• OUTLOOK ARENA
  • VIEWS ON NEWS
  • MAY 4, 2000

Ranbaxy, Dr Reddy’s to benefit from tax sops

The government has granted full tax exemption (for a period of ten years) for inflows from milestone payments received by pharmaceutical companies on the sale of New Chemical Entities (NCE) and Novel Drug Delivery Systems (NDDS). This exemption currently stands at 50% of the payments received.

Besides, the existing tax benefit of 125% of expenditure on R&D has been increased to 150%. This will further serve as a major incentive to the domestic pharma companies to invest in research as the cumulative tax benefit on such investments amounts to 57.75% (Corporate tax rate – 38.5% factored 1.50 times amounts to 57.75%).

Since the multinational companies do not carry out research in the country it will be the domestic pharmaceutical companies who will benefit from this move. Notable among these are Ranbaxy and Dr Reddy’s Laboratories (DRL).

Ranbaxy, for instance, received US $ 10 m (Rs 435 m) last year when it signed the deal with Bayer. Over the next 24–30 months the company would receive another $ 50 m (Rs 2,175 m) apart from a royalty of 10% on the sales of the new dosage form by Bayer. All these incomes would be tax–free.

Similarly, DRL has three new original molecules in its research pipeline. One is an anti–cancer compound, another was a Cox II inhibitor (anti–pain) and third was a compound indicated for metabolic disorders. The company foresees licensing out two of these to MNCs for clinical trials in the near future.

Any deal DRL enters into is likely to be modeled along the lines it has with the Danish company Novo Nordisk which is developing DRL’s diabetes lead molecules. The company is also working on a new class of diabetes products called PPAR, expected to have considerable potential.

Notable among the other beneficiaries are Cipla, Sun Pharma and Nicholas Piramal, which also have aggressive plans in the NCE segment.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407