The pact covers the commercial production of over 60 of J&J's non-sterile specialty semi-solid products (prescription and non-prescription) for the US market, and will "significantly improve" Draxis' capacity utilisation for non-sterile products.

The deal could reap in up to $120m (€88m) for Draxis over its five-year term, effectively boosting the company's annual revenue by a quarter, based on last year's sales figure of $90m.

Commercial production of the products is scheduled to start in late 2008, and ramped up by mid-2009. The contract will expire at the end of 2013, at which point a renewal could be explored by the two parties.

The new workload is significant enough to require Draxis to expand its operations for the first time, and build a second manufacturing facility in Montreal, in order to meet increased logistics and secondary packaging activities. In addition, between 80 and 100 new jobs will be created across the two sites.

"This is due to the large number and wide range of finished product formats represented by this new business", said the firm.

All products will be formulated and filled in the existing plant in Kirkland, Quebec, and the new facility, which is expected to open in mid 2008, will be used for operations such as labelling, assembling different product configurations for different markets, cartooning and shipping.

The two firms are no strangers, with an existing working relationship established, however, to bag the new contract, Draxis still had to undergo a global selection process "conducted over an extended multi-year period" and compete with 80 other contract manufacturers.

Then the actual arrangement between the two firms took a long time to finalise due to the number and varying scope of the products involved, requiring negotiations between several J&J divisions, said Martin Barkin, president and CEO of Draxis, during a conference call yesterday.

However, prior to finalisation of the contract, the two companies have already been operating on the basis of a letter of intent. The process of transferring the products to Draxis' facility and validating the manufacturing procedures for each product was initiated late last year and is due to continue until the end of 2008. This transfer process will generate and additional $6m-$8m for Draxis.

Meanwhile, Draxis has also been busily making preparations for the arrival of the new products at its existing facility.

Specifically, the firm said it made "improvements" to the existing semi-solid manufacturing facilities in June and July and also enlarged some compounding rooms and supplied them with "required services to accommodate new equipment". Additional floor space was also created through the construction of a new mezzanine.

Draxis confirmed that the capital costs for the facility improvements and new equipment specific to this contract will be recovered through a financing agreement.