GlaxoSmithKline to invest 500 million in UK after tax promise; faces questions on Avodart benefits

As a result government tax pledges, UK pharmaceutical giant GlaxoSmithKline (LSE: GSK) plans to invest £500 million ($780.6 million) in new manufacturing facilities, including the expansion of a respiratory drug plant in Hertfordshire and building a UK biopharmaceutical manufacturing plant and creating around 1,000 new jobs in the country over the course of the project.

GSK’s shares fell 2.9% to £12.24 by close of trading yesterday, though this will due to other news relating to a US enquiry into its prostate cancer treatment rather than a reaction to the investment news (see below).

This would be GSK’s first production investment in the UK in 25 years, and comes as a result of the Coalition government’s confirmation of the previously proposed Labour administration "patent box" plan, which cuts the rate of corporation tax to 10% (from the normal 28%) on profits generated from UK-owned intellectual property, such as patents (The Pharma Letter December 11, 2009). Chief executive Andrew Witty said the move had the potential to "transform" the way companies like GSK view the UK as a location for new investments, adding: "I guarantee you that if this hadn't happened, there would be no GSK biopharma facility being built in Britain."