A committee consisting of senior members from GSKs Center of Excellence for External Drug Discovery (CEEDD) and Ranbaxy's New Drug Discovery Research (NDDR) team have chosen which compound to advance into preclinical investigation.
The two companies are collaborating on two research programmes: one in chronic obstructive pulmonary disease (COPD) and the other in anti-infectives.
Soaring costs, pipeline shortages and patent expiries has led big pharma firms to refocus their businesses and increase outsourcing of drug development.
The collaboration between one of the largest pharmaceutical firms in the world and Indian-based Ranbaxy was established in 2003 and then expanded last February.
At the time, Ranbaxy's CEO said: "This is a great moment for our scientists.
The agreement presents a unique opportunity to demonstrate the India centric advantages of high quality research and development to deliver value at the cutting edge.
"I believe the arrangement with GSK is path-breaking and acknowledges the higher level of R&D maturity prevalent today in our state-of-the art labs in India," he continued.
Ranbaxy could receive over $100m (€75m) in potential milestone payments for a product developed by Ranbaxy and subsequently launched by GSK in multiple indications and up to double digit royalties on worldwide net sales.
"A dynamic collaboration between GSK's CEEDD and Ranbaxy has been the key for this success," said Dr Pradip Bhatnagar, head of New Drug Discovery at Ranbaxy, of this latest development.
Ranbaxy will progress the drug candidate through preclinical studies before submitting an Investigational New Drug (IND) application to regulatory authorities, such as the US Food and Drug Administration (FDA).
Ranbaxy will also be responsible for conducting Phase I and Phase II clinical.
At this point, GSK will then have the option to conduct further development through to final commercialisation.
Chronic Obstructive Pulmonary Disease (COPD), which encompasses both chronic bronchitis and emphysema, is one of the commonest respiratory conditions of adults in the developed world.
At a recent pipeline update, GSK announced two key compounds had progressed into Phase II development; 681313 and 856553 are both p38 kinase inhibitors to treat chronic obstructive pulmonary disease (COPD), although the first is also being tested for rheumatoid arthritis, atherosclerosis and pain.
These two drug candidates represented a significant proportion of all GSK drugs moving into Phase II.
"Given the size of GSK's pipeline, we are disappointed to see that only 7 out of 42 commercially significant compounds seem to have advanced into Phase II, compared to last years update," said Dr Baum, an analyst at Morgan Stanley.