Glaxo extends Ranbaxyresearch tie-up

GlaxoSmithKline has extended a drug research agreement with the generic manufacturer Ranbaxy Laboratories in a deal that could lead to more then $100m (£50m) in milestone payments for the Indian company.

Analysts say the move reflects a growing desire on the part of major pharmaceutical companies to tap into India's skills base and also benefit from the lower operating costs in the country.

Under a previous alliance agreed in 2003, Ranbaxy carried out early stage chemical tests to take drug leads being developed by Glaxo to the stage of candidate selection. Ranbaxy will now take drug candidates to second stage, or phase II clinical trials, and will also retain the right to co-commercialise the products developed in India.

The two companies will work together to develop drugs for a range of therapy areas including anti-infectives, respiratory and oncology.

Ranbaxy is a leading manufacturer of generic drugs in India and has in the past focused on developing copycat drugs to sell in the US and Europe. As well as collaborating with Glaxo, it is also battling it in the courts as it is launching a generic version of the European giant's drug Valtrex, a treatment for shingles and herpes.

However, analysts say India's pharmaceutical firms are learning to survive with global competitors through collaboration. This has obvious advantages for both sides as it opens up the global marketplace. Ranbaxy wants to extend its work into patented medicines. Meanwhile, Western drug makers have been encouraged to work alongside Indian firms after the introduction of new laws protecting intellectual property in the country.

Maxine Gowen, head of Glaxo's external drug discovery unit, said the deal was part of a broader strategy to build up the group's pipeline through external research and development collaborations.

Glaxo is set to report full-year results tomorrow and analysts are forecasting a healthy 15 per cent increase in pre-tax profits to £7.8bn against £6.7bn last year. Revenues are expected to rise to £23.3bn from £21.7bn.

However, investors will also be focusing on management's comments on pipeline developments as there are likely to be several further generic challenges to core products this year.

Analysts also said they could not rule out job cuts after recent moves by AstraZeneca and Pfizerto slash their workforces.