葛蘭素史克 (GSK) 2005 Q4 法說會逐字稿

Welcome everyone to our year-end meeting.

We will have several speakers today , the usual suspects, David Stout, our President of Pharmaceuticals, Julian Heslop, our Chief Financial Officer, then we'll ask Tachi to join us to answer all the questions you might have.

In the meantime, I'd just like to say this is a very strong year that is ending for us, and we're very well positioned for 2006, as you can see in the press release.

We're not going to repeat what's in the press release, which I think is very complete, but I'd like to make a couple of comments on the financials and the pipeline.

Those are the numbers.

Very strong.

Likely in excess of consensus and gives us a good foundation for '06 and beyond.

I just want to mention cash flow because we did spend money on very strategic acquisitions, such as ID Biomedical, which I think is a brilliant stroke for us because it opens up the very interesting flu and pandemic market at the right time, but despite that, we were able to work our debt down and have a strong balance sheet and able to increase dividends slightly faster than we did in the past.

It was always $0.01 a year.

We went crazy this year and went $0.01 this year.

But it will increase the yield of stock and it also should give you confidence about the future.

In terms of the pipeline, if you look back at 2001, this has been really a steady increase in not just the number of projects but also the diversity, the quality, the novelty of all the items that are now in our pipeline.

As you can see, looking at the green and the blue, the late stage phase of the pipeline is the by far the most important one.

If I head back to PLE, the product line extension, including combination vaccines and the like, the total number of projects as we speak is around 146.

So it is a big pipeline, and it is very important to have this kind of density of projects, because not everyone is going to make it, as I keep repeating, and therefore you want to have backups and backups of backups so you never find yourselves in a dry season, as we were when we started six years ago.

There was an interesting comparison of R&D productivity.

Many people have looked at this and, you can do it in different ways but this is just one more piece that indicates that GSK has broken the code a little bit here, and in terms of R&D productivity we're clearly above the average of the industry.

If you look at the late-stage pipeline, there's quite a good crop of opportunities available right now in '06 and David will talk to you about some of those projects.

You haven't necessarily been in the details of all this, but they -- let me assure you that except for Arranon, which is really a specialty type of product for very serious lymphoplastic leukemia and lymphoma, the rest is -- in terms of commercial potential is huge.

Trexima is, in head to head comparison with the best in class, Trexima won.

It's the most efficacious migraine treatment.

If you have migraine, why would you get anything else?

This is a no brainer.

So we are expecting to do very well with products such as Trexima and Entereg produced very good positive data.

Entereg is interesting because it illustrates to me that pharmaceuticals do more than just satisfy patients and get people better quickly.

It also saves money to the healthcare system.

In the U.K. where we are today, we are seeing the difficulties of the N H S. Entereg takes people out of the hospital faster than if you don't use Entereg.

If you have bowel surgery and you want to go home faster you should take Entereg.

That's what [inaudible - accent] demonstrated, once again.

It shows there's a lower incidence of complications following surgery if you take Entereg.

To me that's typical of what this industry is all about.

Finding solutions for the explosion in healthcare costs that we're seeing throughout the world, and cutting access to innovation is counter productive.

This is like shooting yourself in the foot.

We think we are going to continue to come out with new medicines and new vaccines which have a substantial beneficial effect even on the healthcare costs incurred by the payers.

If you look at the filings, this is a heavy-duty year, and this is a great class.

The class of 2006 expected filings is made up of also significant molecules such as Allermist and Cervarix and Tykerb, and so forth so I don't need to repeat all the elements that you already have learned from us, but I remind you that the H5N1 prototype pandemic vaccine will be ready by then, and that has been a very quick development program.

Mepolizumabis a very important product for a small population of patients.

Those are people who have an [hyper sequestion of the isinophew] and, of course, IL-5 stimulates this production, and the condition can be fatal, and we have a product which is designed as an anti-IL5 monoclonal, and it's effective in the clinic, so we will file this year.

For the rest, those are very big products, Cervarix, Tykerb.

There will be a lot of news on Tykerb.

Cervarix, you know all about it.

The market opportunity is very large.

We have announced our filings for March in EU and beyond.

And year end in the U.S.

The key trial for us is event driven, and we have calculated by year end we will be in a position to file, and so far it's going as per plan.

It's interesting, because Merck just got priority review from the FDA today.

It's clear they have an interesting vaccine, but there are differences between the two, particularly in the field of cross protection and duration of antibody response.

So we will have an offering that will compete with Merck.

I think the most important part is that if the demand is as fast and furious as I expect, it won't matter, both vaccines will sell very well.

In terms of Tykerb, there will be a number of presentations at ASCO.

I think the most important one will be around the issue of brain metastasis, because for advanced breast cancer patients, if they take Herceptin, Herceptin does a very good job as a standard of care, but Herceptin cannot do anything for brain metastasis because it does not cross the blood-brain barrier.

So there is no solution there.

We have done a study showing that ours does cross the blood-brain barrier and showing positive data.

So brain mets, that's going to be an important publication.

Confirmation of what we've seen before.

And, of course, we're looking at survival benefit in the difficult to treat renal cell cancer and also good results in head and neck, continuing on the trend we showed you at the seminar.

Some of you attended the seminar.

So Tykerb is going well, and we certainly hope to be able to file in '06.

If you look at the other products that are going to enter Phase III, there's a wide variety of approaches, of indication, many of those indications are potentially very large, whether it's meningitis or solid tumors or lupus or cardiovascular risk with Avandia and combination and diabetes and so forth.

I'm going to make just a few comments about one particular case.

Because beyond showing that there is tremendous diversity, novelty and quality in our pipeline I think you should know we also know how to use new technologies to our benefits.

I've been the one, in terms of pharmacogenetics, you have to be careful.

It's not going to change the pharmaceutical industry overnight.

It it's going to be a progressive impact on what we do.

For starters, pharmacogenetics, when well utilized, can salvage products that otherwise would fall off the pipeline.

And here's an illustration: If you look at the case of Alzheimer's, there is a hypothesis that because patients with Ad have decreased glucose metabolism in the brain it's natural to think that a product such as Avandia could have a beneficial effect.

When we did the study with all comers, all patients suffering from AD, we didn't see much in terms of positive results.

But then you do a subcharacterization of the patients, and you look for people who have the APO4 negative Gene and therefore typically patients that progress very quickly when they have AD, and when you take this subgroup you see a significant effect of the drug this is Avandia XR, so this is the higher dose formulation.

And clearly the separation from placebo -- in fact, if we had continued the study beyond 24 weeks we would have been able to see if it goes beyond what I would call the current medicines are doing.

And this is a very interesting finding.

It's not the final proof of the pudding.

We have to redo the study, of course, and stratify it according to the findings of this pilot study, but, for instance, our discussions with the FDA were very positive.

The agency is very interested in this kind of approach.

So this is a very interesting confirmation that we have first class pharmacogenetic expertise. [Inaudible - accent] was world-class scientist in the field that many of you have met.

And that we're able to apply those technologies gradually in situations where they can really make the big difference between losing an asset or not seeing health development that could be very critical for millions of people.

All this has been possible because we have had a lot of help from our R&D scientists led by Dr. Yamada.

We have announced that Dr. Yamada is going to take retirement and move on to the Gates Foundation later this year, we're very fortunate to have Dr. Slaoui taking over for Tachi.

Dr. Slaoui is a formidable leader.

He is a very distinguished and top-caliber scientist.

You will meet him in June or slightly before that, once he takes over R&D.

He has been the architect of our successful vaccine pipeline, where if you recall, we have five major vaccines to be launched in the next five years, and a lot of that has to with his work.

More importantly Moncef has really helped us in finding new frontier to yet improve further R&D productivity.

He's the one who is managing all the external sets, and we think this has a lot of possibilities in terms of sources of new product.

He's the one who is also creating a virtual clinical development unit.

So he has been on the forefront of how to push the limits and make the R&D of GSK even better than it is today.

And I am very optimistic about some of those developments.

I think they'll pay up in space.

But I'm glad to see Tachi start a tremendous third career.

The Gates Foundation is very prestigious and they're very fortunate to get someone the caliber of Tachi to run the operation.

And we'll be in touch, because we do have a major partnership with the Gates Foundation, so hopefully that won't be affected by the change.

We want to thank our scientists today, this is far more important than quarterly earnings.

We are building a very solid foundation thanks to many people like Tachi, Moncef, and more.

On that note, we're going to come back to the real world with a financial presentation from Julian,

who is going to tell you all about those good results.

Thank you, JP.

And I would like to start with the 2005 full-year results.

Turnover was up 7%, with pharmaceuticals up 8 and consumer healthcare up 2%.

If you look at cost of goods as a percentage of sales, it came in at 22% which was marginally higher than last year, and remediation costs, acedra, were only partly offset by operating efficiencies.

SG&A was flat compared to last year.

Sorry, you can't see, can you.

Thank you.

SG&A was flat compared to last year.

And if you exclude legal and restructuring costs, which I will come to later, SG&A only increased by 2% year on year.

And that really reflects the continuing benefit from this program of cost reduction that we do year in, year out.

R&D expenditure was 14%, 14.5% of turnover, exactly in line with the last year.

The increase in expenditure year on year was 8%.

And was adversely impacted by the write-off of intangible assets.

If you strip this write-off out, then R&D costs increased slightly lower than the turnover growth.

For 2006, we expect R&D as a percentage of sales to remain broadly in line with the percentage we achieved in 2005.

Other operating income for the year includes 290 million of asset sale profits.

And just under 80 million pounds worth of royalty income.

It also includes equity impairments and a 19 million pound profit from the [Crest and Saravan] financial instruments.

Overall for 2006, we expect a similar level of other operating income for 2005.

Moving now to operating profit down to earnings per share, you'll see that operating profit growth of 16% reduced to 13% of the PBT level.

This reflects the fact that last year we sold some shares in our associate Quest and this generated a profit of 149 million pounds.

There was no such profit this year.

Earnings per share growth of 18% benefited from a lower tax rate in 2005, which you can see from the slide was 28.5%, compared to 30.4% in the previous year.

And there were a number of factors driving this but the key one was we received higher tax relief on the employee share options due to the increase in share price during the year.

In 2006, we expect the tax rate to be around 29.5%, i.e. one percentage point higher than it was in 2005.

The bottom of the chart, you can see sterling growth in earnings per share of 21% reflecting the weakness in sterling compared to other currencies.

Each time we present the numbers, we highlight these three items, which can and do distort growth.

As you can see here, legal costs were nearly 30% lower at 430 million pounds for the year, and asset sales profit were pretty much in line with the level we achieved last year.

Overall, these items enhanced profit before tax growth by some 2% in 2005.

That's the 123 million that you see at the bottom of the chart.

Turning on to quarter 4, turnover increased 8% with pharmaceuticals up 10% and consumer healthcare up 1%.

Disposals in the consumer healthcare business impacted that year-on-year growth by some one percentage point.

Profit before tax grew 11%, faster than turnover growth, reflecting continued control over SG&A costs.

You know the earnings per share growth of 33%.

That was driven pretty much by the significantly higher tax rate in quarter 4 last year compared to the 28.3% in quarter 4 this year.

And reported earnings per share, that was a significant difference this year, uniquely favorable, probably for the first time in many years, and reflected a number of things in currencies, but the dollar was $1.86 in quarter 4 last year.

This year it averaged $1.73.

So quite a significant difference.

Long may it last.

If you move on again to look at quarter 4 and the legal and restructuring costs that chart I think makes it pretty clear.

And you may recall last year in quarter 4 we introduced a new basis for legal provisioning.

We introduced an IBNI, incurred but not reported actuarial basis.

The introduction of that last year gave us a charge last year of about 141 million pounds.

We carry on to apply that policy, but this year it had little impact.

These items overall as you can see had little impact.

They negatively impacted profit in the quarter by 12 million, approximately 1% of the growth for the quarter.

So in conclusion, a good 2005.

We delivered earnings per share growth of 18%.

We generated free cash flow of 4.7 billion pounds, up 26% year on year.

And despite that, net debt decreased by 700 million.

We had dividend of 2.5 billion, share buybacks of a billion, we invested over a billion pounds in our vaccine business with the acquisitions of Karixa, ID biomedical and the marietta facility for flu which we also purchased.

Moving on to 2006, we expect EPS growth for the year to be around 10% at constant exchange rates.

The earnings guidance incorporates the one percentage point increase in tax rate that I talked about earlier, and is unqualified despite the risks of generic competition.

Assuming the January closing rates remain the same for the year, which as we all know they never will, but just as a pointer, if they did, I would expect some additional currency benefit over and above the constant exchange rate growth of 10% of about 1 and 2% for the year.

I'll now hand over to David Stout.

Thank you.

Thanks very much, Julian.

I'd just like to begin with a few comments on some of the key environmental issues that will be facing us as we leave 2005 and head into 2006.

Of course, Medicare part D is now a reality, and despite what you might be seeing in the press, actually enrollment is going quite well.

Right now we're up to about 25 million enrollees in the U.S., and I think the most important element is this uninsured group.

Of course, we expected patients that were already in part of Medicaid, people that were enrolled in drug programs as part of their employers.

They were going to roll over automatically.

But the big question was what would happen to this large uninsured group.

Right now we're up to 3.6 million of those patients are enrolled and they still have May to continue that enrollment.

So from an HHS perspective, they're on track to their 28 million enrollment figure and they're also very pleased, now estimates are it will be $8 billion less for the total bill.

The average cost to a patient, which was originally estimated to be around $35 a month, is now estimated to be $27 a month.

So I think this is also a key indicator that competition works.

This is something that we had pushed for when the bill was passed.

It's now showing that it works in the marketplace.

It's delivering better products at lower prices to the patient.

Of course, U.S. price willing be affected somewhat by this we expect that price increases in the future will be somewhat curtailed because of the impact of the contracts and the number of patients that will be enrolled in these programs.

Overall, pricing in Europe remains about the same.

We expect the same culprits in the past, France, Germany, very tight budgetary pressures.

I would also remind new is the year Japan, the every other year, 2006 is the year where we expect a price decreases to be on the order of 6 to 7%.

On a regulatory front, safety continues to be the key issue.

As you start to see more and more people looking at these on-line data registries people are playing with numbers, looking for issues in the safety databases, and as a result, regulatory bases are being reactive to it, they're being very cautious, I think that's being reflected in terms of new product approvals, new cautionary statements showing up in labels.

This works to your disadvantage in terms of getting new products approved.

Also works sometimes to your advantage in that it delays introduction of competitive products.

In terms of reputation this is the area we have seen a real turn.

If I was to look back and see there's going to be a year where the industry turned its reputation around, 2005 would be it.

Maybe skeptics would say we bottomed out, but a lot of positive things happened.

First of all I do believe Medicare part D is having a positive impact on our reputation.

Also, our behaviors helped a lot.

I can think back to five, six years ago when it was difficult to not pick up a newspaper and see a negative article about something on pharmaceutical industry behavior.

That's not happening.

The pandemic flu situation is also clearly helping us.

We're being looked at rightfully so as an industry that can provide a solution to this emerging issue.

And of course access to medicines around the world is also helping.

Now let's turn to the performance of our pharmaceutical operation.

As you can see, we had good strong growth as JP mentioned, but more importantly I think was that we had growth throughout the world.

It wasn't just in the U.S. as we've seen in years past.

We had growth in international and European markets as well.

In our international markets Asia was the clear star.

In Japan we were up 13%.

And we're now the number nine pharmaceutical company in the country.

Korea, China, Taiwan also were demonstrating double-digit growth.

International was offset by Canada and Australia which continue to deal with either patent issues or tight governmental pressures, although I would say in the fourth quarter both countries showed growth for the first time in a couple of years.

In Europe we had a terrific performance.

If you even exclude the performance of Fraxiparine, which we acquired in late 2004, we still were up 5%, and we grew faster than the composite big pharma pharmaceutical companies for the first time in a number of years.

Remember, GSK gets hampered somewhat in Europe because we don't have the ability to launch a lot of the line extensions which we do so successfully in the United States.

Of course, Lamictal went off patent halfway through the year.

As we look out to 2006 we will also be facing patent expirations and potential generic introductions for Zofran and imagran for tier peen market.

We still see Advair, Seretide, and Avandia as well as our vaccine portfolio as significant growth drivers.

In the U.S. there's multiple growth drivers.

I'll get into that in the next several slides but I would remind you because of the issues we had in Cedra in the U.S. we were hurt by about 400 million pounds on the Paxil franchise alone impacting our authorized Paxil generics and our Paxil CR brand.

Driving the overall growth are these usual growth drivers that we've highlighted for the last several quarters.

As you can see, in the product category all five of our major products demonstrating greater than 20% growth with the exception of Avandia, which would have hit 20% had it not been for the Cedra issues, and our vaccine franchise grew 15%.

I'll talk more about Avandia, Advair, and the vaccines in the next couple of slides, but a few words on Lamictal.

First of all, bipolar driving this growth.

In the U.S. growth was up 36% and only dragged down globally because, as I had mentioned, in Europe where generics were introduced midway through the year.

The transmission issue in Valtrex continues to drive that franchise.

Coreg hit $1 billion for the first time so it is now officially a blockbuster product.

So let's take a look at Advair and Seretide.

You can see we grew to 3 billion pounds or $5 billion in U.S. currency, which was up 22%.

Of course, this 500 million pounds in growth came from all regions, and I think that's what's most important.

Of course, the U.S. continued to contribute the largest percentage of the growth, 347 million pounds, where we were up 26%.

This is actually an acceleration of the growth on 2004.

EU continued its strong growth up 144 million pounds, and up 16% and international contributing another 38 million pounds.

I know there's a lot of interest in the proposed labeling changes in the U.S. so let me just try to put this into perspective.

What you see here is the source of the business for our Avandia franchise in the U.S.

The proposed labeling changes deal with new patient stars starts.

These are patients that are either newly diagnosed asthmatics or patients not tried on other therapies first.

First of all not all of our business comes from asthma. 42% of our business comes from patients with COPD or COPD co-morbid with asthma.

Of the patients that are being treated with asthma only 6% of those patients are newly diagnosed asthmatics and only 2% are being switched from short,acting beta agonists.

I don't think you'd be surprised that you see our strong growth trend in prescriptions is continuing.

I think the other thing that you notice on the slide, I can still remember three years ago in the summer of 2003 when we were getting many phone calls questioning was the growth rate in U.S. slowing and were we bottoming out.

At that time we talked about the seasonality of the brand, and I think you can seee it here, from August to April we really see the swing through the winter months and into the spring, and that strength is continuing as you can see here.

As we look forward to continued growth opportunities you can see we have both asthma and COPD opportunities.

In asthma we still only have a third of the patients.

What I was mentioning that patients may need to start with something else first, I would remind you that in Europe, steroids have been the basis for beginning from day one.

This has been long the standard.

Yet despite that fact, most patients are now on Seretide in Europe.

That's because patients cannot be controlled with low dose steroids alone.

And that again creates potential tremendous opportunity for Advair.

On the COPD side we have the TORCH study coming out, and whether -- whenever that comes, we still have the indication.

We're continuing to grow the business here, and we still have another 4 million patients to tap into.

We have a CFC-free formulation for those patients that don't like dry powder inhalers, which should also be introduced in the third quarter.

Now let me move on to Avandia, where you can see our sales grew to over 1.3 billion pounds, a little over $2 billion.

Of course, the U.S. grew well but certainly we would have done much better had Cedra issues not arisen.

That being said we grew the brand by over 200 million pounds, the bulk of that coming in the U.S.

Really I'm excited about the European opportunity.

Europe is now starting to take off, mostly on the basis of the Avandamet franchise.

Metformin has long been the standard of care for diabetes in Europe, and now with Avandamet, physicians have two ways to approach the disease in one single tablet.

We're also able to deal with the manufacturing issues by successfully transferring the manufacturing of Avandamet for Europe to our Spanish facility.

Right now let me just give awe quick update on where we are in Cedra.

As you know it's part of our consent decree, what we've put in place is a series of inspections with outside independent groups to look at our batches before we release them this has created a bit of a backlog and that is what has caused the shortages in the marketplace.

Right thou we're anticipating approval for first-line use for Avandia-met in the U.S.

So rather than create an unnecessary demand we're currently building stocks so that when we get the approval we can launch the brand again without having to worry about a continuous issue of in and out of stock.

Some of the impressive data that we've seen when this combination is used in first-line therapy, we've seen up to four percentage point reductions in HBA1C, which is quite phenomenal.

We've also now launched Avandaryl, which was approved at year-end.

We've stocked the product in January this year, we officially launched it in February.

Just to give you a little bit of a perspective on the opportunity here, we have about 1.5 million patients currently on Avandia or Avandamet in U.S., yet there are two and a half million patients on sulfonaureas in the United States.

SUs are to the United States what metformin is to Europe.

We think this is a great opportunity.

We can move patients that are uncontrolled on SUs alone, and we can move patients that are on SUs plus other TZVs, and we can use patients that are on SUs and metformin that are still uncontrolled.

So we have a lot of opportunity.

Also through 2006 beyond that first-line indications we'll also be receiving some of our first input back on our outcomes trials, both the DREAM and ADOPT, which are looking at the earlier use of TZVs in the treatment of diabetes and also to prevent disease progression.

So as we continue to build on this franchise we also have another combination which we highlighted in our release this morning, that's a combination with symvastatin.

As we know that most of the patients with diabetes also have high cholesterol, and they should be on a statin.

As a result, with this this combination will first of all help to reduce the pill burden that patients have.

There should be better patient management, because often physicians are reluctant to overload the patient with too many medications.

This makes it simpler.

It will help cardiovascular outcomes.

It also helps on the payment front in that there will be one less co-pay for those patients that are already on dual medications.

Our clinical trials are underway and we expect a file in 2007.

Now let me touch on three products that I mentioned at the last quarter that we think are some of the future stars for GSK.

Let me first talk about Avodart.

This is our product for BPH If you think back to ten years ago when prestar was first introduced into the market, it was a lot of excitement about the category, but it never really developed.

Sometimes these categories take a little bit more time and a little bit more effort, and I think avodart is now getting the benefit of that.

In 2005 our sales doubled.

In the last two years, our market share has tripled.

We've now begun DTC advertising and are seeing tremendous response to it.

We also have, as was highlighted in the pipeline, prostate -- a prostate cancer prevention trial which should be coming to fruition in 2008.

These two combined we think will continue to make Avodart one of our future stars and a potential future blockbuster.

A second emerging star is Requip for restless leg syndrome.

Just last year we were talking about RLS, we were being quite transparent, and we said we really weren't sure, the market research said that it was a real disease, but we weren't quite convinced.

Well now we are.

As you can see in the eight months since launch our prescription volume has quadrupled.

We will be launching shortly in Europe with a product under a different brand name that will be called adartral in Europe, just to separate the two products out.

We're also working on two new formulations that will help to extend the Requip franchise.

We have a once a day version of Requip for the Parkinson's patient and we're working on a modified release version that more mimics the sleep cycle so the patients will have it during the nighttime when they want the protection the most.

The third growth opportunity is Boniva.

This was launched in April.

We're off to a very good start.

Our new RX market share is 10%, but new RXs in this category don't tell the real story because patients, once they're on this category of drugs, stay on the products for quite a long time.

You really want to look at new patient starts.

We're already, just after eight months, getting almost one out of every three new patients.

Of course, our competition is now waking up to this, and they're beginning to fight back very strongly.

One area where we do need to improve is we need better formulary coverage in the U.S.

We didn't get all of the formulary positions that we wanted.

We will be working very diligently on that in 2006.

We have EU approval in 2006, and we'll be launching there.

We also have approved in January an IV formulation.

Now, an IV formulation will be critical in the nursing home environment where patients often are bedridden, they only get up at necessary points in the day, but they're also patients who have very fragile bone structures.

If you remember, most of the products in this class, once you take the pills you to have stay standing for at least one hour after taking them.

That's going to be very difficult in a nursing home environment.

So we believe the IV formulation will be an excellent way to broach that area.

Now I would like to just spend a few minutes talking about some of our vaccines and our vaccine franchise.

As you can see, again, strong growth throughout and across all of the regions.

In the U.S we've traditionally been behind the 8-ball we're now starting to show the growth that we've always wanted. 26% growth in the U.S., primarily being driven by our Pediarix franchise as well as the first time introduction of a flu vaccine.

This year, we were able to introduce 8 million doses of flu into the U.S. marketplace.

With the acquisition of ID biomedical and our doubling of our facility in Dresden, we expect to introduce 30 to 35 million doses of the flu vaccine into the U.S. market in 2006.

Growth in Europe and international is being driven by both our pediatric franchises as well as our hepatitis-A, continues to be a very big growth driver for us in this area.

And while our current performance is all very good in the vaccine portfolio, as JP had mentioned, the real story is about the future.

In June we had the opportunity to talk with the investment community about our portfolio, and we went into somedetail.

We've also already mentioned today a lot of the investments we've made including ID Biomedical, Karixa, the Marietta facility from Wyeth.

Now, just a quick update.

As was already mentioned, Cervarix filings were announced today E.U., and with March of '06 with U.S. by year end.

Second is the Rotarix.

Let me take a second to talk a little bit more about this.

Right now we have 31 countries approved in the international marketplace.

We received our first public market tender in Brazil at the end of 2005.

We think this is going to start a cascade throughout our Latina markets, and we're very positive about that event.

More importantly, though, is the E.U. opportunity.

In the EU every year 4.5 million cases of rotavirus are diagnosed.

One in five of those cases go to a doctor, and one in fifty of those cases end up in a hospital.

So if I have done my math right, that means about 90,000 preventable hospitalizations every year in the European market.

These are the kind of stories I think that the government has been telling us they want, we have the compelling data, I think it will make a great story, we'll have a great opportunity here.

When you compare to the vaccine that Merck is now talking about there's a lot of positives for the Rotarix.

When you compare our vaccine versus the Merck vaccine, we have a two-dose schedule compared to a three-dose schedule.

Of course, obviously, this means a lot in terms of compliance, especially in international markets where it's very difficult to get patients into clinics.

There's also a medical advantage to the two-dose schedule.

Because you complete the vaccination schedule one month earlier, because really the period of time when you're most susceptible to an infection is in the first two years of life, that means you're protected one month earlier in the first two years, which is really a critical medical advantage as well.

Of course, in the markets where copays and everything else are important, this will be one less visit to the doctor, one less copay, one less injection, and so forth.

We also made several other strategic moves during the year.

The meningitis, the streptorix and the improved flu continue to progress well.

One quick word on the improved flu.

I know a lot of people get confused with the improved flu versus our pandemic flu.

The improved flu is just a improved version of the traditional flu vaccine.

Elderly patients don't have the immune system that a young person has, and often the traditional flu vaccines are not very effective.

With our novel use of Adjuvants we will have a vaccine much more effective in the elderly population which is where most of the half a million people that die world-wide every year from the traditional flu occur.

Speaking of influenza and strategic moves we've already talked about our ID Biomedical acquisition in Dresden, our cell culture technology is progressing at our Marietta facility in Pennsylvania, and the interim data on the improved flu will be out in 2006.

In terms of the pandemic and our pandemic preparations let me say this has already been a pretty news worthy year for us.

We announced earlier this year that we would be going into production of an H5N1 vaccine at the end of this year.

This will begin initially at our facility in Montreal where our traditional flu vaccine production stops in August and we can start production of our H5N1.

We have two formulations that we're going to be taking into clinical trials with two different Adjuvants.

One is with aluminum, the other is with a non-proprietary adjuvant.

We know that these adjuvants work with other pandemic strains.

We're convinced that they'll work with an H5N1.

The real purpose of the clinical trials is to determine the amount of antigen that will be required to get the adequate response we want.

We also announced we put a mock-up file into the EU so once we have the final data we just to need to to supplement.

In terms of the drug treatment side, we've invested heavily on the Relenza production.

We're now up to 15 million doses in 2006.

And more in 2007.

Let me just finish with a few slides on some of our anticipated 2006 approvals.

I've already mentioned a bit about rotarix.

I've talked about Avandaryl.

JP had mentioned Arranon and a little bit about Entereg, and the positive data we saw today, and I won't go any further on that but there's also another opportunity that will be coming forward which is even more exciting.

This is for what we call Opioid Induced GI Symptoms.

Patients that are on chronic opioid use find that they have this chronic constipation that's really quite different from typical constipation.

It's unresponsive to laxatives, and is often accompanied by great pain.

We had terrific Phase II data on this in 2005, and we're now moving into the Phase III trials.

We think this is perhaps the bigger opportunity for Entereg over the long term.

We also expect approval for Altavax, which is our novel topical antibiotic, the first in a new class of antibiotics.

The real advantage here compared to the gold standard, which is our own Bactraban, is that the product, that Altavax works in five days in the same way that Bactraban works in ten.

In a head to head study with Keflex we saw that you had the same efficacy with topical Altavax in half the time of in half the time as oral Keflex.

So we think this an excellent opportunity, and will build on our Bactriban franchise.

We launch our Coreg CR.

If I take you back just a couple years when we launched Coreg, we knew that we had a very novel beta blocker.

The problem we had was that it was twice a day, and to break into the hypertension market with a twice a day beta blocker six, seven years ago was just not a reality.

But we were able to demonstrate in one segment of the cardiovascular market, the THF market, that this product was uniquely positioned and the twice a day didn't matter.

We've now built a lot of confidence because of the uniqueness in our CHS patients where we've moved into post myocardial infarction and now physicians are convinced that Coreg is different, and they want to use it in the complicated hypertensive patient, for the once-a-day formulation, we can really tap into the bigger market.

We're really excited about the long-term potential with the launch of Coreg CR.

Finally, JP did mention trexima, our unique combination where we combine two products, Imitrex and Naprosyn into one.

It's the first time we take a dual approach to treating the migraine headache.

We know that right now only about 4 million of the 11 million patients in the U.S., for example, are being treated with a triptan.

Yet when you look at that time satisfaction rate of treatment for migraines it's very unsatisfied.

In the head to head trials when we look at the combination versus the components alone, at the 24th hour with the combination of the trexima product we had 60% greater response rate than with Imitrex alone.

We think this is very compelling data and will drive the franchise even further.

So just in some conclusions as we move into 2006 I think it would be hard not to be excited about the product portfolio.

Of course, our current growth drivers with the vaccine business, Avandia, and everything that's going right, it would be hard not to be excited, but I think for me the other part that was exciting was the growth that we're now seeing across all the regions.

For the last several years I think people were starting to be concerned that we would be so reliant upon the U.S. marketplace that we wouldn't even need to care outside of the U.S.

With our portfolio with our vaccine growth and the growth we're seeing in Japan, Asia, throughout Europe today, I think we now have a balanced approach and I look forward to another great year in 2006.

With that I'm going to turn it back over to JP, and I think we'll be in the Q and A.

Thank you, David.

Tachi, Julian, if you could just sit there.

I'm going to stay at the podium.

We're going direct traffic from here.

Please mention your name.

We've got a few hands.

Very good.

Let's start from the back, number 6.

Andrew Baum from Morgan Stanley.

I'm staring at a bowl of chocolates and I probably should start with Avandamet.

Could you give us sense whether you'll be able to supply demand once you get approval for these first line indications for Avandamet, whether there's any issues for Avandaryl capacity and finally the timing associated with removal of these inspections that you referred to?

How much of a lack, I'm trying to get a sense for the full year, will this be?

Also on Avandamet perhaps you could address the recent data which Novartis presented.

Whether you think this is a serious competitive threat given it seems not to have the edema, the weight gain, which Avandia carries with it, or whether it's just patient selection.

Maybe I'll stop there.

Avandaryl capacity not an issue, we're making the product outside Cedra.

The inspections, this is going to go on until the consent decree is removed.

So we're talking several years.

Whenever the FDA feels like giving an inspection, they will.

There is no pre-planned in terms of when and how.

We have the 150 days report.

That triggered an inspection because it was a very full report with many observations.

The inspection went very well.

They were actually surprised that we were able to knock out a number of problems, so everything is going back to normal, slowly but surely, and there's a lot of work going to make Cedra a very good facility over time.

Because there is a consent decree, until the consent decree is removed, you're not exactly back to normal.

In the FDA system, they tend to penalize people who are not in good shape by not approving their new product.

We passed that stage a long time ago.

They have approved Avandaryl, they have approved a number of the developments, so we're not being penalized by Cedra in terms of our new product schedule but we've got to get this product back to normal.

On the supply of Avandamet and the Novartis study I'm going to ask David to comment.

on the Avandamet we will not launch the first-line indication until we can supply the marketplace.

We anticipate that's going to be in the first half of this year.

Remember that this inspection process is really -- it's sort of a one-time backlog, then once you get back into steady state clearance we'll be okay.

But it was this backup as the first group came through, and we've gotten on line.

Of course, we also will be getting better at clearing the groups, the bit of learning curve on the part of -- in terms of what they need to be looking at.

Some of the questions they asked for the first batch, for example don't need to be repeated in second, third, and fourth batches.

So we're working through that and we think we will be fine.

Next question.

I'm sorry, go ahead.

I think you asked a very interesting question about where the DTC 4 compound will sit in the overall treatment of diabetes.

There's sort of a philosophical element to DTC 4s.

In contrast to what many drugs try to do, which is spare engine, this actually increases it.

There is a notion that that will a trophic effect on the beta cells and eventually the pancreas will be healthier but actually the jury is still out on that.

Long term it the's difficult to know whether there will be the durability of response that you might get with something like -- all inall, however, I think the movement in diabetes is toward multiple drug therapy earlier, and I don't believe that any new oral hypoglycemic agent will necessarily knock out existing one that will be used in some form or combination over time the field is very large, and many, many untreated or inadequately treated patients.

I think people want to avoid having to go to insulin, and so they will exhaust all possible oral treatments before they go to insulin.

I think it's fair to say the so-called vulnerability of -- is a -- far less of an issue when you deal with Avandamet and Avandaryl, in a way there's less room to come in here with substantial advantage.

Next question, please.

Number two.

Two questions if I may.

Firstly referring to [dygriptin], when will you be able to give us some Phase II data for that product?

And in light of what Tachi just told us are you planning to initiate any combination trials?

You obviously accumulating cash quite nicely.

You made some nice advances in vaccines.

What are your plans regarding acquisitions going forward that you feel you can comment on at least and what areas would you plan to focus on?

Thank you.

Tachi, maybe you can take the pipeline question.

Denaglyptin is going into Phase III.

Very interesting program that we've developed, and JP commented on, which is a new development team which we call the alternative development program team which is taking this forward as rapidly and as unfettered as possible, hopefully to be able to make up some time on some of our competition.

At this point it's a compound that has a 24-hour duration of action so it's a once a day product and we believe that it's going to be competitive in this very important field.

We have Phase II data and I believe we've shown some of it.

We haven't completed the Phase II-b study but we've shown the Phase II-a data.

Phase II b data, when will we be presenting it?

I believe it's going to be presented at diabetes meetings this year, first half of this year.

Okay.

Again, priority for a company in the first page of the game plan is delivery of the pipeline.

You've seen we have clearly above average opportunity compared to anybody else in our universe, and those translations of pipeline items into product cycles are extremely, extremely good from a shareholder value creation point of view.

This is clearly where our mind is.

This being said, we keep looking around like everybody else.

You have to keep an eye open on things that come up and become available.

I mean, when I see ID Biomedical, it was not available two years ago when we wanted it, and it became available suddenly, and things kind of blocked and unblocked, and we look at a lot of properties every year that doesn't mean we jump unless there's a significant and clear benefit for us.

Either in terms of, strategic advantage and, in a way, '05 is a very good year in terms of acquisition because everything we did was very important from a strategic standpoint.

Coreg protected the Cervarix and beyond because this is valid for other types of vaccines.

ID Biomedical opened up in one fell swoop the flu and the pandemic opportunity which as you know is huge, and that was very well combined with the fact we were making progress with our prototype pandemic vaccine.

Marietta prepared the future of tissue cell technology.

This is a first class campus for tissue cell, and we were short in lyo capacity, not a marginal issue, and lyo capacity is very hard to find in the world, and replacement of lyo is very expensive, so those made a lot of concern, and we'll have to see, I can't really describe which areas, because it depends on what comes and goes.

Clearly we continue to end license product when we can.

The crop in '05 has not been great in terms of late-stage products for sale.

Frankly, you look around, forget about GSK, look at the whole industry.

Who has bought and established Phase III products from either biotech, Japan, academia, very few people because there isn't much there.

Some of the Phase III products, the biotech companies are keeping because they're more specialty items.

They can probably market them themselves.

Otherwise there hasn't been very much.

The productivity crisis in our industry doesn't affect just big pharma.

Lots of companies have invented nothing lately.

It's not like we've got a long list of things we can buy.

The only thing you can buy is early stuff because it's 95% risk of not making it.

I think '06 will be a better year.

I look at the projection of some of the product in biotech that are passing proof of concept now that are going to be at least, showing some Phase II data on efficacy and safety, and that, of course, that's the point at which we're very interested.

We do buy early assets occasionally.

We just announced a couple of deals, but that's here and there.

We are going to continue to cast our line as far as possible in areas where there's good science to multiply the number of shots at the goal.

That has been the strategy yesterday and it's going to be the strategy forever.

In this business we need to be able to replace the compounds that don't make it very quickly without any delays because having a gap creates a tail spin that is very unhealthy as we see from some of our competitors.

Yes, sir, number 4.

Yes, thank you very much.

It's Stuart Harris, HSBC.

In terms of your unqualified guidance you mentioned Zofran and Flonase.

If we should have a summary judgment in favor of Wellbutrin XL are we still well qualified?

Yes. [technical difficulties] Number four.

Thank you, [inaudible] Deutsche Bank.

Firstly, what are the costs that you put in relating to cedra in 2005?

Can you give us a sense of the materiality and what you're thinking about for 2006?

In terms of operating efficiencies, just curious how much costs do you think you've stripped out of the business over the past couple of years and how much more efficiencies do you think you can drag out in the next couple of years or in the short-term horizon.

Couple of points, on pharmaceuticals, 10% growth, think it was in the fourth quarter, was that a clean number?

Were there any stocking effects?

Finally, on Requip, just wondering what you thought the dollar size or the dollar value of the restless leg syndrome market could be worth.

Okay.

Why don't we ask Julian to comment on Cedra costs and the like.

I reckon Cedra probably added 0.5% to the cost of sales in 2005.

Remember, as we go into 2006, that doesn't all go away because we continue to remediate the plant, we continue to have contact there reviewing the plant output but I wouldn't expect it continue as high as the charge was in 2005.

In terms of the operational excellence program we run it every year.

You have seen the amounts we spend over the last few years.

We aim to have a payback usually of between about two and three years.

You could work the math out.

That's really spread across R&D, SG&A and cost of goods.

In fact, SG&A, as you know, unless there's a major shift, and I don't expect that to happen, we're still going to need sales forces next year and this year, and we are launching a number of new products this is five or six product which require arms and legs out there.

So don't expect us to cut down on our sales forces.

Frankly, the only companies we're cutting down on sales forces is because they don't have product to sell.

It's that simple.

They have a pipeline that has failed, they are losing product to generics and they have a bunch of sales people not doing very much, so there's no real change in the business model from a selling standpoint.

We hope that we can evolve this over time this is not going to change our outlook for '06, '07, in my view, and we are launching five different new product in major markets.

So that's pretty much.

For the rest, absolutely, we have a culture of continuous improvement in place, we are watching our money very carefully.

I could mention a number of major programming R&D, for instance, where we're able to do more with less, because we are saving money through electronic data capture, through shifting some of the trials to low-cost countries and the like, so that's going to continue.

That might not be very visible to you because R&D creeps up 6, 7%, whatever, every year, but we're doing probably 20% more with it.

Remember, we doubled the size of the pipeline and we never in creased R&D in a big way and we matured the pipeline which increase costs exponentially and all this has been absorbed basic well the $4 billion so that shows for those things to equate we must have found some ways to spend the money more effectively and I can tell you it's a constant, constant, priority for the managers and the Company, and I am confident we can find some more money as we go forward and make the company more efficient, and that's also important because it allows us to catch up with some of the price cuts and the like without affecting the margin.

Finally, on the last point --

The other two were the stocking effects.

We ended the year very cleanly in the U.S. and European markets, so there should be no issues, and 2006 is starting out fine, so we're clean there.

On the restless leg syndrome, we don't give forecasts.

What we know is there's a large number of patients with restless leg sip drome.

The ones that we really think we can target are the moderate to the severe patients, and that's about two and a half million patients.

So, much like last year, we didn't know whether we'd be a hit or not.

We're off to a great start and I think it's still going strong and we'll probably get same question next year.

But at least now you have a basis for the forecast because you know that it's a multiplier in the first six months, multiply the existing base business by four.

I think Europe will be the same.

We're talking about not people just with a leg that kicks occasionally.

I think all our spouses do, but it's a question of people who are frequently, frequent and constant restless leg syndrome.

They basically have insomnia, and those are people you see as a physician that come to you with insomnia, then you probe and you find out they don't have classic insomnia, they have restless leg syndrome.

Number five in the back.

Thanks.

John Murphy with Goldman Sachs.

On Flonase have you had any response yet to the citizens petition or have there been any signs back from the FDA with regard to guidance on bioequivalence requirements for generic Flonase?

Second, on Cervarix, wondered if you've had any discussions with regulators or governments you could share with us on thoughts where you may or may not see reimbursement mandated on use of the vaccine.

on Flonase, no news.

The FDA has received several citizens petitions.

They haven't answered those petitions.

They haven't issued guidelines on how to do a generic to Flonase, and they haven't approved the generic yet.

All this could happen overnight -- last time we saw similar situation, they basically took care of business in about 24 hours.

So we just don't know.

But no news so far.

On Cervarix, I will pass it on to David, but I just want to say there is a lot of work in progress here as the government starts to face the fact that we're going to have the product approved and at some point ready to be launched, and I think that this year is critical, in my personal discussion with Minister of Health and in some cases, in fact, higher ups this is a greater interest.

Many countries, you know, politically this is big.

We're going to finally help something that is tangible with the female voters.

This is sometimes getting out of Minister of Health up to the prime minister, and certainly countries in continental Europe, I have not received -- seen a lot of resistance to actually reimburse there -- their enigma is, should I reimburse young women?

Should I reimburse women past 25 and beyond?

And how do I justify not to reimburse them all?

And if I reimburse them all that's a big hit for a country that is single payer.

So those are some of the issues they struggle with.

Maybe, David, you can --

Without getting into country by country, the overall reception has been very positive.

The big question is help me figure out how to pay for it.

People are trying to figure out how to deal with it within their budget, how to time it, whether they want to limit it use by age group at the start or some other mechanism or find -- help me find ways to compensate for it.

So, of course, we're always full of ideas there on where they can find money elsewhere in their healthcare budget, and maybe this time we'll find good ears there.

Number two first, then go back to the middle.

Jo Walton from Lehman Brothers.

I notice that you've increased the operating margin from your consumer brands business from 20% to nearly 24% over the last couple of years.

How sustainable is that particularly inlight of the Allies launch, if I've pronounced that correctly, allies, sorry.

Could you tell us a little bit about what your capacity might be for Cervarix at the time you launch?

There's going to be huge demand.

Is capacity going to be the issue?

And could you also give us some idea of any orders that you may have, for Relenza you've talked about 16 million units of capacity, 16 million units of sales likely next year as well.

Except you have to deduct for the Relenza we will ship to special places to cover our employees.

We have a very complete protection program for our own employees.

We advise other companies to consider the same.

And this will take some of the 15 million.

But otherwise, you know, you're not far from the number.

On ally, the margin in consumer, we are confident that the consumer focus can continue to gain because they're not cutting promotion, they're cutting infrastructure, and that's the way we want it.

So their progress on the margin is coming from the right bucket of expenses.

The launch of ally has been fully accounted for.

It's a one market launch initially.

Mostly U.S. for now because that's all we have -- we have rights in a few other markets, but mostly U.S.

And we will be able to do that, assuming the FDA confirms that we can go ahead with that -- without a big effect on margin.

I think what's going to affect margin is the overall revenue growth of the consumer business in '06.

But we do have a number of programs where actually we convert cost savings from manufacturing and SG&A into more promotion because promotion drives the sales lain in this business.

So I wouldn't -- there's nothing -- there's no -- a couple of sales that helped a little bit today.

Last year we sold the derm business in consumer.

That does have some impact on the very bottom line but not on the profit before taxes.

So we expect this to continue on that sustained the kind of margin we have.

This was a big goal five years ago, and now we don't want to fall back.

I'll let David talk about Cervarix, which is the question of capacity.

Right now we are building to a capacity that should more than handle all of -- that we have all in our forecast so we should be in fine shape.

As you recall part of the reason for the acquisition of Karixa was to get better quicker expansion of the key adjuvant.

That was critical to us We're pretty confident.

To be clear the antigen is really not an issue.

The issue was the adjuvant, and that's where we have doubled and tripled and quadrupled what was the original capacity so we're good shape.

Next question, number four.

Max Herrmann from ING.

Couple of questions.

Firstly on Cervarix you've talked about study 008, which is one of the 18,000 patient study interim analysis at the end of this year.

How many months of interim data will you have?

On to Cervarix, when will we get a feeling or is it probably an unanswerable question, about the boosting these products and whether Cervarix may have a boosting advantage over -- given the higher immunogenicity.

Second question on Avandia, obviously the Holy Grail was to be pancreatic bearing.

Will the long term outcome studies this year be sufficient to demonstrate that, and that be a very significant benefit for their use?

Okay.

David, you want to start with --

In terms of Cervarix 008 we're looking to event driven trial.

We need to get to a certain number of lesions so that Will be the cutoff point as opposed to a certain time period.

We need a certain number of lesions to get to what he we believe will be a stay Cal significance based on what we saw in the Phase II trial.

The other part, on Avandia, the trial was that's going to be the Holy Grail or not.

Let Tachi have it.

I don't know what you call the Holy Grail, but the aim is to see about prevention of progression and the time to progression, and we believe our outcome studies that we'll report out this year will give us some indication as to the ability of these people, our gamma agonists to induce insulin and therefore prevent impaired glucose tolerance from going from impaired glucose tolerance to diabetes and also to prolong the duration, durability of the response to the oral hypoglycemic agent.

We should have --

And I think that would be -- assuming the trial is widely positive, there could be a consensus conference in terms of the newly diagnosed patients.

There will be pressure in some countries like the U.S. because of liability risk that this is the way to go, you've got to go through -- fast otherwise you're compromising the future of the patient.

All those things are likely to happen over time, but they're not going to happen day one and they need to be founded on several trials but this is a very large trial and it will be very visible, and we'll see what happens.

It's certainly a win-win situation for us if it comes through.

the other question was about boosting on the Cervarix.

It's still too early.

We have the four-year data on the 700-plus patients but that's not enough to tell you we're still beyond that.

It will be the kind of thing when we launch we're going to have to track our long-term trials just to keep seeing how long it is, and we'll hopefully keep pushing it out, and hopefully the adjuvant will be a key differentiator to longer duration of protection.

We have a higher antibody levels in our competitor, so obvious small interest to keep digging at this question because it's likely to favor us.

Next question, please.

Let's go a little bit this way.

Gentleman in the front, number one.

Kevin Wilson from Citigroup.

Two questions.

On Tykerb, do you still plan to file early if you get good data in the middle of this year?

Secondly, on the CFC-free Advair, could you talk about your plans for that in the medium term with respect to your intellectual property position and your confidence you will be able to prevent generics from coming in three or four years down the line?

The intellectual property, we have unique intellectual property around us.

That's the reason for launching this.

The real rope for launching the CFC-free, the marketplace, there are still patients who do prefer MDIs, so we want to be able to compete in both aspect of the marketplace.

There's unique challenges to aerosols and unique challenges to MDIs.

If you sit down with our development people and ask them which would be easier to either copy or to formulate around the answers are all over the board, so there's no consensus of opinion here.

The marketplace we think they're both well needed.

Tachi.

On the Tykerb, as indicated in the announcement, there will be significant data presented at ASCO this year on brain metastasis, on inflammatory breast cancer, on head and neck tumors and on renal cell cancer.

In general, we're feeling very good about this product.

It looks to be a product that has a broad range of effects, and as you know, our renal cell cancer study, it not only shows response rates but also shows outcome, and effects.

We are obviously developing a strategy about how to go to the FDA, and I can tell you more about that after we've completed the strategy discussion.

The only thing I can tell you is that one thing that is very important is right now the FDA is considering what approvable parameters will be for brain met.

In the past it has been based on two-dimensional studies, now they're very much interested in volumetric analysis for brain met, and I think that will have a significant bearing on how our results will be viewed in terms of the efficacy on brain metastasis.

Okay.

Number two.

Thank you.

Louisa Betts at Lehman.

On Advair, could you comment on when you expect the U.S. label to change and whether you have any negotiating power at all with the FDA on that, also the NIH guidelines for asthma treatment, whether they should change.

Also could you give us any longer term guidance on your R&D spend given the progression of drugs interface 3?

Well, on the FDA this is a private meeting with us, so we can't comment on content, date, and what's going come to out of it.

I wouldn't expect a revolution here.

You know what they ask, you know what the European guidelines are, which are very similar.

The NIH guidelines, and I'll let Tachi comment on that but I don't think so.

as you may have seen there have been some editorials about whether or not in the face of smart data that guidelines for asthma treatment should change.

At least our interactions with most of the experts in the field are pretty strongly in favor of earlier treatment with combination in asthma.

This is an argument that will be played out over time.

One thing that is important to note is that the smart data dealt with Cervarix.

It did not deal with a combination and, in fact, did not answer a combination as to whether steroids were protective in the case of the combination as opposed to single-agent treatment with a beta agonist in asthma.

So at this point, there is insufficient evidence for at least our expert consultants tell us, insufficient evidence to change the guidelines.

Next question, please.

Gentleman in the middle has been waiting for a long time.

White shirt, number 4.

Number 4.

Young lady.

Matthew Hall from Eaton.

Two questions for Julian and one for yourself.

Very surprised that you presented your headline EPS on a basic earnings per share basis.

There seems to be a large increase in the number of options in Q4 that significantly affected the full year diluted EPS.

Can you tell us what's likely to happen to that option as we're moving forward and whether that has any impact on your guidance for earnings?

Secondly, in your presentation, you indicated that other operating income was going to be about a similar figure as the -- that's in '05.

But the '05 figure benefited to the tune of about 290 million pounds, so the underlying figure is about 70.

So what's behind the big increase to 353-60 in 2006?

Then also for you JP, I understood that both Tachi and yourself were going to stay on until age 62.

Tachi has been seduced away by a good offer.

Just wondering what probability that something comes along and induces you away?

Okay.

Why don't you first answer the most important question, the financial one.

Okay.

The guidance is on earnings per share, not diluted earnings.

Clearly, as you saw, as we progressed toward the end of the year, we had a number of options that matured and came into the money.

I don't think it will have a material impact.

All depends on what happens to share price but basically our focus is just on the earnings per share, not diluted.

In terms of other operating income we had roughly 80 million pounds of royalty within the other operating income and the balance you rightly said 290 was asset sale profit.

You may recall that we recently announced the disposal of our price all right.

That's going to make a significant contribution to asset sale profit, based on the need to get regulatory approval we expect that to impact the numbers in quarter 2.

Otherwise the business carries on selling assets that is right for the business to sell, whether it's greater economic value to us than to retain the cash flows for ourselves, and that's just part of the ongoing business line, to sell the weaker parts of business, invest in the stronger part.

And as far as my retirement is concerned, that's up to the board, and they certainly haven't indicated, you know, any reason to give a final date and we will do that way ahead of time and with the appropriate discussion.

There's no reason -- I'm not going anywhere right now.

Number three.

It's Nigel Keegan.

I wonder if you could say a little bit more about the H5N1 vaccine program and particularly what happens if the virus mutates into a form which is transmittible from person to person.

An argument would be poultry farmers in China but if the vaccine mutates you then could have a very big product.

Are you still confident that your candidate vaccine would work against such a mutated virus?

The function and the purpose of an H5N1 vaccine today would be to prime the population.

We know once it mutates, and it has to mutate in order to go to human to human, you won't have an exact match, by definition.

What will you have, presumably, if it's an H5N1 variant, you'll have this H5 in there, and if you can prime the population you will be that much further along in terms of getting the population ready.

For example, if did you not prime a population with an H5N1 and you were to have an outbreak that started today, by the time the WHO or the CDC gets a hold of the strain, they reverse-engineer it back so that you can start to produce it in eggs, produce sufficient quantity to get into the general population, you're talking about five to six months.

That's when the population would get their first dose.

Then remember they need a second, because this is new to them.

So, using the H5N1 we believe, and most of the scientists that are experts in this area believe an H5N1 either given today as a priming dose or stockpiled to give as a first dose at the start of an outbreak is the proper way to go.

So in terms of the commercial opportunity, right now, most of the plants from around the world are full to capacity, producing traditional flu vaccine.

Of course, we're all adding on.

I think if you look what it we've announced that we will be doing what other companies have publicly announced we see the capacity in the globe going two to three-fold increases over the next three to four years.

A lot of that excess capacity will be used for H5N1.

Of course, in the case of a pandemic the entire capacity could be turned over to producing that new variant strain.

Also, there would be capacity -- I've seen lots of numbers in the press which are dead wrong because they assume the world stays the way it is.

We're actually making progress and being able to use less quantity of antigen for the same effect, so every time we do that, it multiplies our capacity, our theoretical capacity and the same can be true of the way the flu vaccine is -- Okay.

We're going to have two more.

Gentlemen in the back.

Fastest to raise his hand.

Thanks, JP.

It's Mark Purcell from Deutsche Bank.

Couple of questions.

Just wondered if you could talk to us about your confidence in the IP behind some of your line extensions, Coreg CR, Requip modified release, trexima, Wellbutrin XL just wonder if you could talk to us about your confidence in patents behind those.

Second is legal charges.

If you could help us out there.

The third question, the sensitizer class, I just wondered if you could talk about prescribing habits post the data.

Clearly an interesting mortality benefit, more concerns possibly over heart failure.

I just wondered how that's affected prescribing habits in your Avandia franchise.

Lastly, on data for this year -- was one for '05.

Just wondered how close you were to getting data on that.

Lastly, on the vaccine you've highlighted very kindly some of the data going to come through at asco.

Will you be talking about -- at ASCO as well.

Therapeutic vac seen, yes, we will talk about our results in lung and melanoma at some point.

I'm not sure we're doing it at ASCO, as a matter of fact.

We might do it earlier than that.

The proactive data, if you read the whole study it really was not all that positive.

That was nice positive spin put on it but it's had very little -- it's had no impact that we've seen in the marketplace.

And -- keep going.

As far as -- concerned, we did have results from Phase II-A study with.

The results were a little bit disappointing in one respect and that is that we add very high dropout rate in the study, and that confounded the data analysis, essentially we had encouraging results but insufficient to progress to Phase III.

We're doing another Phase II study to confirm the data that we've got on that.

and on legal charges we don't give guidance on legal charges.

Okay.

Last one, number three.

Good afternoon.

Bear Stearns.

Three questions, since nobody's asked it, really want to clarify, on the Cervarix U.S. filing has the FDA definitely accepted your analysis -- your eventual analysis that will be an interim analysis and does that imply you're going to get a statistical penalty because it is an interim analysis.

Second, very interesting data on Avandia and Altron Could you tell us how many patients were in that APRO4 negative subgroup and how you can test for that?

Do you have diagnostics for that which could be straightforwardly applied in general population?

Final question, on your policy of the -- do you still use that policy and if yes could you please tell us which project has received that nomination in 2005?

On the Gold pass we don't comment outside.

We don't like to pass it object.

In fact, we don't like the name Gold Pass, so I'll leave it there.

On the FDA, the FDA gave us some advice on our file.

I don't want to kind of portray their position because as you know, it's never 100% yes or no.

They give you a steer, then, of course, they want to see, and that makes a lot of sense, they want to see the details of the dossier before they deem it acceptable.

Even though we've had very productive discussion with the FDA, I certainly don't want to portray it as the FDA said, sure, go ahead, we'll accept it.

Because they never do.

We have a good exchange of information, and we are going to file by year end, and we think we have a good file, but the FDA will have to speak and we'll have to wait for that.On the number of Avandia patients, I don't know the answer.

150 is the answer.

And as as far as the test is concerned, it's a widely available test.

APOE 4, as you may know, one of our scientists find neared the association between the apro4 and the onset of early Alzheimer's this is a market that many physicians use the try to gauge potential Alzheimer's risk in patients.

So the interesting and very exciting aspect of this test is that it may differentiate between those who will respond and those who won't.

On the other hand, at least in early discussions we've had with regulators, they're prepared to accept even if only half the patient population responds, to not restrict label to those people who are positive.

In fact, with many, many medicines there are responders and nonresponders, and the whole population is accepted in the label.

I actually think in this case, APOE4 is positive in roughly half the population of Alzheimer's patients and therefore differentiating them is in the a small fraction that will be apoe4 negative.

Okay.

On that note, I want to thank you all for participating.

I'm sorry we couldn't answer all the questions, but I'm sure there will be some leftover questions to be answered by those gentlemen, and we look forward to see you at the end of the first quarter.

Thank you.