or raising capital from the markets. We still have time to decide as the company will be listed only by June next year," he said.

Somesh Sharma, chief scientific officer of NPIL, who will head the new company, said the company plans to have about 26 molecules in the pipeline.

NPIL has chosen the less risky path of mainly working on validated drug targets, in four focus areas of oncology, inflammation, diabetes and infectious diseases. NPIL will try to take the drugs to the commercial stage or Phase III for outlicensing. Plans are afoot to take at least one drug into the clinical stage, every year.

Its lead molecule P 276, for some rare forms of cancer, recently received approval from the US Food and Drug Administration for clinical trials in the US. NPIL is also developing a drug for a rare form of blood cancer, which can be used to treat patients having resistance to Novartis' Gleevec.

An oral drug for rheumatoid arthritis and an anti-fungal lotion are also undergoing clinical trials. NPIL has become the second domestic pharmaceutical company to spin off the NCE division into a new company, after the recent demerger of Sun Pharma's research and development division to a new company named Sparc.

While Dr Reddy's transferred a part of its NCE pipeline to an innovative joint venture with ICICI Bank and Citigroup, named Perlecan Pharma, the Chennai-based Orchid Chemicals floated a separate subsidiary, Orchid Research Labs, to pursue its new drug research.