Orchid to invest $10m in US research JV

Chennai: In order to hasten its new drug discovery process, the city-based Orchid Chemicals and Pharmaceuticals has floated a joint venture (JV) company in the US, partnering with the local company Bexel Biotechnology Inc.

Orchid Chemicals will invest $10 million ($8 million in cash and $2 million as services from its Chennai lab) in the JV, Bexel Pharmaceuticals Inc, as its share. Bexel Biotechnology, on its part, has transferred the intellectual property rights for six pharmaceutical product leads in the areas of diabetes, obesity, inflammation, neurology, infectious diseases and the drug discovery research division — all valued at $20 million.

The California-based Bexel Biotechnology is involved in drug discovery research, proteomics-based kits and reagents and alternative medicine. Promoted by an Indian, Dr Bishwajit Nag, who is the company's president and CEO, Bexel Biotechnology last June acquired 40,000 sq ft land in Varanasi to construct an R&D lab. The company also has an agreement with Thapar Centre for Industrial Research to discover new drug leads from fungal extracts to treat diseases like cancer, inflammation and wound healing.

The Varanasi land is presumed to be outside the JV deal though no confirmation is available from Orchid Chemicals and Bexel Biotechnology despite several attempts to elicit its status. With the hiving off of the new drug delivery division to the JV outfit, Bexel Biotechnology will continue with its other business lines.

As per the JV agreement Orchid Chemicals will control 50 per cent in Bexel Pharmaceuticals, while Bexel Biotechnology will hold 45 per cent. Five per cent will be controlled by Penta Biotech, which has funded Bexel Biotechnology with cash ($1 million) and chemistry.

Says Orchid Chemicals managing director K Raghavendra Rao: "The investment will be based on milestones achieved by the JV company. [Orchid Chemicals has paid $1 million and will be transferring similar amount this fiscal]. We will transfer the balance amount equally next year and the year after that."

A research facility in the US is helpful for the rapid entry into that market by conducting US Food and Drug Administration compliant clinical trials. "Our research is based on the rational drug design approach to generate 'smart leads.' The technology platform involves a combination of molecular algorithms of basic fundamental molecules such as amino acids and nucleosides and quantitative structural activity relationship," says Nag.

"We have more than 5,000 library of compounds classified category-wise, which has multiple disease target potentials," he says. The focus is entirely on orally active small molecules which has a market potential of not less that $1 billon.

He adds that the new company will focus on research and development of a drug up to phase-II clinical trials and then look out for alliances with multinational drug companies. "At this stage the valuation is higher, while the risks for the developer is less if a deal is concluded," Nag says.

According to him toxicology studies for a couple of molecules will begin soon. "We expect revenues from this venture in two years' time," says Rao about Orchid Chemicals' $10-million outlay.

Rao says his company's proposal to float a cephalosporin bulk drug JV in China is pending government approval. "As both the companies are publicly listed I am not able to disclose much on the deal."

As per plans, Orchid Chemicals will ship to its proposed Chinese JV the penultimate stage of cephalosporin bulk to be converted as a final product and sold there. A lion's share of Orchid Chemicals' exports is to China.