葛蘭素史克 (GSK) 2006 Q1 法說會逐字稿

Thank you very much and hello everyone. I’m here with Julian Heslop our Chief Financial Officer and David Stout our President and they’ll give you some details on our fist quarter results; but I would like to summarize it for you by saying that we had an excellent financial performance ahead of consensus on sales and EPS gross which was up to 26% in actual terms, 17% in CR terms. But more importantly, we had good news from the pipeline on a number of fronts. Let me summarize them.

First of all, since we talked only a couple of months ago, we have had a number of filings; some of them are very important filings such as Cervarix in Europe and a number of international markets, also FluLaval; this is our new flu vaccine from Canada. And remember that if we do get approval on time this year, we’ll be able to sell an additional roughly 22 million units in the U.S. market. And then, of course, we filed for Wellbutrin XL in some countries in Europe and Hycamtin. If you look at the data that was generated, David will talk about Trexima which is a short-term opportunity for us and possibly make comments as well about the others if you have any questions.

I just would like to address very briefly Tykerb and Cervarix. But do note that we, again, increased the size of our phase III pipeline by starting four major programs, eltrombopag, a treatment for low platelet counts, Pazopanib VGF inhibitors that we will be studying in renal cancer and, of course, our antagonist for the treatment of [hemozis] and then the H5N1 pandemic vaccine.

If you look at Tykerb, as you know we interrupted the study that demonstrated the efficacy of Tykerb for breast cancer patients where the late stage of the disease was metastasis and who had previously failed -- accepting treatment. Actually, we exceeded the predetermined stopping criteria which was a 50% increase in time to progression. Now the data is so compelling that actually it will serve as a part of our submission that we now expect to prepare in the second part of this year for the U.S. and for Europe.

There’s a lot of work still ahead of us for Tykerb but we are making steady progress and of course at ASCO you’ll hear more details on a number of studies which have been completed or are ongoing. There’s a whole list here from the favorable cardiac safety profile of the drug to the effect in inflammatory breast cancer or on brain mets, that’s an NI study. And, of course, we’ll give you more details on the Xeloda combination study in metastatic breast cancer. There’s going to be more at ASCO because we’ll also give all the details on the Cervarix 4½-year study, also the phase II for eltrombopag and more.

Let me just point out to the therapeutic vaccine that is knick named MAGE-3, that is an interesting new development. As you know we have had a significant program in cancer with vaccines. We have tried different formulations of vaccines to try to see if we can slow down the relapse that occurs in serious conditions - melanoma, lung cancer and the like. And we have used different antigens and also different acumens.

Well, in the case of MAGE-3, I think we got them to a very successful approach here. Of course the results are early and I’m not going to give you the details but we will show this in ASCO and it comes pretty close to proof of concept in a study which had a comparative arm; so this was a trial where we treat the patient who suffers from lung cancer. As you know, those are patients that will have a relapse within a couple of years so it’s a very bad prognostic. And what we do is after the original treatment, as people are relapsing - or before they relapse, I’m sorry - before they relapse we treat them with a regimen of this particular vaccine to try to boost their immune system, make them more resistant to the return of the tumors and we hope to, of course, expand the disease-free interval in this very difficult indication.

So this is, I think, a first in terms of a proactive and prospective study of that nature and we are excited about the results. Of course, we are a long way from having a product here but it indicates that our decision to invest into this new enterprise is certainly encouraging at this point.

In terms of Cervarix you heard the news that we have a sustained effect over 4½ years but more importantly if you look at the anti-body levels, you’ll see they are not really declining after 4 years and 4½ years. So we can expect that the coverage is extended way beyond 4½ years, maybe similar to hepatitis where we have the coverage for at least 15 years; and that would mean that we would not require a boosting shot down the line. So this is a very good characteristic for a vaccine. If we summarize the profile of Cervarix we have demonstrated protection and we also have shown some evidence of cross-protection.

I’d like to spend just one more minute on cross-protection because this is going to be an important feature. And as you can see here, if you look at the HPV-16 and 18 well, that presents roughly 70% of the agent-causing cervical cancer, but if you start to add additional geno-types like 45 and 31, you see that we cover actually a bigger risk than just 16 and 18. So we have demonstrated cross-protection on not just 45 and 31 which have been measured so far, but probably more than that as well. So the final results might exceed 80%. We’ll have to wait for the large study to document this cross-protection and hopefully get it on our label. But this is very encouraging for the future.

So David, as I said, will give you some more details on some of our pipeline opportunities for the short-term; but in the meantime, let’s discuss the financials with Julian.

Thank you, JP, and good afternoon everybody. Turnover in the quarter for both the group and pharmaceuticals was up 10% and we saw consumer healthcare growth of 6%. Looking at cost of goods as a percentage of turnover, it was 19.5%, a 2.9 percentage point improvement over last year’s margin of 22.4%; so one percentage point of this improvement was as a result of level 1 Cidra costs, favorable price mix changes and cost reductions. The balance of the improvement reflected the reversal of the Montrose restructuring charge and the benefit from improving exchange rates.

SG&A increased 5%, well below the rate of turnover growth, whilst R&D expenditure grew 10% exactly in line with turnover growth. Our operating income was £71 million which included a £30 million mark-to-market profit from the Theravance and QUEST financial instruments. We announced the sale of Pritor rights in January and we expect to report a consequent one of gain from this transaction in the second quarter following regulatory approval. Overall, operating profit growth was 15% or 24% of actual rates.

On the next slide, you will see that operating profit growth of 15% increased to 17% at the profit before tax level, as a result of a lower net interest charge. This is due to higher interest rates, lower debt and a favorable mark-to-market movement. The Company has fixed rate debt and floating rate cash investments and so benefits from higher interest rates. Overall, earnings per share growth was 17% or 26% of actual rates.

The following chart shows the impact on our profit growth for legal and restructuring costs and that’s in sale profits. We usually have a net gain from restructuring costs which reflects the 65 million provision write-back from retaining the Montrose manufacturing site. It was a small income from asset sales compared to last year where we made a significant profit from selling our European and international Levitra rights.

In addition, given its significance I’ve also included the impact of the Theravance and QUEST mark-to-market adjustment and you can see this gave us a 30 million gain compared to the 13 million cost last year. Overall, these items reduced profit before tax by £47 million, equal to nearly 3% of profit growth.

This chart shows how the quarter benefited from a stronger dollar; although if rates remain at $1.78, you can see why we lose this comparative advantage by May. At this level, we expect the reported earnings per share growth for the full year will be approximately 2% favorable to CER growth.

Finally, let us look at cash-flow. Free cash-flow was 1.46 billion, up over 40% on last year. This reflects the strong growth in reported operating profit. Overall, net debt increased by over £800 million and on the 31st of March was 372 million.

I’ll now hand over to David.

Thank you very much, Julian. And if you’re following along on the web you should be looking at the slide titled, “Sales by Region.” As you can see in our first quarter our pharma sales totaled £5 billion and for the third consecutive quarter our overall growth was 10%. Our sales were led by the U.S. where we grew 15% and international which was up 12 and Europe which only grew 1%.

Let me just try to give you a brief overview of some of the major factors that impacted each region. Let me start with Europe where, in addition to the usual difficulties of these markets, we lost an additional two points from the Pritor disposition that Julian mentioned earlier. This coupled with the weak flu season and some generic competition which is starting to hit us in some of our major markets for Lamictal, also, had a negative impact. Of course, this was off-set with some good growth from Seretide, Avandia vaccines and our HIV franchise. Now the area of antibiotic sales we think is only a first quarter issue so we expect Europe should at least be a couple of percentage points higher for the rest of the year.

In international sales where we were up to 12%, international had its usual ups and downs but with the 12% growth I guess this quarter we had more ups than we had downs.

Moving on to the U.S. which now accounts for about 52% of our sales, I’ll cover the key growth drivers in just a minute; but I just want to remind you that we had generic Flonase impact us in the first quarter but only for about one month. So it will have slightly greater effect as we go through the rest of the year.

Turning to the next slide, you’ll see here again our key pharmaceutical growth drivers that we’ve been focusing on for the last several quarters. These products are all continuing to drive our overall growth and together this group added almost a billion pounds of sales in the first quarter alone. The overall growth rate was 22% and it’s the same rate for the group that we had for a year ago and off a much larger base; and now represents about 44% of our total portfolio.

As usual, I’ll go into some of the detail on the three largest franchises on this list and those are Advair, Avandia and vaccines. So if we turn to Advair, you can see our global sales grew 12% to just over £800 million. International has continued to do very well where growth was 20%, which I remind you does not yet include Japan which we hope to launch in 2007 and should be a very important market for us.

In both the U.S. and in Europe, sales grew 11% which is, of course, slower than the growth that we’ve seen in the previous quarters. We think three factors have really had an impact here. First, of course, in the U.S. for the four months starting in November, our competitors were really taking full advantage of the confusion that started with the FDA’s initial letter to us regarding revisions to the label. Until we really had finalized those discussions with the FDA, our sales force couldn’t respond to the questions that were being raised by the competition. Of course, fortunately, that is now resolved and I will talk more about that in a minute.

Second, both the U.S. and Europe experienced a relatively mild flu season where the weather has been mild compared to the recent years. Now a milder flu season and warmer weather usually leads to lower than normal rates of respiratory illnesses and exacerbations and less visits to the doctors. For example, in the U.S. for January and February, office visits for respiratory tract infections were down 13%. So in a typical year, as these infections would lead to the exacerbations of asthma and COPD which in turn, of course, leads to new Advair scripts.

And the third and last variation was the stocking patterns and some of the timing of the shipments of this year compared to last which we think contributed a couple of points. I think the most important thing is we think for the rest of the year we certainly expect the growth rate to continue to improve and let me talk a little bit about why in the next couple of slides.

As I mentioned, the labeling issues have now been resolved and we have great clarity. And the very good news is that contrary to what the competition has been saying, the FDA has agreed that it should be left to the doctor’s discretion to evaluate their new patients and to determine whether Advair is really appropriate for them.

Doctors are very comfortable with this and now they don’t need to be concerned that they must try another less effective medicine first when they think about what patients they want to put on Advair. This is really much different than what our competitors have been telling doctors for the last four months.

Our sales materials were modified in mid-March and our sales forces are now back on the offensive. We do know, though, from market research and from consistent feedback from our asthma control test there is a big opportunity out here and that about 60% of asthma patients still do not have their asthma under control.

We’ve also significantly increased the size of the sales force. We’ve added overall support by about 20%. We’re doing this because we want to quickly and repeatedly correct the misperceptions that are out there; and, secondly, we really want to take more advantage of the opportunity in COPD. And now for the first time we have sales force support that’s entirely focused just on the COPD indication.

Now, of course, this leads me to the results of the TORCH study which you see on the next slide. Now I have to be a little careful here because we want the TORCH results to be published in a major journal and this means that we can’t fully show the details until then. But suffice it to say that I’m looking forward to having the complete results published and I think that should tell you how I feel about the overall results.

In the meantime, we have been able to share the very top line results that you see on this slide. We saw a 17% reduction in the mortality benefit with a p=0.052. We think this is very positive and you cannot get a more clinical meaningful end-point than mortality. And I think just as important, we also saw highly significant reduction in exacerbations which impacts the COPD patients and leads to the big problems for them.

We’re also very anxious to get all the trial results onto the product label and we do plan to file the trial data in the second half of this year. So as you can see there continues to be a lot to look forward to. In the meantime, with all the actions we’ve taken and for the rest of the year, I repeat, I certainly expect the growth rate to improve.

Now let’s move to the second largest franchise, Avandia, which in the quarter had sales of £384 million and grew 24% overall. Our growth in Europe was fueled by Avandamet which grew 59%. You may know that Avandamet for Europe is not supplied out of Cidra where we’ve had the supply issues but instead is supplied out of our Spanish facility.

Growth in the U.S. and international markets has been good at 20% and 17% but frankly, growth in both regions could have been better if we had not had the slow-down in supply from Cidra. I have to say it’s very difficult for our sales force to be working in high gear when you’re in tight supply on the market. And while the supply issues are just about resolved, what we did in the first quarter was really focus our promotion almost entirely on our new product launch, Avandaryl which is supplied out of North Carolina.

Let me just share a little of the data with you. It’s still early in the launch but so far the uptake is very similar to what we experienced with Avandamet when it was first launched and I remind you that Avandamet we consider to be very successful. We’ve already gained just about a half of market share point without any cannibalization from Avandia.

Looking at the next slide you’ll see this is a recap of what will drive the franchise in the near term. I’ve already mentioned Avandaryl which is just getting started. I also mentioned that the supply issues are almost resolved and starting in mid-April we brought on new capacity for Avandia from a site in Canada. And what this does, it increases our ability to meet the demands for Avandia and at the same time it allows us to help Cidra focus on building of supplies for Avandamet which we anticipate to re-launch mid-summer. We’ll begin re-supplying the market in June and then launch with full promotion in July. As you know, we are all waiting until we are sure we will be able to satisfy the market by having adequate safety stock here.

Then later in the year, we’re also looking forward to the results of the first two landmark trials for Avandia. The first one, of course, is the dream study which will be presented in September at a major conference. This could show the earlier use of Avandia actually delays the on-set of diabetes and this, of course, would open up a whole new patient population for Avandia.

In the second study, ADOPT, which will come out in December at another conference, we’ll look at the benefits of using Avandia as first-line treatment versus using [metforman] or an SU. So we have a lot of money invested in these outcome trials and we’re looking very much forward to the results.

Now let’s turn to the vaccines franchise which had a really terrific quarter with growth of 44%. We’ve tried to capture here on this slide some of the key contributors to that growth and as you can see some of our new vaccines, including Boostrix and Rotarix contribute about £23 million of sales compared to about £3 million last year. Now the number of markets where Boostrix is being launched is expanding and the Rotarix mass vaccination funded by the government of Brazil is already underway and we expect several other governments to follow soon.

Infanrix is growing throughout the world but in Europe it had spectacular growth of 73% to £68 million as we benefited from Sanofi’s Hexavac being pulled from the market last year. I’d also just want to point out that we have several other vaccines that are growing very nicely like Varilrix for chicken pox and our polio vaccine. Individually, these vaccines aren’t huge but if you collectively put them together they add up to over £100 million and we’re growing 41% so we shouldn’t ignore them.

Now it’s not covered on this slide but I also did want to point out that our hepatitis franchise grew 18% and in the U.S. our Havrix sales more than doubled as a result of getting a new indication last year for children down to 12 months and we’re also now beginning to see universal mass vaccinations starting with 35 states in the U.S. and more to come. In Europe, Twinrix which is the only vaccine that protects against both Hepatitis and B grew 20% as a result of some larger orders from Germany and Spain.

As we look out, I know many of you have questions. Can we expect this growth to continue? We do have a lot invested in this franchise and we believe the Infanrix franchise should continue to benefit from the Hexavac being off the market and of course in the U.S. the Havrix should continue to grow as the ACIP recommendations for mass vaccination continue. And with new vaccines, like Boostrix, the new flu vaccine for the U.S. and Rotarix, around the world will all continue to contribute to growth.

We look at the next slide. We have a quick recap. The three rising stars, these are the future for us that I’ve pointed out in the last couple of quarters. You can see that all three - Avodart, Requip - especially for restless leg syndrome - and Boniva are all doing very well and in the quarter more than doubled sales to £120 million.

Turning to the next slide, these are the launches that we’re expecting this year and I already mentioned a bit about Avandaryl. And I also have Coreg CR coming on board which will be an extension of once-a-day version of our Coreg which is growing very well as you saw earlier.

Rotarix should be launched very shortly in Europe and, as usual though, with launches in Europe it may take a little while to get started as we work out the pricing but this will be a big builder in the future in Europe.

Adartrel, you may not recognize the name, but it’s the Requip for RLS name in Europe. It was just approved there and will be launching also very soon.

On the right hand side of the slide there are some other interesting commercial opportunities. Altabax is our new topical antibiotic that I profiled at the year-end. FluLaval is the new flu vaccine for the U.S. that was mentioned earlier coming out of our Canadian facility. I just want to mention that we expect to increase our supply to the U.S. this year from 8 million doses to 30 million doses.

Of course, we also have Entereg for post-operative [villious] which we hope to launch before year-end. This is looking more encouraging now that we have the results of the trial that responded to the FDA’s approvable letter last year. And looking out to next year we also completed enrollment for the opioid-induced GI system trials and should be able to file around mid-year for the next indication which could even be bigger than the post-operative villious.

And then of course, as JP mentioned, there’s Trexima which we’re also anxiously awaiting to launch. And let me just take one slide to show you some of the data that was recently presented at the American Academy of Neurology. You can see that at both two hours and four hours, Trexima clearly beat Imitrex, the current market leader and Naprocen which is really what you want to do when you’re trying to help migraine sufferers get to pain-free. Twenty-four (24) hours Trexima also had a 60% greater response rate than Imitrex alone. I can tell you as a former sales rep, these are the products you really love to detail because you can tell the message in about 30 seconds which is about all the doctors are giving us these days. So you can imagine with data like this our sales force is getting very excited and if everything goes according to plan we’re expecting a third quarter launch

And my last slide is just a quick recap of the plan filings that we have for this year. And I’m not going to go into each one. JP has already highlighted some of the great news from the quarter. This list just includes some very exciting products and I can tell you there is a lot of work underway at GSK to ensure that we have very successful launches.

So in summary, I just want to say that it’s been a great quarter, we have a lot of new product opportunities coming out from the pipeline over the next two years and I think that’s what gets me more excited than even the current quarter earnings. So with that, JP, I’ll turn it back over to you.

Thank you very much, Julian and David. Now we are going to open to Q&A.

[OPERATOR INSTRUCTIONS] Your first question comes from Andy Kocen of Redburn. Please go ahead.

Good afternoon. Three questions, one on Coreg. You saw exceptionally strong growth in the quarter. What happened there and is this level of sales sustainable? On Wellbutrin XL in Europe you seem to be falling piece-meal country-by-country and why is that? And would you expect to get EU-wide approval at some point; and then finally, on Advair and TORCH, obviously, you did miss the significance for the mortality end-point. Presumably, you won’t be able to get an actual mortality claim approved and regulators so how important is that miss in terms of your plans to market the message and drive sales; so just those three things.

Okay. I’ll let David answer all three and I’ll add a comment on Advair, as well.

On Coreg, first of all, there was some restocking as you know because of the Cidra issues. Inventories have been depleted and there was some restocking; but the underlying growth was about 37%. We continued to build on the indications; the post MI has been great and we’re starting to move more now into the hypertension market, the severe hypertension. And, of course, this is really the big opportunity for Coreg CR because of the once-a-day indication which allows us to really go after the other beta-blockers in other classes.

For Wellbutrin XL, it is a piece-meal approach and it’s based on just feedback we’ve had from various countries as to their thinking around the molecule. So we’ll continue to approach the countries that we think we have the best chance for registration.

Relative to Advair and TORCH, first of all you have to -- we believe we can file and we were hopeful that we can get an indication. The 0.052 level -- basically what that means is the difference between 0.052 and 0.049 is not very much. The totality of the data which, again, we cannot share with you yet but we believe the totality of the data will be a very compelling story and, again, the exacerbation data only makes it all the better.

JP, you said you had something?

Yes. I just wanted to say, again, when you will see the exact data restructure that will be presented, it’s not a black and white kind of result. If you look at, for instance, the way drop-outs were treated and so forth you can really make a case that provide an editorial comment around the very, very closed result we got on the statistical test, number one. Number two, what this statistical test means is that there is a 94.8% chance that the mortality benefit is not due to hazard. That’s a pretty good probability of success. I’d love to run my life with this kind of odds in my favor. And then, finally, when we talk to investigators, when we talk to opinion leaders, they get it. They clearly get it that maybe the 95% test did not work out exactly but the reality is that mortality benefit is real.

Now whether the FDA will allow us to make a claim? Well, exacerbation certainly; mortality we’ll see. But we are still encouraged. We have a good story to tell and I think that the physicians will run with it regardless.

Okay. Thanks.

Next question, please?

Your next question comes from Tim Anderson of Prudential Securities. Please go ahead.

Thank you. Couple of questions. On the quarter the results were very strong and ahead of what people were looking for, yet you are maintaining the full-year guidance and I’m wondering what the biggest factors or uncertainties are in ’06 that hold you back from raising that guidance. And I know we’re only four months into the year but the magnitude of the beat really suggests that numbers should go up.

Second question is related to comments earlier that you guys made on the Advair label change saying that FDA has left it up to physicians to decide whether to use a product. But if I look at that label, it seems to me like a plain vanilla, black-box warning basically saying, “Don’t use this first line.” So I’m wondering what I’m missing here. And that label change occurred at the start of March; we have six weeks of prescription data and it still doesn’t seem like we’ve seen anything in recovery in script trends.

Okay. First on the guidance and then I’ll let David explain the labeling issue on Advair. It’s, of course, a judgment call whether we should or should not change the guidance and in view of the fact that the quarter was much stronger and certainly if you look at the guidance as being 10% maybe that number is a lot easier to reach now after this first quarter is behind us. Actually, the guidance is plus or minus. There is a considerable latitude around 10% and we like to revisit guidances, not every quarter, but every six months or so. There are always uncertainties; there is of course a risk on a number of molecules. The significant risk is probably only Wellbutrin XL and that might go our way or not for awhile; regardless we’ll make the guidance. So I’m not trying to be defensive here but I think it’s -- let’s revisit it after six months and we’ll see where we are.

Now for Advair?

Yes. I think -- I guess people can read labels how they want but what the FDA took into consideration and where I think the big change in thinking was, there’s a tremendous misperception that asthma starts mild and it gets a little worse, then gets medium and then gets severe. In the real world, it doesn’t happen that way. Sometimes when patients present the very first time they are already in medium to severe-type asthma and sometimes patients that were mild suddenly go to severe and so forth. So what the FDA has recognized is if in the physician’s judgment that the patient won’t be controlled with a steroid alone, then they have the option of going directly to Advair. And that’s what the label now reflects.

Thanks for that. JP, could I just have one quick follow-up? Is Advair at all part of the reason -- concerns about maybe not recovering?

No. I think - look - it’s true that if you look at the prescription and the share and so forth we’ve slowed down in the last three or four months and you have heard David talk about some of the reasons which are not, in our view, chronic. In other words, we’re going to make a come-back simply because we now have a clear situation with our label and we can fight it out and TORCH is just around the corner. So there are lots of opportunities to -- I mean 12% is not bad. But we think we can do better for the rest of the year. So that’s not our concern.

In fact, we don’t have that many concerns. You just never know what’s around the corner, but it’s more a question of, “Should we revisit guidances every quarter, every six months?” And currently the Company likes to revisit every half year instead of every quarter. And that’s the reason why we decided not to change it at the present time. It’s probably conservative and prudent, but that’s the way we are. And we’ll talk about guidance at the end of July.

Okay. Thank you.

Your next question comes from Andrew Baum of Morgan Stanley. Please go ahead.

Good afternoon, gentlemen. I have three questions, please. First, could you just give us an update on your H5N1 program in terms of timelines and capacity particularly for the U.S. market; and second, again, on vaccines by looking at your broader portfolio, given the success you are having and the acceleration of volume, could you just give us some sense of the capacity utilization there. Obviously it’s going to depend on product but just some sense of the future CapEx?

And then, finally, on Avandia how much of an Achilles heel do you think the 1% risk of the CHS is heart failure given the profile of the product particularly as you titrate up the dose and how much do you think it will hold back the product’s success when you have new entrants come into the market?

Okay. H5N1 we really don’t have much to report except to say that we are finishing the clinical trials as we speak and we expect to have a file put together assuming the results don’t surprise us. I mean, we expect good results out of those clinical trials and assuming that comes through we will be in a position to file something in the Fall. And then we expect a very quick review particularly in Europe and also the FDA has given guidance on what they want and they are determining at least to review it fast. Now fast in the FDA’s terms is maybe not fast for everybody. But we are kind of optimistic and we have had very good experiences with this particular division of the FDA. Remember, they approved our flu submission in record time. So if we stay along the same lines we should be about to start making, mass producing this vaccine in November, December of ’06.

And now in terms of capacity utilization, this is a very good point. One of the major hurdles to be a big player in vaccines is manufacturing capacity which is much harder to constitute than the manufacturing capacity in pharmaceuticals because as you know the cycle of production of a vaccine is sometimes six months long as compared to weeks for drug products. We have been added -- for about ten years --

I don’t know what the cumulative capital investment has been for our Company, but it’s been huge. We have campuses all over the place; not just in Belgium, but in Singapore, in America now, in China. Last year, alone, we spent $2 billion to buy a lot of capacity for pandemic, tissue culture, cell and so forth. We are ahead of the game in terms of our new vaccines - Typherix, Cervarix - those facilities have been built, are finished or are nearly finished. We have never stopped investing to stay ahead of the demand. I would say we are squeezed a little bit on the pediatric vaccine. Frankly, if we could make more, we probably could sell more; particularly in the developing world, simplified version of Infanrix, for instance. But overall, we could double or triple our business frankly with existing capacity or close to it. So it’s not a concern for us but anybody who wants to catch up with us will have to go through this phase which takes sometimes ten years of gradually expanding the facilities and fine-tuning the technologies that go with it. So we’re in very good shape.

In Avandia, the CHF risk?

Yes. This is nothing new to physicians and, in fact, as they’ve gotten more experience they know how to deal with it. As we’ve seen, as you treat more severe type diabetics and especially when you get into combination with insulin. We think in terms of overall performance, what’s really going to drive usage in the future won’t be the limitations of the CHF problem, but it’s more going to be from the outcomes trials. If the outcomes trials come forward in a positive manner, that will be a compelling reason to actually use it earlier and more often in the treatment.

And also, I think, the re-launch of Avandamet will confirm what we have observed last year which is the general practitioners, they like the Avandamet because they can keep the dose of Avandamet a bit below and under the radar screen of any potential safety hazard and, at the same time, they get the compliment of efficacies through the use of mid-forming 500 mg. So there are lots of opportunities for physicians to choose from the Glitazone and the other classes of product.

The bottom line is, this is the market that is going to explode because the incidence of the disease is increasing very fast, including outside of the developed countries. I was in China two weeks ago with the Prime Minister. That’s all he wanted to talk about. I wanted to talk about pandemic. He wanted to talk about diabetes. It’s scary. On top of that as you know, Asian’s are more susceptible to diabetes than Caucasians so that doesn’t help the case. So there is going to be a huge opportunity worldwide for all the classes; but the Glitazone are particularly effective and long-lasting in their efficacy.

Can we move on to the next question please?

Our next question comes from Kevin Wilson at Citigroup. Please go ahead.

Thanks very much. Three questions, please. JP, could you talk about the outlook for Europe, primary care, ex the vaccine business. I know you’ve had some thoughts about it long-term potential and perhaps you could expand on that and contrast that with the expansion growth opportunities in the international markets, particular in China. Secondly, could you just detail how, David, you’ve reallocated the Flonase reps presumably onto Advair [inaudible] are they going anywhere else as well or promoting elsewhere?

And the third question is for Julian and for JP, in terms of the guidance, other operating income last year I think you led us to believe that we should assume that you do the same sort of level of disposals and net and you end up around the same level as last year. Could you just confirm that that is still the case and that is included in your guidance?

Yes. Let’s start with the last one. This quarter we actually -- if you look at all the one-timers and I don’t really make a difference between reappraisal of some of the balance sheet items, disposals, we have to reverse or reserve on the Montrose because we’re going to keep the Montrose plant open. I mean, all those things are just nonrepetitive. They happen once. And if you look at it this quarter, we actually -- if we had no difference with last year, our growth rate would have been three points higher than what we reported. But some quarters it might go the other way around. I mean, the bottom line is we have no reason to believe that where we stand today that this will be a major factor for the year. So it might go up and down during the quarters, but overall it should be very close to what we had last year. We don’t expect a huge surprise in terms of legal.

And Julian, if you want to add something?

Yes. Kevin, I can confirm that our operating income, our guidance, which said it will be in line with 2005 full year, yes, that’s still maintained and that’s still what we expect.

Okay. And then in terms of your primary care. Very briefly, the problem with healthcare expenditures in Europe is that the economies, particularly in continental Europe, the economies are growing slow and demand for healthcare goods and services is accelerating because of the aging of the population that it’s hard to stop that. So governments have taken different measures.

I’m a little bit [uncouraged] lately that they’re going to start picking our pockets and concentrating on pharmaceuticals in a negative way. They start to realize this is not a winning strategy. Pharmaceuticals represent anywhere from 10 to 15% of the total bill. You can’t squeeze pharmaceutical and solve the problem. So there is more understanding. We are recently talked with the Prime Minister in France on that subject. I’m hearing from Germany. There are a number of politicians who are starting to realize that this is not a winner to do this. It’s stepping on dollars to pick up pennies because they realize, also, and they do believe that pharmaceuticals can save costs. They’re not part of the problem of healthcare costs, they are part of the solution.

If you stabilize patients with a medicine, it’s a lot cheaper than if they have to go to the hospital all the time or follow visits with physicians on a too frequent basis. So the stage has been set now for maybe a more responsible response from the politicians on how to finance healthcare for the future. But between logic and execution of the logic there is sometimes a big gap called political realities and some of the politicians have to win elections too. So I continue to be cautiously pessimistic about the future growth in Europe for primary care.

As you pointed out, Kevin, if you have a Tykerb or a Cervarix, you might actually improve your odds and be able to have reasonable recognition of pricing for innovation. But for the bulk of the products we sell, I don’t see the European market getting to be much more dynamic because every time it starts to go up in volume somebody picks up on the pricing and the reimbursement. And that’s not a happy picture for the next 10 years.

On the other hand, non-U.S., non-Europe is going to continue to boom. India, China, you name it -- first of all, we are very well positioned. We’re number one in both countries and we are very strong in South America which is also booming. Clearly, the price per unit there is of a different level but the growth is significant. Japan we’re now in the top eight or nine and we’re gaining share like crazy. We have lots of new products to launch like Advania, Advair, I mean, sure winners haven’t even been launched there. So there is a great future for us outside U.S. to kind of counterbalance the fairly unexciting performance we expect in Europe.

In terms of the, Kevin, the Flonase representatives, you’re right. Some of those sales people have gone over to help us to get back what we deserve on our Advair promotion. But I think maybe the bigger picture is one of -- we’ve been launching new products without expanding sales force. So we’ve done a great job of really mixing our sales forces up and while you don’t see this often at the surface, we’re still delivering the same strong top-line results with the same number of reps as we launch new products.

Thanks very much.

Next question, please.

Your next question comes from Graham Parry of Merrill Lynch. Please go ahead.

I’d like to start off with one on Advair and TORCH, your comments about getting the exacerbation dates on the labels. Do you see the dosing in the study here is anything of a hurdle? Because essentially you’re asking the FDA to approve the 500 mg dose for COPD. Now we’ve seen exacerbation dates at 500 mg before and that’s still on the label because, as I understood it, the FDA sees there being no difference between 250 and 500 and it wasn’t that kind of comparison in TORCH.

Second, on Tykerb, if you could just give us an update on the plans for the rest of the international [agumen] trial whether that’s actually started yet or they thought prices on timelines for initiation and an ultimate data read-out. And then, thirdly, going back to TORCH, is there likely to be any kind of information on the data at the ATS meeting, any kind of symposium at which we could see anymore data? And failing that, what are your thoughts on timing of publication? Thanks.

Okay. Just a quick one on Tykerb. As you know we will start the study this year. We have not started yet. This is a big study, 8000 patients. We need to put that in place, get all the authorizations and final agreements. Frankly, I don’t even want to speculate when this study would report because it depends on all the investigators and all the discussions. It will take a couple of years, obviously, to do this study. So that’s where we are. And now for TORCH?

Yes. First you’re very correct, Graham, in terms of the exacerbations and the dosing in the U.S. We do need to get the dosing up to the 5500. I don’t want to try to preempt any discussions we will be having with the FDA. But we think, again, this data will help us to secure the label that we’ll need there.

In terms of the TORCH and ATS, the lead investigators will be presenting the data at the ATS, but again, I remind you we can’t do a whole lot with it at this point. We can’t promote it because, again, we want to get publication in a major journal.

And that will be the investigation presenting full data or is it just headline data similar to what we’ve seen already?

It should be most of the data.

I think it will answer all the questions you have, Graham.

Okay. Thanks.

Okay. Next question, please?

Your next question comes from Phillip [Lunun] of IXIS. Please go ahead.

Good afternoon, gentlemen. A couple of quick questions, please. Number one is on the MAGE-3 vaccine that JP talked about in the beginning of the presentation, in your pipeline it seems to be interfaced. Will this be a reporting faced with [inaudible] or phase I data? And when can we expect phase III to begin.

Second question is on the rising star of Avodart and Requip, especially. They are a very strong groove even if the figures international are still low. What kind of potential can we look for, for these drivers especially for a Requip [inaudible] that the European launching RLS targets the same kind of potential as the U.S. one?

Okay. Let me take the MAGE-3 story and then I’ll pass it on for David to answer the other questions. You know how in vaccines phase I, phase II, phase III is not quite as descriptive, but let me just say that at ASCO we will present interim data for this very extensive study where we followed patients for I think 31 months, or something like that. The plan currently based on what we have seen is for non-small cell carcinoma, lung cancer to start the phase III, the last trial in other words, in the first quarter of ’07. This is the current study is about 180 patients; but we will have a larger phase III. And if everything goes right, this could be a file let’s say early ’09 or something like this. And then we are developing also other programs, other types of cancer, other types of antigen, but that’s for another day.

In terms of the rising stars, Avodart, just a couple of things. We do need to continue to expand the market and there’s a couple of things here. First, I believe it’s starting to finally sink in to physicians how Avodart works, the whole category and combination use with an alpha blocker. We’re working on a combination product. We think it will really help to expand the marketplace for the five alpha [reductase] inhibitors and in particular Avodart. That also, I remind you, that we have an ongoing prostrate cancer prevention trial that’s underway that should start reading out in 2008; but again would be another significant driver going forward.

With regard to Requip RLS, a couple of things. For Europe when we’ve talked to most of the regulators and the reimbursing people they’re sort of going through the same process that we went through ourselves internally which was, first, “What the heck is this thing? It doesn’t sound like anything that serious. Never heard of it before.” To now as they’ve heard from various patient groups, they hear from others, they recognize it is a serious condition and we’re getting pretty feedback there. So we expect it is in the same way. It will be treated very similarly and promotion will be of a similar nature. We also, I would remind you, have a formulation that’s being developed specifically for Restless Leg Syndrome that would release the product during the nighttime hours when it’s most needed.

Thank you, David. Next question, please?

Your next question comes from David Beadle of UBS. Please go ahead.

Good afternoon, gentlemen. Just a couple of questions. The first one coming back to the original question on Coreg having notified healthcare providers that there was going to be a shortage and looking at inventory levels up to 53% growth is well above prescription growth and I just wondered whether you have any inference that healthcare purchases or distributors have actually stockpiled on the possibility of a shortage.

And then the second question for Julian, on Cidra itself now that you have the bond returned, are there any remaining negative impacts on the gross margin or are those all gone now that you are now going to be manufacturing fully there?

And then, just lastly, on the flu vaccine side 22 million units is not unreasonable to assume that as a broad ballpark figure that’s $200,000 million roughly in sales, maybe a bit less. What is your intention in terms of overall end point capacity in the U.S. market in terms of the number of units you think you can potentially supply as a peak?

Well, let me take this one and then the rest David and Julian will share. We’re not going to give any kind of forecast on our capacity but let’s just say that we, as you know, we have acquired a company that has a much bigger capacity than the 22 million units you are referring to; but this is going to go into different slices, different expansions which have started years ago. So the supply of additional quantities will come progressively and we’ll announce it when it’s ready. But at this point, what we’re saying is that this year, besides the 8 million units we import from Europe for the U.S. market, we intend to sell another 22 million from Canada at a slightly lower price because some of those units were pre-sold through distributors and the distributor agreement are not as favorable as the ones we use at GSK. So for a couple of years we will honor those arrangements and then we’ll move on. So that’s pretty close to what you were describing. Now, Julian would you like to --?

Yes. In respect to Cidra, we took all the sort of remediation historic costs loss, in other words, the cost to clear things that we committed to do with the FDA. So the bulk of the costs were picked up in 2005. Having said that, ongoing costs that we’re incurring in 2006 things like having ex-patriot experts over there, certain additional tests that we have to do, those sort of costs which relate to 2006 production and our excess costs will still run through in 2006. They’re not at the level of 2005 so they’re much reduced. Does that answer your question?

Yes. Thank you.

In regards to Coreg, again, there was some restocking in the trade which is why it was over 50%. DRXs were up 37% and we don’t think this was patients getting two and three prescriptions to stock up because we have now sent letters to all the healthcare professionals, to the pharmacists, telling them that the inventories are now back to normal. We’ll be going back into full promotion, normal promotion, on May 1st and so I don’t really sense that there’s an issue. It really is that the drug is that good and physicians see the need for it.

Okay. Time for two more.

You next question comes from Marcel Brand of Cheuvreux. Please go ahead.

Yes. Good afternoon. My questions so far have been answered except one. On Flixotide flow-end obviously you’re showing very strong growth there. And it seems your compensatory has not been really able for capitalizing on the label change of Seretide. Could you tell me what’s going on there? How you see the dynamics and if you have changed your allocation of sales force or reinforced your marketing effort at least for Flixotide flow-end? Thanks.

Yes. That’s actually a pretty simple one. We were in very short supply last year because of some manufacturing issues and a lot of that was just restocking.

So there’s no change in your allocation for sales force or changing marketing messages or nothing like that?

We are doing some promotion of Flovent because of the labeling changes to Advair. But nothing that is driving the numbers that you’re seeing here. That’s more the restocking issue.

Okay. Thanks.

Thank you. Last question, please?

You next question comes from Michael [Luten] of HSBC. Please go ahead.

Yes. My question has just been answered. Thank you.

Well, thank you very much. Anybody else?

Your next question comes from Alexandra Hauber of Bear Stearns. Please go ahead.

Thank you very much. I have two questions on the pipeline. On [inaudible] renal cancer and [inaudible] could you just give us a little bit about the design not yet listed in clinical trials and this is a very competitive area so we’re quite curious to know whether it’s a first or second line combination or single agent.

And the second question is on the MAGE-3. You said you are starting phase III next year. But it seems like you’re going for a different patient population in the phase III because the phase II has been conducted in stage I(b) and II. And in those patients you will probably need at least a 5, 6, 7 year trial before you get any results. Are you going for a phase III(b) in that study which, of course, would increase development risk?

No. It’s not at all what you’re describing Alexandra because we’re doing -- we’re attempting to stop relapse so it’s actually the same design.

As far as Tykerb is concerned, I simply do not know [inaudible]. All I know is that this is a phase III and renal cell carcinoma. Those are patients that are locally advanced or metastatic and we have not received anti-angio-genetic therapy so we’re talking about several hundred of those patients. That’s pretty much it. It’s a simple, straight forward trial.

Thank you very much for your patience and for your questions and I look forward to talking to you in a few months.

That does conclude our conference for today. Thank you for participating. You may all disconnect.