GlaxoSmithKline pledges $330M to ramp up Relvar production, expand in U.K.

You have to hand it to GlaxoSmithKline: The company knows how to play politics in its home country. After lobbying for years for a "patent box" that would cut its taxes, the company has announced two major investments in the U.K.--and credited the patent box with both.

The latest: Glaxo ($GSK) will spend £200 million ($330 million) to upgrade equipment at two manufacturing sites and set up a new center dedicated to developing new manufacturing technologies. Think nanotech drug formulations and enzyme-based production, for instance. The manufacturing upgrades will fuel the launch of Relvar Ellipta, its new respiratory drug, and enable bulk production of the antibiotic Augmentin.

Last year, GSK said it would build its first new factory in the U.K. in 40 years. Together with that £500 million project, this new plan brings the total to £700 million in new investment, or about $1.15 billion. Thanks to the patent box, it's offset by lower tax rates on profits from patented products. Phased in beginning this year, that lower tax rate will be 10% by 2017.

Glaxo CEO Andrew Witty, who lobbied hard for the new tax provision, has said it can "transform" Britain's image among countries looking to invest in R&D and manufacturing. As the patent box won approval, he said other countries with "more favorable" tax regimes had attracted new R&D and production facilities, and the jobs that go along. "In one stroke, the introduction of the U.K. patent box will help to change this dynamic," he said.

The latest announcement again shows Witty is willing to put his money where his mouth is. At an existing site in Ware, the company will beef up its facilities to produce the Relvar Ellipta inhaler, sold in the U.S. under the Breo brand; it was approved by the FDA in May and in Europe just last month. A treatment for chronic obstructive pulmonary disease (COPD), it's expected hit $1.3 billion in peak sales.

Meanwhile, in Worthing, Glaxo will add a new sterile building and filling line for bulk production of its antibiotic Augmentin, for export to 150 countries. An older product sold primarily in emerging markets, Augmentin brought in £465 million for the first 9 months of 2013.

Glaxo's domestic investment gives U.K. politicians the opportunity to brag about the country's allure and justify the patent box scheme domestically. It's likely to have the opposite effect in neighboring countries that don't shield patent-protected income from the usual taxes, Reuters notes. It probably doesn't help that Glaxo elected to spare U.K. manufacturing--and hit Europe--when it decided to cut £1 billion from R&D and production costs earlier this year.

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