Pharmaceuticals producer Nicholas Piramal India Ltd will de-merge its new chemical entity (NCE) research unit into a separate company to which Nicholas Piramal will contribute Rs5 crore as capital for an 18-per cent stake in it.

Piramal says the demerger will also facilitate bringing in strategic or financial investors in future who may wish to invest directly in the research units the NCE research programme.

Under the proposed demerger, the NCE unit, with net assets (at book value) inclusive of Rs95 crore collected by a rights issue in 2005 to finance research, will be transferred by Nicholas Piramal to the new company by 1 April 2007, the date when the demerger becomes effective.

The new company will issue fully paid up equity shares aggregating Rs21 crore to the shareholders of Nicholas Piramal in the ratio of one equity share of Rs10 for every 10 equity shares of Rs2 each that they held in the company.

After the de-merger, Nicholas Piramal would hold 18 per cent of the equity capital of the new research company, with the remaining 82 per cent being held by the shareholders of Nicholas Piramal.

The new company is proposed to be listed on the BSE and the NSE and after the listing, at an appropriate time, will explore various options for raising further funds to meet its business requirements.

Since 2003, Nicholas Piramal has strengthened its efforts on research for new chemical entities or molecular compounds that make the building blocks for new drugs. The company''s NCE pipeline has expanded from five compounds in 2002 to 13 compounds in 2007, out of which four drugs have reached the clinical trials stage.

Nicholas Piramal''s investigational new drug (IND) application for its lead molecule P-276 has recently been approved by the USFDA and the company expects clinical trials to commence soon for the drug aimed at multiple myeloma, a devastating type of cancer, in collaboration with Harvard Medical School and Dana Farber Cancer Centre, in the US. (See: Nicholas Piramal''s new drug IND-P276 approved by US FDA)

Nicholas Piramal''s R&D capabilities have also been recently validated by virtue of research collaboration with Eli Lilly, for a metabolic compound for the US-based pharmaceutical company on a risks and rewards sharing basis. Nicholas Piramal has had a long relationship with Eli Lilly, having bought four brands from the US drug firm in 1999 (See: Nicholas Piramal buys four Eli Lilly Brands)

The dynamics of demerger
Nicholas Piramal expects to have eight compounds in clinical trials by end of the current financial year. This will result in increased spending as clinical development costs constitute about two-thirds of the total R&D cost of a drug. NPIL wishes to complete development up to proof-of-concept (end of Phase II) for its entire pipeline compounds and bring to market certain niche compounds on its own.

The dynamics of NCE R&D are different from Nicholas Piramal''s branded formulations or custom manufacturing businesses. Investment in NCE research calls for sharper research focus, longer time horizon and higher risk appetite, which weighed in favour of the demerger, the formal approval for which came at the board of directors meting today.