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Last Updated: Thursday, 23 October, 2003, 10:40 GMT 11:40 UK
UK drugs giant in India tie-up
An Indian researcher
Ranbaxy is gearing up for the introduction of stronger patents
UK drugs giant GlaxoSmithKline has allied with India's largest pharmaceuticals firm, Ranbaxy, to collaborate on drug development.

The deal is the first between major Indian and overseas drugmakers, and may herald a move in the medicine business towards the kind of outsourcing to the subcontinent which has become the norm in IT.

Firms such as Ranbaxy have so far made most of their money from making copies - known as generics - of other companies' drugs, but new patent laws due in 2005 mean they are seeking to do more original research.

Under the new alliance, Ranbaxy will identify promising potential drugs and perform early clinical trials in India, while GSK takes care of the later-stage development.

This is a classical example of a company making a transition from a re-engineering company to an engineering company
Rashmi Barbhaiya, Ranbaxy head of research
GSK will have sole commercial rights outside India, although Ranbaxy may - if consent is forthcoming - take part in joint promotion in the US and Europe.

Neither company would go into the financial details of the deal.

Shifting priorities

For Glaxo, one benefit would be to accelerate the development of new products at lower cost.

The firm reported strong results on Wednesday showing profits for the third quarter up 24% on the year before.

But some analysts were worried about future earnings, and about the pipeline for new products.

Several of GSK's biggest sellers are facing generic competition - ironically from companies like Ranbaxy.

But for the Indian company, the imminent shift to stronger patent protection in India makes it imperative to move further into original research & development.

"This is a classical example of a company making a transition from a re-engineering company to an engineering company," Ranbaxy's head of research, Rashmi Barbhaiya, told a conference call.

At present the company spends about 6% of its annual sales on R&D, or about $55m.

It hopes to increase that proportion to 10% within five years.

Net profits for the third quarter were up 25% to 1.86bn rupees ($41m; 24m) on sales up 11.5% to 11.3bn rupees.

But that growth was hampered by the loss of sole seller status for its copy of GSK's Ceftin antibiotic, which ran out in June. Sales of its cefuroxime axetil equivalent slumped to about 400m rupees from 1.8bn rupees the year before.

BBC World Service business reporter Mark Gregory
"For Glaxo, the lure is India's lower labour costs."

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