Merck, Ranbaxy call off research pact

US drug maker Merck & Co has called off its two-year-old research alliance with India's largest drug company, Ranbaxy.

Ranbaxy and Merck's wholly-owned Indian subsidiary, MSD, confirmed the development, but declined to provide further details.

Analysts said the development had no immediate financial implications, as payments to Ranbaxy were linked to successful completion of drug development targets over a period of five years.

Conflict of interest between Merck and Daiichi Sankyo, the Japanese drug multinational that holds majority stake in Ranbaxy, could have triggered the decision, according to them.

While Ranbaxy is a generic company with little focus on discovery of original molecules, Merck and Daiichi Sankyo are innovation driven pharmaceutical companies.

The Merck-Ranbaxy research alliance was announced just a month before Ranbaxy's former promoters - billionaire brothers Malvinder and Shivinder Singh - sold their stake in it.

Unconfirmed reports suggest that the research contract could have moved from Ranbaxy to Aurigene, a drug research company, promoted by Ranbaxy's local rival Dr Reddy's Laboratories. Aurigene executives were not available for comments.

"We have called off the research partnership. But I cannot comment on reports that it has moved to some other firm," an MSD India spokesperson said.

The strategic product development agreement between Merck and Ranbaxy, signed in May 2008, was expected to result in the discovery of new anti-infective medicines.

Ranbaxy had announced that it had received an undisclosed amount as upfront payment and could receive more than $100 million as milestone payments.

A Ranbaxy spokesperson confirmed the development, but did not share the exact date when the partnership was called off.

"The tie-up was probably called off due to the conflict of interest between the two research companies, Daiichi and Merck," Ranjit Kapadia, vice-president (institutional research), HDFC Securities, said.

In June, Ranbaxy had transferred its entire new drug research team and programmes into a new entity, Daiichi Sankyo Life Science Research Center, that comes under Daiichi Sankyo's Indian subsidiary.

Ranbaxy continues to have only two programmes that can be categorised as new drug research, one in the area of anti-malaria and the other a joint research and development programme with foreign drug multinational GlaxoSmithKline.