* GSK divests drugs in exchange for 19.9 pct Orchard stake
* Follows review of rare disease unit initiated last July
* Deal includes "bubble baby" gene therapy drug Strimvelis (Updates with Orchard CEO interview, more on gene therapy)
By Ben Hirschler
LONDON, April 12 (Reuters) - GlaxoSmithKline is divesting its rare disease gene therapy drugs to private biotech company Orchard Therapeutics as Chief Executive Emma Walmsley makes good on her promise to prune the drugmaker's pharmaceuticals portfolio.
Financially, the transaction will not move the dial for Britain's biggest drugmaker, but it offers a sign that Walmsley is making progress in reshaping the company since her arrival a year ago.
She first announced a strategic review of the rare diseases unit last July as part of a wide-ranging overhaul designed to narrow the focus of drug research and improve returns in the core pharmaceuticals business.
Under the deal announced on Thursday GSK will receive a 19.9 percent stake in unlisted Orchard, a seat on its board and future royalties and milestone payments linked to the commercial success of the drugs.
A GSK spokesman said it would also receive a small upfront payment, the size of which is not being disclosed.
To some extent, GSK is swimming against the tide by getting out of treatments for rare diseases at a time when rivals see the field as a rich profit source.
But the assets in GSK's rare diseases portfolio are tiny in commercial terms and the drugmaker will continue to invest in the development of its platform capabilities in cell and gene therapies, with a focus on oncology.
GSK is stepping up its work in gene-based cell therapies for cancer, having recently spent hundreds of millions of dollars to build a large presence focused on T-cell receptor treatments to fight a range of tumour types.
The company's only marketed rare disease gene therapy is Strimvelis for ADA severe combined immune deficiency (ADA-SCID), or "bubble baby" disease. It has been used to treat only a handful of patients since its launch in Europe two years ago, at a price of 594,000 euros ($735,000) per treatment.
Strimvelis and other gene therapies for ultra-rare conditions will sit better within Orchard, a small British company that is also working on ADA-SCID and other niche genetic disorders.
Orchard CEO Mark Rothera said his company, which has already raised more than $140 million, planned another private sale of shares following the GSK deal and could consider an initial public offering after that.
"From an investor community point of view there is a huge amount of interest and willingness to support development of these medicines. I am very confident that we will be raising funds in the not too distant future," he told Reuters.
Gene therapy is a hot area for drug research right now, as highlighted by Novartis's $8.7 billion acquisition of AveXis this week.
Pfizer, meanwhile, stepped up its commitment to the field on Thursday with the dosing of the first patient in a clinical trial of an experimental gene therapy for Duchenne muscular dystrophy.
$1 = 0.8087 euros Editing by David Goodman/Keith Weir