Government patent box proposals ‘transform’ UK attractiveness for investment

Issued: London, UK

• GSK to invest £500m in manufacturing projects
• New £50m UK venture capital fund to be established
• New investment with academia on ‘green chemistry’

GSK welcomes the publication today of the Government’s proposals to establish a ‘patent box’. The measure is designed to encourage investment in R&D and related manufacturing in the UK by introducing a lower rate of corporation tax on profits generated from UK-owned intellectual property. Specific details of how the mechanism will work are now the subject of consultation.

Commenting on the proposals, GSK CEO Andrew Witty said:

“The introduction of the patent box is a bold and forward-thinking measure which builds on the UK’s strength as a global centre of excellence for science and R&D. In the current challenging and uncertain economic environment, this is a welcome step by the Government to improve the attractiveness of the UK as a place for the private sector to locate and invest.

“When implemented, the patent box has the potential to transform the way in which the UK is viewed by companies such as GSK as a location for new investments in high added-value R&D and manufacturing.

“For too long, while great inventions and discoveries have been made in this country, downstream economic activity in development and manufacturing, and associated employment, have been attracted to other countries which have more favourable corporation tax regimes. In one stroke, the introduction of the UK patent box will help to change this dynamic.

“For GSK, the successful introduction of the patent box will enable us to increase investment in communities where we have existing facilities by scaling up current manufacturing and building a significant new plant. With a more IP-friendly environment, we also plan to launch a new UK venture capital fund and invest in new technologies such as green chemistry. In total, these new investments in the UK would be worth more than £500 million.”

Specifically, GSK today confirms that successful implementation of the patent box will:

• Secure new investment in the manufacture of GSK’s next generation high-technology respiratory inhalation device for asthma and chronic obstructive pulmonary disease (COPD) at Ware in Hertfordshire. GSK holds a global leadership position in respiratory medicines and has a wide-ranging late stage respiratory pipeline, including the combination product Relovair, which is now in phase III development.

• Ensure that the UK is the location for GSK’s next biopharmaceutical manufacturing plant. In 2011 the company will conduct a feasibility study on the location of this facility. Current GSK manufacturing sites in Irvine and Montrose in Scotland, and Ulverston and Barnard Castle in the North of England will be considered first. Construction of major biopharmaceutical manufacturing sites usually takes 7 years or more from conception to the start of commercial production.

The company is also building a significant biopharmaceutical business. Six biopharmaceuticals are now in late-stage development for treatment of diseases such as lupus and diabetes, and biopharms represent approximately 20% of GSK’s overall clinical pipeline. Biopharmaceuticals are medicines that are made from biotechnology (biological systems or living organisms which are modified for medical purposes). GSK is also one of the world’s leading vaccines companies, shipping 1.4bn vaccine doses in 2009.

• Secure further investment in continuous tablet manufacturing technology at Ware and a new topical (creams and ointments) manufacturing centre of excellence at Barnard Castle, County Durham, in support of GSK’s growing global dermatology franchise.

• Result in the launch of a new £50 million UK Venture Capital Fund. This fund will be focussed on investments in early stage healthcare companies and spin outs from academia in the UK which are pursuing innovative, breakthrough science. The new fund will be a dedicated element of GSK’s existing corporate venture capital arm, SR One. This corporate venture capital portfolio was founded in 1985 and has invested more than $600 million in biotech companies since that time. Currently approximately 70% of the companies invested in by SR One are US-based.

• Lead to the construction of a new facility at the University of Nottingham focussed on the development of ‘green chemistry’ technology. GSK intends to make a significant financial contribution to this project. The facility will both support academic teaching and encourage related IP research and development in the field of green chemistry. The building will also be a carbon neutral laboratory facility, serving as a prototype for similar projects elsewhere in the world. The proposal will go through proof-of-concept in 2011 and be built at the University of Nottingham’s Jubilee Campus.

Notwithstanding GSK’s ongoing global restructuring programme, which involves growth and downsizing in different areas of the business, these new investments will lead to the creation of an estimated 1,000 new jobs in the UK over the lifetime of the projects. The investments will also benefit the wider construction industry and the more than 10,000 companies which supply GSK with services and facilities in the UK.

GlaxoSmithKline – one of the world’s leading research-based pharmaceutical and healthcare companies – is committed to improving the quality of human life by enabling people to do more, feel better and live longer. For further information please visit www.gsk.com

Cautionary statement regarding forward-looking statements

Under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995, GSK cautions investors that any forward-looking statements or projections made by GSK, including those made in this announcement, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Factors that may affect GSK' s operations are described under 'Risk Factors' in the 'Business Review' in the company' s Annual Report on Form 20-F for 2009.