September 8, 2010 / 6:13 AM / 9 years ago

UPDATE 3-Lonza signs production deal with Glaxo, shares rise

* Lonza to manufacture clinical trial batches of 5 compounds

* Also advising Glaxo on its own bio-manufacturing plans

* No financial details

* Analyst says revenue impact of deal 2-3 years away

* Shares rise 1 pct, outperform sector, Swiss market

(Adds detail on Glaxo’s own biopharma manufacturing plans)

By Sven Egenter and Catherine Bosley

ZURICH, Sept 8 (Reuters) - Lonza LONN.VX said it would manufacture a number of drug compounds for Britain’s GlaxoSmithKline (GSK.L), adding to signs of a revival in demand from pharmaceutical clients.

The Swiss drugs industry supplier said it would produce five early stage monoclonal antibodies from Glaxo’s biopharmaceutical pipeline and will also help Glaxo with its plans to build its own biopharmaceutical manufacturing facility in Britain.

No financial details of the deal were disclosed.

At 1110 GMT, Lonza's shares were 1 percent higher, making them one of the top performers in a flat Swiss blue-chip index. .SSMI

“(It is) a meaningful addition to its services and small-to-mid-scale production portfolio, especially as it strengthens the relationship with key customer GSK,” Kepler analyst Florian Gaiser said in a note.

“However, the projects are small and early stage, such that significant revenues and profits are 2-3 years away.”

Faced with a tougher road to get their medicines to market, some drugmakers have become more cost conscious, limiting manufacturing contracts with companies like Lonza, which was also hit by drugmakers cutting inventories during the downturn.

In July, however, the Basel-based group, which has moved away from specialty chemicals to focus on higher-margin pharmaceutical ingredients, said the first half saw an overall rise in new orders and business was set to recover further.

Lonza will initially manufacture clinical trial batches of five compounds currently in Phase I and II for Glaxo.

Longer term, the relationship could also help GSK develop its own biotech drugmaking capacity.

Glaxo said in December it expected to spend some 500 million pounds ($773 million) building a new factory to make biotech drugs and on expanding an existing plant to make next-generation respiratory medicines, following a British government decision to slash corporation tax for patent-derived income.

The so-called “patent box” scheme would more than halve tax for manufacturing income derived from patents, though questions have recently been raised as to whether the plan set out by the previous government will still be implemented, given its cost. (Additional reporting by Ben Hirschler in London; editing by Karen Foster and Will Waterman) ($1=.6469 Pound)

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