The board at India’s Ranbaxy Laboratories has approved the demerger of its new drug discovery research (NDDR) unit into a separate subsidiary.

The demerger which will create Ranbaxy Life Science Research should result in cost savings of $25 million in the current year for Gurgaon-based firm. Under the terms of the scheme, stockholders will get one share in Ranbaxy Life for every four shares held in the parent company.

Ranbaxy and Ranbaxy Life Employees’ Welfare Fund will hold 19.8% and 4.9% of the equity in the new unit, respectively, and it will be listed later this year on India’s National and Bombay Stock Exchanges. Malvinder Singh, chief executive of the parent group, said that the de-merger of the NDDR unit into a separate entity “establishes a robust structure to carry out pathbreaking research at the cutting edge of modern medicine”. He added that it will also enable RLSRL to create intellectual property at a faster pace while positioning it for the future".

This strategy of divesting or demerging research units has become commonplace in India over the past year. Dr Reddy’s transferred a part of its new chemical entity pipeline to a joint venture, called Perlecan Pharma, set up with ICICI Bank and Citigroup, while Nicholas Piramal and Sun Pharma have set up separate R&D units.