葛蘭素史克 (GSK) 2006 Q4 法說會逐字稿

Good afternoon, everyone, and thank you for coming to the full-year results presentation for GSK.

We will have the usual suspects today presenting to you.

First, we will have our Chief Financial Officer, Julian Heslop, that many of you have met before and also followed by David Stout, our President of Pharmaceutical Operations.

Then I'll come back and give you a sense of our positioning for the future, why we are so confident about 2007 and beyond.

So, without any further adieu, I would like Julian to come to the podium.

Of course, we will have time for Q&A at the end of the session.

Good afternoon.

I would like to start by summarizing our strong financial performance in 2006.

Turnover growth was 9%, which, when combined with tight control over SG&A costs, were the prime drivers of EPS growth of 19%.

The dividend for 2006 is confirmed at GBP0.48, a 9% increase on the year.

I would now like to look in more detail at the fourth quarter.

You'll see that turnover was up 9% with pharmaceuticals up 8% and consumer up 9%.

Cost of goods as a percentage of turnover was 2.2 percentage points higher, reflecting higher restructuring charges and asset impairments and also the adverse impact of currency movements.

SG&A cost were level with 2005 and legal charges were some GBP50 million lower.

If you strip out legal charges, SG&A costs increased only 2%, reflecting the benefit of previous restructuring programs.

R&D was up 6% for the quarter, although it was impacted by higher restructuring charges.

Excluding this, costs increased by 3%.

Other operating income was GBP100 million.

GBP46 million of that was a mark-to-market gain on the Quest and Serevent financial instruments, which, as you know, move up and down every quarter, although generally from year to year represent a relatively small amount of the full-year total.

Royalties were GBP35 million.

Overall, operating profit growth was 19%.

You can see from this slide (technical difficulty) profit before tax grew 22% and was helped by lower interest charges.

Net interest payable in the quarter benefited from the recognition of interest receivable for the year from recoverable tax.

Earnings per share growth was 22%, and that was in line with PBT growth as lower minority interest charges and the benefit of the share buyback program compensated for the higher tax rate.

You'll see the quarter was adversely impacted by 16% hit from currency.

This reflected the impact of a weaker dollar, which averaged $1.94 the quarter.

If you remember, although it was $1.94 for quarter four, if you went back last year it was $1.73, so a $0.21 hit.

Unfortunately, virtually every other major currency weakened against sterling in the quarter, and that drove that big impact you see there, that big adverse impact.

Following up, if you went back to quarter four last year, you saw we had a pretty significant benefit in quarter four from currency.

The next slide shows, as usual, the impact of legal, restructuring costs, asset sale profits and Serevent and Quest on the quarter.

In simple terms, the net difference was negligible and really played no impact on overall growth.

If you look at it for the full year, you see it cost us about GBP78 million or 1% of operating profit.

It's perhaps worth noting that within that GBP340 million for the full year there's GBP205 million in respect to restructuring programs.

I looked the other day; over the last three years we spent GBP450 million on restructuring programs, aimed at bringing down the overall cost base of the business.

This chart shows clearly in 2006 the progressive weakening of the dollar, which is almost a mirror image of its strengthening the previous year.

If you look forward to 2007, [half of a] one prediction, which is you can never predict currency rates and any prediction will always be wrong.

But at least if you start with where we are now on the dollar you can see that we will have, if it carries on like this, a hit, particularly in the first half of the year.

What we have done is redo this chart for you, which shows the impact of the dollar and the euro on our earnings per share.

Very simply, for every $0.05 movement in the dollar, you see a 2% impact on EPS.

So the dollar devalues against sterling by $0.05, you see a 2% hit, and the reverse is also true.

For the euro it's about half that level.

If you want a crystal ball gaze, which is always terribly dangerous, and you say, let's assume the Q4 average rates were to apply to the dollar and the euro for the whole of 2007 and let's also assume that everything else was neutral, you would have a currency hit for the year of around 4%.

If we move on and look at the full year, turnover was up 9%, pharmaceuticals up 9% and consumer up 6%.

Cost of goods as a percentage of turnover was very close to last year, and that small benefit you see reflects the benefit from an improved regional sales mix.

SG&A costs were level with the previous year and benefited from a reduction in legal charges and also lower restructuring costs.

If you exclude those, costs were up about 3% year on year.

In 2007 we expect to see a further improvement in SG&A costs expressed as a percentage of turnover.

R&D costs increased 11%, although, again, was adversely impacted by restructuring.

If you strip it out, it was about 8% for the year, the growth.

If you look at that stripped-out number as a percentage of sales, it was around about 14.4%.

My expectation for 2007 is that if you strip out restructuring charges you'll see R&D costs as a percentage of turnover at around that 14.4% level, and I expect a much lower restructuring charge for R&D in 2007.

Our operating income, as you can see, was slightly lower than last year.

It reflected lower asset sale profits, partly offset by a small increase in the Serevent and Quest profit and also partially offset by higher orders.

Just as a matter of interest, if you take other operating income in total, more than one-third of it now represents royalties and milestone payments, so very good-quality now represented by over a third, and my expectation is that will grow.

Moving forward, you can see from this slide that the business continued to benefit from interest.

You really don't benefit of having long-term fixed-rate debt and having floating-rate investment income so if interest rates rise, we continue to benefit.

You can see that profit before tax and earnings per share are broadly the same, and for much the same reasons that applied in the quarter.

Looking forward to 2007, I expect a tax rate for the year of around 28.5%, a 1% improvement on 2006.

You can see from this slide the business generated over GBP8 billion in cash flow for the year.

You will also see that the tax paid was much higher, reflecting the US tax settlement, which we did in September of the year.

We have paid that all across now.

Capital expenditure was also higher, reflecting greater investment in the business but particularly in our vaccines business, which clearly, as we've said before, is growing significantly each year and does have a demand for capital investment to support that.

Dividends were higher, and share buyback were up a third, reflecting our new GBP2 billion a year policy that we announced in late October.

Net debt at the end of the year was GBP2.5 billion.

Looking forward, we expect an EPS growth rate for 2007 of between 8% and 10%.

Thank you very much.

I would now like to hand over to David Stout.

Before I get into the 2006 results and product performance, what I thought I would do is do what I've done in years past and take a few slides to walk through some of the more important environmental issues that are out there right now and that you often write about.

This year, as you would expect, a lot of it centers with what is going on in and around Washington D.C.

Let me start with Medicare Part D and the so-called -- the legislative efforts around removing the so-called noninterference clause.

For those of you that are not familiar with what this is, our opponents want to reopen the Medicare Part D legislation and remove a clause that was put in, that was actually started by Democrats many years ago, which forbids the governments from getting in the middle of negotiations between the plan providers and the pharmaceutical companies.

Of course, the industry thinks this is a very bad idea, and you would expect us to be against it.

But if you look at the next slide, we're not the only ones.

In fact some of our biggest critics are also against reopening the legislation and changing it.

You can see here quotes from the Washington Post and USA Today, not exactly friendly to the pharmaceutical industry, but they all believe that the system is working.

Let me talk a bit about why people don't think the legislation should be reopened.

First of all, the program is working very well.

More people are being covered than ever thought would sign up for the program.

It's also costing the government significantly less than any forecast ever thought; and, most importantly, the cost to the patients is much lower than they thought it would be.

In fact, the original estimates were that patients would be paying $35 per month for the program.

In fact, in 2006 the costs to the patient were $23 per person per month, and in 2007 the numbers have just come out, and it has dropped again, to $22 a month.

So we believe these are real signs that the free market system is working and that the program, in fact, is working.

Further, if you look at the polls, when you ask the people do they feel the plan is providing them useful benefit, the overwhelming majority of people are very positive about the Medicare Part D program.

So I guess you could ask why is all this noise happening, and it really comes down to the recent elections.

This has become part of Nancy Pelosi's 100 hours.

We have known for some time that there is an element in Washington that would like to put price controls into place.

We believe that this kind of legislation is a bit of a Trojan horse.

The good news is, is that the bill that was passed by the House of Representatives was passed by a margin that was not large enough to sustain a veto by the President.

President Bush as indicated that he would veto any legislation that makes changes to Medicare Part D.

But I think even more importantly is if you look at what some of the comments were around the vote.

The vote went as you would expect, all of the Democrats, 100%, voted for the bill along with a few dissenting Republicans.

But within the Democratic Party themselves, there were many people that said they were voting for it only because they wanted, in the first hours of the new Congress, to go along with Nancy Pelosi.

One congresswoman, in fact, went so far as to say I voted for it but I wanted in the record that I think the program is working and we don't need to make changes.

So I think that really there doesn't seem to be the stamina to really override it.

If it comes back, we believe many of the pro-business Democrats will actually come out on our side, and we don't believe that the legislation will have any significant impact going forward.

Just to put some perspective around it though, I thought it would be useful for you to see what percentage of GSA's business is in the elderly population and what part of that is in Medicare Part D. As you can see on this slide, because of the makeup of our portfolio -- we have a lot of vaccines, we have products like Valtrex, Imitrex, Advair that don't necessarily gear themselves to an elderly population, we have a blow-industry average of our business targeted to the 65 and up population.

Not everyone in this population actually is in a Medicare Part D program.

In fact, like GSK employees -- our retirees are in our own retirement program, and we just take a subsidy from the government.

If you look at the amount of our business that are actually in these kind of programs, it's about half of that 22% or, really, about 10% overall.

So the exposure that we have -- and this is a positive and a negative.

If there's any upside to the Medicare Part D legislation we don't share as much of the upside.

If there is any downside to it, we, of course, don't share as much of the downside as well.

The secondary of legislative activity is around the whole area of importation.

Of course, this, we believe, is very dangerous legislation.

Really, I would like to focus on three things around importation.

First of all, it's not necessary.

Second of all, it will not produce savings.

Third, it's not safe.

In terms of not being necessary, again, even our harshest critics are saying importation is not necessary.

AARP, the Association of Retired People in the US, who have been the biggest people in the past to back importation legislation, have even come out and said their own studies show that seniors will be better off in the Medicare Part D program than they would from buying Canadian products over the Internet.

Also, though, is the whole idea around cost savings.

When I sit down and I meet with many of the people on The Hill, they all say to me, well, we see parallel imports seem to work very well in Europe.

I say to them, but yes, but do you recognize that no one, at the end, saves money?

All of the profits are eaten up in the middle.

It's the importers and it's the wholesalers who eat up all the profits.

At the end the patients save very little.

The biggest reason, though, that we think importation is a bad deal is the safety issue.

If you start to open up the borders, you open, first of all, to counterfeits.

It would make it very difficult to secure the borders everywhere, and it will be all that much more difficult to stop counterfeits from coming in.

The other part -- it's a little bit tricky, but the FDA has very strict mandates for drugs that are sold in the US.

They inspect every one of the plants that manufactures products intended for the US market.

But we also manufacture in many countries according to local standards.

If those products then come into the US, they will not have come from FDA-inspected plants.

I think this would present a real quandary to the US and to the FDA.

If they can't inspect all of our plants, then why bother inspecting half of the plants?

Recently, I had a discussion with one of the authors of the importation legislation.

When I talked to him about this, he was totally unaware of it, didn't seem to comprehend what was going on, which just tells us that we have a lot of work to do.

I can assure you we will be very active on The Hill.

Right now we don't see any of this legislation passing.

We think it's too difficult.

Any legislation that has passed in the last several years has always included language that would make sure that the Secretary of Health and Human Services assured the American public that, first, there will be savings and, second, that it would be safe.

For all the reasons that we have just told you, we don't think that any current secretary would do so.

On the regulatory front, of course, I don't think it's a big surprise to any of you.

But the regulatory approvals are getting high and higher in terms of safety, in particular.

Of course, there's also the necessity to re-up on PDUFA and so-called PDUFA 4 legislation.

The current PDUFA act will expire in September of this year.

The industry has already come to an agreement with the FDA on what needs to be in the language, and I can tell you we will be paying significantly more in the years to come in terms of getting our products reviewed.

We are also providing more funding for our other activities, especially around safety.

Our biggest concern is that the deadline comes, towards passage of this legislation, that some of our opponents again will use this legislation (technical difficulty) and will start hanging all sorts of ornaments on it with language -- could be around importation, could be around other areas -- and that will then come down to some real good discussions and compromises.

So I think on this area we're going to have to watch out.

But there is some hope, I think, on the regulatory front in terms of approvals.

This is a report that I think flew a little bit under the radar screen; it was released around November, during the holiday season, and not many people saw it.

But Senators Kennedy and Duribin and Congressman Waxman had requested a report from the GAO to look at what is going on in terms of drug development.

Are companies spending more?

Are new drugs being approved faster?

To no surprise, the report sort of backed what we have been saying for years -- that the hurdles are higher, we are spending more and more and productivity is declining and it's becoming harder to get products through the FDA.

So I think, if the authors are read well in Congress, they will start to understand the issues that we have been getting across to them.

If you want to dream a little bit, some of the recommendations in the report went so far as to even say, for innovative drugs, we should consider extending patent life.

So it is a little bit of a dream, but I do think there is some light at the end of the tunnel when even our harshest critics are getting reports back that say, perhaps we have gone just a little bit too far.

Just the last issue that I wanted to talk about because it's making a lot of news as the presidential race heats up is the coverage for the uninsured.

Three states in the US -- Massachusetts, Pennsylvania and California -- have already passed legislation which would mandate insurance coverage for all the citizens.

Bush has put forward a plan that would it also applicable at a federal level.

And Senator Edwards, who is running for President, has announced his own program.

Just a few brief comments.

In general, we think insurance is a great idea.

It's good for people and it's good for the industry.

Right now the uninsured, when they don't have their insurance, they wait till they are extremely sick and then they access the health-care system at the most expensive points, being the emergency rooms and the hospitals.

They haven't taken the preventive care.

We think a good insurance program, including pharmaceutical coverage, will lend itself more to prevention.

It plays well to our triple message of prevention, intervention and innovation and overall would be a good thing.

Specific to the proposals that are out there, they are relatively new.

There's a lot of details to be worked out, and we really haven't taken a position on them.

But again, overall, I think it's good news.

So enough on the environment.

Let me move on to the 2006 performance, where you can see that our total sales grew 9% and despite the fact that we lost over GBP300 million due to the generic competition of Flonase in the US, we still had a great year.

In fact, the US led the way with a very strong year.

They absorbed the loss to Flonase, but they more than doubled their rate from 2005, where we grew 8%, to a 16% growth in 2006.

At the end of 2006, of course, we did start to see generic intrusions on Zofran and Wellbutrin XL 300 mg.

So these are something that we will have to deal with throughout the 2007 year.

Moving to Europe, we had a strong 2005, but in 2006 we had generic competition to Lamictal and Imigran, Zofran.

So it hampered our growth, but we were still, as we have been able to do in years past, despite these generic erosions, we still were able to grow the business 1%.

That was due to tremendous contributions from vaccines, from Seretide and from Avandamet.

The good news in Europe -- if you look out, we really now have the bulk of our generics behind us.

And so, for the next several years, with the introduction of some new vaccines and some other new products, we should see some good, healthy growth coming in Europe.

Our international growth was a little slower this year than past; it was 6%.

We had some generic issues in our biggest international market, Canada, where the growth was only 3%.

Then there's the usual issues in various countries; this year it was Turkey, the Philippines and our consumer business in China.

But also the bright spot continues to be Japan.

This was the year of the biannual price decreases, so we took a 6% price increase to start the year.

But, despite that, we still grew 8%.

Again, just to remind you, this is without some of the key products that we have elsewhere in the world, and we're expecting to launch, this year alone, Seretide Lamictal and Requip in Japan.

We have a very bright future going forward, and Japan will be a GBP1 billion plus business in 2007.

I think some of the reasons we have been able to continue to move forward despite the fact that we have had these generic hits is in the diversity of our portfolio.

You can see here the breadth of it.

In fact, you can probably take some of these categories and subdivide them even further.

CNS is really a combination of both depression and neurological conditions.

But I think the main point on the slide is the fact that when we take a hit, we can absorb it and we can continue to grow, as we did in 2006 when we lost generic Flonase.

Now, let me take a little bit closer look at some of our key growth drivers, and I will start with our biggest franchises, which are the Advair, Avandia and vaccines.

Let me start with Advair.

Clearly, growth slowed in 2006 in both volume and in sales, especially in the US, although, despite that, we still grew overall 11%, which means we had added over GBP300 million of sales to the top line.

On this next slide, though, you can see one of the two biggest factors that are causing the slowing.

We thought 2005 was an anomaly in terms of having a relatively warm season, but you can see it actually has continued and worsened into 2006.

And as you can see from this slide, the asthma business and COPD business continued to decrease.

This, remind you, is after ten years of continued growth in terms of office visits in both diseases.

So this clearly makes it more difficult to grow your business.

But you'll note that, despite that, we're still seeing the seasonal upswing that you typically see this time of year with Advair.

I think you also see in the slide the other reason for the slowing in growth.

That is where we saw in November of 2005 we received an FDA advisory which required a negotiation and relabeling in our package insert.

That, again, had a major impact and, we think, a more rapid than normal decline in the winter season of 2005 and 2006.

So I guess the big question, as we look out now for the rest of this year is what is going to happen over the next three months and what will happen into next year.

So will the next three months be more like the 2005-2006 season, where we saw what we thought was an unexpected decline due to the fact that we were not able to compete adequately without a good label?

Or will we return to the pattern that we saw in 2004 and 2005?

I guess we will be talking more about that at the end of the first quarter.

I guess the other part of the good news is two warm seasons in a row.

As we head into the next fall season it's logical or hopeful to expect that the year-on-year comparisons will be more normal.

Perhaps if we return to more normal type winters, then there will be a potential upside as well.

Of course the real positive event for 2006 was the release of our TORCH study.

This will be the major driver going forward of our growth over the next several years.

Remember, while you have all heard about TORCH, and I have to keep reminding you, because we have talked to you more than anyone, we still have not been able to go out and talk to the doctors yet because it has not yet been published and we have nothing in our label.

Now, we expect the publication to be in the next several months, and we have made files to all of the regulatory authorities around the world.

We hope that we could go as far as perhaps getting a new indication.

But just if we were only to get language in the package insert, would certainly be good enough to describe the results of the study and would allow us to arm our representatives with it so they can begin to talk.

So I hope by the end of the first half of this year I will be talking to the doctors about TORCH and I will no longer be having to talk to you about it.

But just let me remind you of some of the positive quotes that have come out from people.

Now, these are from the guys that know the study.

These are the people that are familiar with the results.

I'm particularly fond of the second quote, by Dr. [Sully], which -- who talked about only oxygen therapy and smoking cessation will have a greater impact on mortality in COPD than the results from the TORCH study.

So I think that all lends very well to where we are going.

Okay.

Let's move on to Avandia.

You can see that Avandia sales grew 25% in 2006 with especially strong growth in Europe, where Avandamet has been doing very, very well.

Since Europe is supplied from a site in Spain, they have not had the issues that we have seen in the US, where we have had the on-and-off-again supply issues.

Now, the US sales growth here of 24%, it's a little difficult to interpret because there were out-of-stocks, there were restockings, there were year-on-year comparisons.

So I wouldn't look too strongly at the results themselves.

But the good news is we're back in stock, there's no supply issue into the supply chain, and we are pretty much caught up, almost completely caught up, in our sample supply.

Of course, the really important news for 2006 was the release of two very important outcomes trials, DREAM, and more importantly, the ADOPT study, which you all heard about in December.

Just to remind you what the results of that trial were, were I think we exceeded everyone's expectations, in some cases even our own, where we beat metformin on performance and we tied them on the cardiovascular safety.

So this is a very positive study.

Our sales representatives immediately were able to take this study, because it was all done within label, and are now out promoting it into the doctors' offices.

I can tell you doctors are very impressed with the results.

We have two pieces of evidence that would back that up.

First, this is the results of some market research that we have done with physicians. 92% of the physicians that have seen the ADOPT data in our market research said that it will have an impact on their prescribing.

As I read through this slide, I realized I probably should have said a positive impact on their prescribing, because that's the very important part.

But also they saw, when we asked where they thought they would increase their prescribing, 55% said they would expect to increase their Avandamet prescribing.

We'll talk a little bit more about that in a few seconds.

The second important indicator that it is working is actually in the results.

If you look at a four-week rolling average of our TRX's, you can see that the growth is now coming back behind the brand.

This has all happened since the publication of the TORCH trial.

In addition to the TRX's, I always like to look at the new RX data because new RX's predict TRX's in the future.

In the two months since we've released the TORCH data we have grown almost a half of a market share point.

So if we could grow a half a market share point every two months for the rest of the year, I would be a very happy person.

So let me just wrap -- talk, telling you why we love Avandamet and why we think physicians have said they are going to be using more and more Avandamet.

If you see the profile, it has very compelling efficacy.

Most physicians, when they see a diabetic, they are not seeing the kind of people that you saw in the ADOPT trial, where we controlled for their HbA1c's to be in this 7 to 8 range.

Most of the time they are seeing patients that are up at 9, 10 and 11 HbA1c's.

They need more than one product to get the patients down.

On average, as you see here on the slide, 2.3% reductions in HbA1c.

For patients with extremely high A1c's, the drop is closer to 4%.

I think equally important is the combination of the two eliminates many of the concerns that people have over either product alone.

The product is weight neutral, so there's no weight gain that you sometimes see with Avandia alone; easy to take, it makes one pill twice a day; and it's very cost-effective, especially in the US, where people have co-pays.

You have only one co-pay.

The pricing that we have for Avandamet, we are pretty much giving the metformin component away at our cost.

Equally compelling were the results in terms of getting patients to goal.

The ADA has had very rigid standards about where they think patients should be treated.

As you can see again here, 77% of patients in our clinical trials were able to reach the ADA goals compared to metformin alone.

So, again, we think Avandamet has a very bright future.

Next, our vaccine portfolio delivered over GBP1.7 billion of sales with very robust growth.

Growth across all of our elements or all of our product franchises.

US was especially strong, boistered by the flu franchise, where we were able to ship our FluLaval product in this year in great quantities.

But also some real very interesting growth in products like Boostrix, a product that doesn't get a lot of attention but it's a tetanus/pertussis booster shot.

Right now this growth in this size is only on a pediatric and adolescent indication.

We're expecting an adult indication as well, moving forward.

Also Rotarix is doing very well.

We're now getting orders throughout our Latin American markets, and we are starting to get a pickup in the European markets.

If you look at our key vaccine opportunities, moving forward and just to update you on where we are.

First, just to let everyone know, EU, we're right on track with where we said we would be in terms of moving towards an approval in '07.

We have completed the interim analysis on '008, and we will meet our file deadline that we promised you at the end of the third quarter by April of this year.

You also noted that we started a head-to-head trial in Gardasil this quarter.

We want to be able to show the value of our adjuvant system, and we think we have designed a trial that can do that in fairly quick timeframe.

For Rotarix, we have been able to accelerate based on the interest of the US regulatory authorities, our filings.

So we will now be filing in the US in the first half of this year for Rotarix.

Synflorix -- this is the new name for Streptorix.

The EU did not like the name Streptorix.

But I can tell you I actually like Synflorix better because it reflects more what the actually does.

It's (technical difficulty) strep vaccine.

It's actually a dual-acting vaccine; because of the carrier that we use, it works for otitis media as well as for strep.

So I think the new name works well, it gives us a great platform, and our EU filing is expected by the end of this year.

We have continued to make progress on our new generation flu.

Just to make sure you don't confuse, this is not to do with pre-pandemic or pandemic flu; this is our improved flu.

This is for the elderly, whose immune systems tend to have deteriorated over time, and who the current seasonal flu doesn't seem to work as well.

We have our Phase III data is expected by the end of this year, and we are very confident about the power of our adjuvant systems to produce a more boisterous seasonal flu.

Of course, very topical in the last few days year in the UK, our H5N1 vaccine program continues to just roll very well.

We're actually making H5N1 vaccines today, as we speak.

We have orders from a couple governments.

We will be filling a Swiss order that we had announced a couple months ago.

We have filed in the EU for our H5N1 vaccine, and we have cross-protection data that you will be seeing, and I hope you all have the chance to tune in at a conference in Hong Kong next month.

Let me move now to the second-tier franchises that we like to continue to talk about.

We started talking about these six years ago as the next to super stars, and they have now in fact all become super stars in their own rights.

We talk about Lamictal, Valtrex and Coreg all continue with very strong growth; over GBP750 million of sales each.

Just a few highlights -- Lamictal we received also now a grand mal seizure indication.

This will be very helpful because we have a product called Lamictal XR, which is a once-a-day Lamictal for epilepsy coming out that was filed in '06 and hopefully will be approved by year end.

So that gives us a good platform for launch on the Lamictal XR.

Valtrex -- we have new CDC guidelines that talk about transmission driving the growth there.

Of course, Coreg -- we are anxiously awaiting the launch, which will be coming in the first quarter of this year, of the Coreg CR.

This will allow us to move out of the current uses of Coreg, which tend to be limited more to the CHF and the post MI market because of the twice-a-day dosing regimen, and it will allow us to move into the once-a-day beta blocker market and the bigger hypertension market.

So very strong franchises, all doing very well.

And talk about now the Next Generation.

I find it's kind of interesting, if you look at the total sales today of Requip, Avodart and Boniva, just about the same as where the three previous products I talked about were, five years ago, when we first started talking about them.

And now, again, with great growth rates, Requip doing very well, especially with the restless leg syndrome.

Just to remind you, we have two new formulations that we will be -- or filed or will be filed.

One is a 14-hour formulation specifically designed for the time period where restless leg syndrome is most prominent; and then a second, which is a 24-hour, for Parkinson's, which will reduce the titration schedule, which has been one of the real drawbacks to Requip in Parkinson's.

Avodart doing very well, the only 5-HT3 now being promoted in the population.

Growth strong, and the real potential upside will be in the cancer prevention trial that we have ongoing, which we will be [reading on] in a couple of years.

Of course, Boniva, which is a once-a-month version -- osteoporosis product, growth over 100%.

This is our share of the combination that we have with our marketing partner, Roche.

Let me just close on a couple of the new stars as we look out to 2007.

I have already talked a little bit about Cervarix, Coreg CR and the H5N1.

You will note here Wellbutrin XR in Europe -- this is the Wellbutrin XL product that we have had in the US that many people thought we would not be able to launch into the European markets.

But we now have approvals in 21 countries.

We are going through the pricing process right now.

We should have launched in all countries by the end of this year.

So this is a real upside for us.

We also have approvable letters on Altabax and Trexima and Entereg.

The one key one in that group is the Trexima, which will be a fantastic addition to our migraine franchise.

It takes everything that Imigran did, and Imitrex, and builds on it with greater and more superior efficacy and longer control for the patients.

Let me just talk about two products in a little more detail because these will be big launches for us in 2007.

First is Allermist, which allows us to continue our allergy franchise that we built with Flonase.

We have a real definitive story here -- quick onset, longer duration.

But I think the two points that will have the most impact in the market is, first, that we expect to have labeling of efficacy in ocular symptoms, something that no other nasal steroid has.

We have a new device that makes it easier to use; some patients well like it and find it simple.

We have a lot of Phase III data that is going to be presented at the Quad AI meeting this February, and we have five manuscripts that will be published throughout 2007.

Lastly, Tykerb -- of course, our breast cancer product.

We are anticipating approval in the US in the first quarter.

We have the PDUFA date coming up on March 13.

Again, continuing to generate great data.

In the first-line setting you'll see data -- brain metastases and inflammatory breast cancer, all during 2007.

We have also launched our adjuvant program.

We know it's a long-term study, but it's well worthwhile.

Based on the Herceptin adjuvant study program, knowing that Tykerb is an oral presentation, an oral formulation, would be the ideal product in the adjuvant setting.

Of course, we have ongoing studies in many other cancers -- head and neck, pancreatic and you can continue to read the rest of the slide.

So in closing, as I referenced earlier, in 2007 we do have some holes to fill.

We have the Zofran in the US, we have the Wellbutrin XL 300 mg that is facing us now.

We have another quarter or so of Flonase to flow through the system.

But we believe our growth drivers are strong, our key franchises continue to grow.

We have a great list of products that we will be launching in 2007, and that's what has allowed us to put the earnings guidance that we have put out today.

So with that I'm going to turn it back over to JP, who will walk you through the next steps.

Thank you very much, David.

I will go quickly through some of the fundamentals that we need to talk about because they explain a lot the outlook towards 2007.

Basically, there are three chapters to the book, to the GSK storybook.

We have a portfolio, as you have seen, which is very diversified with many growth opportunities.

We have a commitment to deliver strong financials in the good years, in the bad years.

You were talking about the generic risk.

Of course, we have some generic risk; we are a big company.

We will always have [countdowns] going generic from time to time.

But if you look at the track record, the last five years we have GBP6 billion of revenues going generic, and we grew our EPS on a compounded growth rate at 13%.

That, I might add, with fairly few new products being launched.

So we can do it, and we will continue to do it in the future.

Then, of course, R&D engine is key for the future to build up a more dynamic product line beyond what we already have.

Not only that, you also try to take away some of the lack of predictability of R&D.

We have, to a point where you'll see that we're able to do that, to some extent.

So this is a very important competitive advantage, this reloadability that we wanted to talk to you about.

We have talked about the fact that the product portfolio is diversified geographically and therapeutically.

We have 21 products with sales larger than GBP250 million.

I think that's important.

Blockbusters are great, but you don't want to end up with a big anchor at your foot, as some of our peers ended up.

Therefore, it's easier to take some hits which are GBP500 million, GBP1 billion.

But when you're dealing with very, very large franchise, it's more difficult.

We're very fortunate because the two biggest franchises we have -- they are not that vulnerable to generics.

First of all, on Advair, there is no regulation to do an Advair copycat in the US.

So what you're going to have is some generics at some point, certainly not in the near future.

They will not be A/B rated; they will not be able to take away 90% of the sales over a week.

So it's going to be a soft landing for Advair.

By the way, notice in the legal report of the press release that we have had the combination patent for Advair reissued in the US.

Second time the patent office looked at it and said this is a serious patent, which is a good sign for us.

Of course, on top of that, we have all the patents related to the delivery system itself.

The other franchise is Avandia.

Ironically, Avandia is being split into multiple parts -- again, a good way, frankly, to minimize generic inroads.

You'll see in some of the PLE's, we're going beyond what we already have with Avandaryl and Avandamet; and we have, of course, been pretty clever at creating PLE's that extend the lifecycle of the major modules.

So our two biggest franchises are not typical go generic and lose it all kind of brands, which will help.

On top of that, of course, we have many of those franchises which are growing fast and further diversifying us away from any major single product dependency.

Now, in fact, the strategy, as David explained, is to sustain the growth of Advair and Avandia.

Those products -- I hear a lot about it when I go to visit you one-on-one.

I'm a little surprised because, they were 40% of our growth this year.

Three years ago there were 300% of our growth.

Our dependence to Advair and Avandia has reduced considerably, very quickly.

Why?

Because we have built up other franchises which are growing very fast and picking up the slack, so to speak.

You would expect, with the size of Advair, that we are not going to see 40% growth, ever; it's just mathematical, it's just the size of the product.

But it doesn't matter because we have far more to propel the sales line.

Of course, the vaccines are doing very well, up 28% this year.

If you look at the past history, we doubled the sales of the vaccines over the last five years, and we're going to do that again and easily, I would say, with Cervarix and a few other things over the next five years.

So that's going to continue to be an important engine for our sales line, and then we have all the products mentioned by David, multiplicity of franchises, many of them with good news coming around the corner.

The new products opportunity.

I think this is a very unusual situation, a pharmaceutical company is introducing five major new products in a single year plus a bunch of additional ones, which will make a big difference in 2008, 2009.

Wellbutrin XL is the best antidepressant on the market;

I think there's no argument about that.

We're going to have the chance to launch it in Europe.

We have beta exclusivity protection for 10 years, so this is going to be a big engine of growth for Europe.

Arixtra -- we have done a pilot in France to see if we can take on Lovenox where they are the strongest, and we have done extremely well.

So we can't wait to get approval from the FDA of this indication so we can launch a major attack in the US.

And you have heard about the other products from David.

Let me say a word about consumer.

You see, we have a lot of oomph behind the sales line on the pharmaceutical side, but the consumer as well.

The sales growth is good and improving -- 6% this year, 9% in the last quarter.

So there is some momentum in our consumer healthcare business.

It's also a very profitable business because we take full advantage of the synergies of the business infrastructure with pharmaceuticals, so we're number one.

We're the most profitable consumer healthcare company in the world.

Some of you would like us to sell it.

Remember, if we sell it as a stand-alone, the consumer healthcare profit margin will drop like lead because they will lose all the synergies that exist.

So it's artificially very, very profitable.

You would lose that advantage.

The synergies are going to go away if you are a stand-alone.

So the value of the enterprise as a stand-alone, in my view, is less than incorporated into the group, just simply on the cost synergies.

On top of that, you get all the benefits of RX products switching and being passed on and being prolonged by our consumer healthcare enterprise.

There is going to be more good news on the sales line of consumer in the near future because of the innovation that is coming through.

Lots of new and interesting products that are going to have a lot of appeal with consumers.

I'll just mention the [Wytrace for aqua] first.

That's going to be a big launch.

You pay $700 to get this treatment at the dentist when you can do it in three days at home for $15.

Pronamel is very exciting; this is the first toothpaste that is demonstrated to work in the clinic against acid erosion.

Alli just got approved this morning.

Alli is very tricky marketing but very high potential.

Alli is on TV today; all the Americans want to talk about is alli.

Obesity is a big deal in America, and this is the first time the FDA has said yes to a product to go OTC in that category.

This is, in a way, sort of a freebie if you go on a diet.

If you go on a diet and lose weight, that's great.

If you go on a diet and take alli, you will lose 50% more than diet alone.

So what do you have to lose?

Well, there are literally millions and millions of people who are constantly on a diet in America and soon in Europe; you just have to walk the streets.

It's coming, it's invading Europe big-time.

So this product has a place.

The trick is to launch it in a very responsible way, and this is really [entirely] up to the way we marketed Nicorette.

Think about it; when we marketed Nicorette we're facing clients.

Those clients want to quit smoking, but it's very hard to quit smoking.

You are addicted to nicotine, and therefore the promise of the product can only be disappointing to them because you need willpower to quit smoking.

Nicorette is not going to do it by itself.

Through clever marketing and making sure they understand this is not a panacea, that they need to work at it, we have been able to build $750 million business with a proposition that on paper didn't look too good.

This is the same thing.

If you use alli in a low-fat for diet, it's a great product.

If you do not stay on your diet and you pump a burger from time to time while taking alli, you are not going to have a great experience.

So, now this being said, there are people who are determined to lose weight, and they are committed and they are going to be patient.

Those people are going to stay on alli a long time.

Remember, this is half the strength of the prescription product.

So some of the horror stories you heard about Xenical -- do not apply.

Clinical trial, 9% dropout rate over six months.

That's pretty encouraging.

So we have a shot at this, and it's going to be great fun to launch the product.

Besides that, we just acquired CNS -- wonderful, clever company with two products.

Both are doing fantastically well in the US and have not been globalized, and that is what SmithKline Beecham -- I should say, GlaxoSmithKline does best.

It's globalizing brands, as we have done with the block products and the like.

So we will launch those products worldwide.

They are proven winners and expand, again, their sales line in this way.

Let me move on to financials.

You know our story.

For us operational excellence is embedded in our culture.

I talked about it the first day of the merger.

We don't do stop-and-go cost-saving, we don't do press conferences to announce body counts.

We don't believe in that approach; we think it's bad management.

We do cost savings even the good years.

We do it all the time, and we do it for continuous improvement, and we do it without talking too much about it.

But the results speak for themselves.

We have reduced SG&A, we have reduced the entire cost infrastructure of the Company every single year.

Just to give you an example, in manufacturing we never mentioned it, but we have closed 28 sites in the last five years while the volume we're producing has gone up over 50%.

So we know how to do this.

It's boring.

It's like cleaning up your room; you need to do it from time to time but nothing to write home about.

But we will deliver.

In fact, if you have noticed, the guidance talks about improving margins.

That's because we continue to take full advantage of our opportunities.

The opportunities are tremendous to reduce the cost infrastructure those days.

You can use standardization, standardize your processes, save lots of money.

Just an example -- we aligned our advertising agencies, picked up dozens of millions of dollars, and it's not that hard to do.

Offshoring -- we have offshored financial services, and many other things.

There's a lot more we can do.

Clinical trials -- remember, we were the first company to say let's have some clinical trials done in the low-cost countries.

It's big savings for us.

Well, last year, the count, I think, [month said] it's 40% of our new trials are done in low-cost countries.

This has tremendous leverage on our R&D budget.

We can do so much more with less.

Globalization -- this is the ultimate price arbitrage.

I love it; you pick up the phone, you can save money.

We buy so much more now out of India and China, for that reason.

Or we get significant discounts of our local suppliers because they know they have got to compete.

Restructuring -- again, we don't talk about it, but we absorb roughly GBP200 million of restructuring in '06, which will have a payoff in '07.

We will continue through '07, probably at a lower pace, though.

So there's plenty to come in terms of more efficiencies, more productivity, reducing the cost infrastructure.

Of course, that helps our cash flow generation.

This is just a story.

Way back, we generated GBP5 billion in 2000, and we have increased significantly.

The reason I show the cash flow generation is because of the next point, which is we have made a conscious decision we're going to return more to the shareholder in the near future; we're very confident about the next five years.

So we have doubled the buyback but we also increased the dividend.

It's clearly a signal that we're going to keep paying dividends, maybe at a growth rate that is more similar to '05 than '04, '03, '02 or '01, where, frankly, we were increasing dividends very slowly.

We think this is good for the investors and we certainly can afford it.

Now, with Julian as CFO we're not going to go wild, I have to tell you.

And we shouldn't, because you have to have a very healthy balance sheet as a pharmaceutical company because there is always a Vioxx or [Efensin] just around the corner, and you have got to be able to face that, God forbid, if it were to happen.

So we are going to do a reasonable job to repay basically all the cash we generate but not necessarily go into huge debt just to have a good buyback program.

R&D is very important, I don't have to tell you.

Let me just go straight to the features of our R&D.

The R&D pipeline is the result of changes we made, frankly, 7 to 10 years ago.

And now you see that the late-stage, quote, pipeline is in a very good shape.

If you think about it, in the last 12 months 10 new products entered Phase III.

I have never seen that in the past, I can tell you; this is far more than anybody in the industry, far more -- not just a little more, far more than anybody else in the industry.

That doesn't even count the PLE's.

We have a variety of products; this is not an R&D day, so I won't go through all of them.

But basically we have lots of Phase III products, lots of file products.

I do want to mention the PLE's, because when I was talking about thinking ahead on diversifying Avandia so it doesn't become a big target for the generics, we are going to have Avandia [Prostatin].

We are going to have Avandamet Extra, we're going to have Avandaryl; we're going to have lots of different pieces to the puzzle.

The sales of Avandia as a stand-alone product, as a proportion of the franchise, will be fairly modest.

There are lots of interest interesting things.

Avandia XL, by the way -- that's the biggest commercial outcome if it goes through.

It doesn't have a huge [pro] rate of success, but we did see some encouraging data in Phase II, this is for Alzheimer's.

If we get through this one, I'll be a rich retiree, let me put it this way.

So we also filed some interesting compounds, and we are in very good shape in terms of this late-stage pipeline.

So the late-stage pipeline is big, bigger than anybody else.

That's good.

You still need to add; more is better.

But again, if you in-license early-stage compounds with big payments, something is wrong.

You must be desperate to do that.

We don't do that.

What we in-license is late stage, it's past Phase II, it's in Phase III.

The human monoclonal, the CD-20 -- this is a product that is going to take on Rituxan.

And because of its characteristics, we expect it to have an advantage in terms of antibody formation.

Rituxan is a great molecule; don't get me wrong.

But we think we can give them a real foot fight if the product comes through with everything that we have seen so far.

So this is a product in phase III.

Geperione is an interesting -- it's a first -- it would be, if it succeeds.

We have had, I would say, a mix of good studies and not-so-good studies, and we are in the final stage here of Phase III and to some extent been filed in Europe, I think.

This product is very attractive.

It's basically a unique mechanism of action for depression.

It has been used in other diseases, and if it comes through it will be the first antidepressant beyond Wellbutrin with none of the side effects of the SSI's.

So it's a good bet.

We are going to find out very soon on this one.

Then XenoPort [5-110] -- [5-112] is a clever modified [neurotic].

But ironically, it has been developed in an indication that I think Warner-Lambert forgot about, which is RLS.

And of course, in RLS, it acts in a very different way from Requip and the others.

So this is quite exciting.

And then we're in Phase II in our neuropathic pain, which for me is a big payoff.

That's where Neurontin was generating a lot of business.

So those are late stage in-licensing targets.

We will continue to in-license late-stage products.

The reason I don't in-license early compounds is because they have a 93% chance of failing if they are Phase I compounds.

And yet you see big companies buy a bunch of Phase I products, so -- or companies with sole value is that they own some Phase I products.

Let me ask you a question.

If I was to tell you, you're going to buy this car, and there's a 93% chance that the car will never start, would you pay a lot of money for it?

I would not.

Yet today, because of the scarcity, the supply of late-stage compounds is so bad and so restricted, many companies are spending big bucks on early-stage pipelines, and we don't do that.

And we will not do it, but we will continue to in-license late-stage if we can find them.

So altogether, we have a very healthy late-stage pipeline.

This brings me to the second issue, which is it's great to have late-staged assets.

But we have seen this year that some companies -- they lose a couple of late-stage assets, and you turnaround and there is not much behind it.

I know the problem; we have suffered that problem in 2000/2001.

We had some great Phase III compounds, and they died and it was a bit of bad blood.

Then we turnaround, turned around, and there wasn't much right behind it.

You can't have that; you have to have intensity and depth into your pipeline, and you have to be able to reload, reload the gun, reload the pipeline, at a very fast-pace.

How do we compare on the count to the rest of the industry?

This is a very interesting study, it's a CMR study.

First of all, we excluded vaccines and PLE's to make it clear.

So this is really molecules.

You are comparing to large companies, the Pfizers, the Mercks, the Sanofis, the seven largest companies.

This is what they do.

In terms of Phase II stuff, this is pretty much their statistics.

This is what GSK does.

So we are able to fill the pipeline much faster than anybody else.

Now, some of our molecules are multiple indications -- same with them.

So I am going to show you that so you understand that some molecules are tried in three or four indications.

We don't know what that proportion (technical difficulty) or the others; that's why the blue graph stays the way it is.

Now, you might be able to say, well, if you are three times faster at reloading your pipeline than your competition, that must be because you push a lot of garbage through and sacrifice quality for quantity.

No, we don't.

Our failure rate is similar, I would say identical, to the industry average.

So there is nothing wrong in terms of quality of the compounds we pass through.

Then the next question is, well, you must have this huge late-stage pipeline.

For sure, you can't focus like some other companies have got two or three compounds and they can move them faster.

What about that?

Well, this is a cycle time according to CMR which is calculated on phase-to-phase transitions.

Again, this is information given by all the companies.

You see, if anything, we are a little faster than most and we certainly don't get into a gridlock with our pipeline.

So the machine is working very well.

The R&D machine is able to produce more molecules per dollar invested, produce them faster, produce them with a quality that is, I would say, average and hopefully will continue to improve over time.

This is a major competitive advantage for the long run.

I am excited about even this year, in terms of what is going to go into phase III.

We have 15 shots at the goal.

We will probably get five or six wins, the rest will bite the dust.

There's a long list of pretty exciting products.

Some of them are featured on this slide, but we will have to talk to you about it once they have passed the commitment to Phase III decision rather than before, because it's not that easy to guess which ones are going to make it and which ones are not.

Finally, I want to talk to you about some announcements we are making today.

As you know, we love the CEDD system; it has been one of the factors that explained our higher productivity.

So we are extending it, and we're announcing that we're going to double up on our anti-infective bed.

Society needs new antibiotics.

By the time we get through, we think there will be a story on first pages of newspapers about healthy people dying from resistant bugs and hospitals having to shut down their burn units and the like because it's really expanding, and this is a real problem.

And nobody has invented new families of antibiotics, and we think we can do it.

We will announce the leadership of this unit that we are taking from outside in the near future.

Anti-inflammation is at the core of many diseases, and the science is progressing very quickly in that field.

So we are also going to create a CEDD on inflammation, and it will work in combination with our macrolide CEDD, which is a misnomer for our unit in Croatia because they work on macrolide, but they don't work on macrolide for antibody therapy, they work on macrolide for inflammation.

They have fairly, I would say, early-stage but quickly moving program in that field.

Finally, I want to remind you we doubled up on biopharm.

We are excited about domantis, and let me tell you what the story as with domantis; it's very simple.

They have a technology where they can take a monoclonal and cut out the tail of the monoclonal.

You know, the monoclonal is a very complex kind of molecule, and it's got this long domain, which is the tail of the compound, which has nothing to do with the efficacy but has, sometimes, the potential of creating antibodies.

Well, if you could cut this tail and still keep the efficacy, you would have the promise of replacing every single monoclonal that is on the market today with a better mousetrap.

That is what domantis does.

That's exactly what the technology is all about.

That's why we're very glad we acquired it, and it is doubling up, basically, our effort in biopharm.

As domantis comes through it's not going to be one monoclonal; it's going to be half a dozen.

It will be the better Enbrel, the better Rituxan, the better everything.

So this is a very exciting bet, and we will find out soon enough if the promise and the proof of concept we have seen so far holds up in late-stage clinical development.

Then finally, our set of alliance is expanding all the time.

We have signed a number of deals.

Basically, this is our virtual set.

Most people don't have any chemists or biologists working in there; they just strike alliances and buy programs outside the Company.

As you can imagine, this is a fast evolving field.

We have many such alliances, and we're going to continue to expand.

We have gained access to roughly 50 new pipelines in the last 18 months, and that, hopefully, will produce more products that we haven't talked about.

Finally, we want to globalize R&D.

It makes sense to go where the best scientists are.

Up to that point, it was mostly Europe, US and, to some extent, Japan.

But lately, of course, we have planted our flag in India, where we have a chemistry center, and in Croatia in 2006.

We are making an announcement today, we will open a fully integrated, full-fledged R&D center in China.

This effort will start in '07, not end in '07.

Clearly, it is going to take a little while.

But Moncef will go there and finalize a site and the leadership selection.

Our Chinese R&D center will be stand-alone, will be autonomous, and will report all the way to the top of R&D.

It will not be integrated with the rest.

We want to create a little stimulation, and we think that this has many great advantages, so we're very excited about that.

I want to say one word about reputation.

This is a Company that has broken lots of firsts to try to meet societal expectations, which are very high for the pharmaceutical industry, and have been disappointed in the past and created this sort of bad feeling about the industry.

As you have seen in the surveys, the industry reputation is coming back at a very fast clip, and there are lots of reasons for that.

We can come to that, if you wish, in the Q&A.

But I want to remind you we were the first company to issue a discount card for noninsured seniors in America.

We were the first company to sell HIV drugs at cost on a not-for-profit basis in Africa and beyond.

We were the first company to put all our clinical trials on the Web for maximum transparency.

We were the first company to think that the world was going to need a pre-pandemic vaccine.

We were the first company to sign deals with Bill Gates to create drugs for neglected diseases and diseases that affected primarily poor countries.

We have 14 such agreements, and we are by far the largest company in terms of doing research with somebody else's money for diseases which are getting no help, from, normally, from for-profit organizations.

All this is starting to make an impact.

People are starting to notice that GSK is not your [dad's] pharmaceutical company, that they get it, that they can step ahead of the problem instead of just getting it thrown at them.

You will still see some marketing practice lawyers-derived reputational issues in America; that's the way the American judicial system works.

It shouldn't surprise anybody who is sophisticated and understands the plaintiff system in America, which, by the way, is broken completely.

So I expect that.

But very often those cases come from the past, and the measures we have put in place should help us to improve dramatically.

We will shoot ourselves in the foot occasionally, I'm sure.

But I think we are working very hard to restore a higher plane or reputation among our stakeholders, and I think that's good for everybody, including foreign investors.

We just, by the way, were informed we received the Paul Newman Prize.

This is the most prestigious prize in corporate philanthropy, and I'll be going to New York Monday to pick it up.

So our efforts are being noticed, and that's all good.

In summary, the reason we're confident about '07 and beyond is for the reasons we discussed today.

We have commitment, we are determined to continue to produce, in the good years and the bad years, we always deliver.

We have what it takes.

We have the right portfolio of drugs -- not too concentrated but yet with lots of opportunities for growth.

We have a tremendous R&D pipeline, and we're very confident about what you see is what you get, and it is pretty impressive.

And we have pipeline that is not a stand-alone one and then nothing else.

If you think about reloadability, this is the only buffer against serendipity and losing drugs and then going through an empty cycle -- as we have.

Of all the companies, we should know about this.

We went through this.

Never again, and this ability we have had to create a system that fill in the pipelines quickly is going to protect us against a certain element of serendipity, which is unavoidable in our industry.

So on that note, I would like now to ask my colleagues to come to the chair there -- Julian and David -- and then give you -- I think we have 15 minutes or so for questions.

Please take advantage and ask questions.

S&P Equity Research, [Johannesburg].

A question is regarding the Avandia family in the near-term as well as long-term.

Did you actually see switching patients in Q4 in OLD market in the US from Avandia to Actos?

How do you see compared to the universe of Avandia against new entrants such as DPP IV inhibitors and the GOP 1 in the coming years?

I'm not sure I heard the first part.

Switch or a switching (inaudible)?

I can't tell you specifically switching patients, but just by monitoring market share we saw, prior to the fourth quarter, we had lost market share.

When we were off the market, our market share was declining and it was almost entirely moving over to Actos.

Since the release of the adopt data, our market share has been growing and the Actos market share has been declining.

Relative to the new entrants, it's been pretty much as we have said. [Genuvia] has been taking the share mostly from the sulfonylureas and, to a lesser extent, from metformin and not at all from the TZD's.

That is what is showing up in the prescription databases.

It's also consistent with the market research has shown and what physicians said they would be doing.

Alexander, from Deutsche Bank.

Just a couple more questions on Avandia, if I may.

I just wondered if you could talk about the marketing effort going behind Avandia at the moment and what level you are at.

Is there more to come, or are you at maximum marketing effort at the moment?

Also just a final question, thinking about Europe and the Avandia franchise there.

Do you think that -- it always looks like European doctors have been fairly skeptical about this category -- about the TZDs's, which is why the penetration has been historically low.

I was just wondering, do you think the DREAM and ADOPT data is going to change that perception?

Could we see the penetration approaching that of the US?

Relative to the marketing effort we're putting behind it, we have all guns blazing.

The day that the ADOPT trial was announced, we were training our sales force on the ADOPT data.

So they have in their bag, sheets, that detail the full story of the ADOPT data, so they are going full guns blazing.

Relative to Europe, as you saw on my slide earlier, the growth there is tremendously strong.

It's really on the backs of Avandamet.

We had a lot of skepticism, as you are correct, early days.

But now, with the ADOPT data, physicians are seen seeing I still like my metformin, but I can see a physician for Avandia.

That's why all the growth is going on Avandamet.

Again, supply issues in Europe have been great.

In the US, relative again to the first part of your question, the only area we are just not quite full on all of the strengths of the samples.

But it's almost taken care of.

Also in Europe what was helpful is the change in label.

In some countries, France particularly, the [guard man] initially put Avandia in reserve of reserve of reserve, so we were in the last -- you couldn't use it for naive patients, you couldn't use it until you had to demonstrated that the patient did not succeed with metformin.

It was kind of so restricted it was ridiculous.

But as soon as the studies came out and we could show the data, demonstrate that this was not warranted, they changed the label.

That opened the gate.

So there was also a regulatory hurdle -- not just the physicians' skepticism.

The two were kind of connected.

You can turn around and tell the physician, see, told you so.

Suddenly, they are ready to try the product.

So I think we have a great future, and 90% growth tells you that something is happening.

Andrew Baum from Morgan Stanley.

Perhaps Julian might like to give us some idea of where long-term -- and let's say in the next three, four years EBIT margins are going for the group.

Particularly looking at R&D as a percentage of sales, given the very rich pipeline of drugs accumulating in Phase III, that you are going to develop that will leave R&D spend, to what extent can you actually contain that within the current budget?

Second, on Avandia, just following on from the previous questions, perhaps you could remind us of the dates and times of the patent case with Teva and also comment on the probability of what type of relabeling you may get regarding osteoporosis associated with the drug.

A final question on Coreg -- what percentage of the current user base do you expect to switch after twelve months following launching of Coreg CR?

Let me take the margin issue.

We don't give guidance on our margin, but it's obvious that we can improve it.

As we are big enough, the incremental sales go straight to the bottom line.

On top of that, if we can work -- continue to successfully reduce our infrastructure, there's no doubt we can have margin expansion.

We have had margin expansion in the worst of times, when prices were going down everywhere in the world except for the US, where they were not going up that much, where generics were picking up our most profitable franchise, we still increased margins.

So I am very optimistic about margin expansion.

We are not at Microsoft margin levels.

This is a business that should produce, if you're successful with innovation, if you're successful with new products, extremely high margin.

I have no doubt it will, if managed properly and, again, based on what we see today.

Maybe you can take the Avandia?

It was timelines on the Teva and Avandia?

I don't -- August 6, there is litigation.

Again, we feel very confident about the Avandia patent litigation there.

Our composition of matter patents go out to 2012.

I'm looking for nodding to confirm that?

I think generic companies lately -- they stayed away against attacking NCE's because they've failed repeatedly to beat the NCE patents.

But lately, they have attacked them when the NCE patent was combined with some further patent.

That's exactly the case we have seen with Imitrex and we are going to see with Avandia.

Then, the day before the judgment, they dropped their lawsuit against [ENT], and they tried to attack the more vulnerable part of [your] patent portfolio.

So I think one has to look at this in the light of the generic strategy.

In terms of the labeling changes in Avandia, we have shared all of the data from ADOPT with them.

Relative to osteoporosis specifically, we saw no difference in hip fractures, for example, in three different arms; and these were 4000 patients over five years.

The fractures that are described in the database were not of an osteoporotic nature, and they were not significant [SAE's]; they were just reported as adverse events.

So the FDA has all that data.

And --

Basically, the FDA thinks there's nothing to be said.

Very often, the [unsterile] class, what you see the first two weeks it drops, and then it stays there.

So nothing happens clinically.

You have to be careful that you don't think this is a progressive loss of bone density or anything like this; that's not the way it happens.

So that's reassuring.

And relative to the -- there was one -- Coreg.

We don't, as you know, give forecasts of conversions.

But I'll remind you of what we said when we launched Wellbutrin XL, which was the standard in the industry was a 30% to 40% conversion rate.

We had hoped to do better than that with Wellbutrin XL.

We did over 50% in the first 12 months, and I think we have expectation to do every bit as well as Wellbutrin XL.

So, without giving you guidance --

With Coreg CR.

With Coreg CR; sorry.

Coreg CR is a little tricky because it goes beyond the conversion.

First, you have the conversion of the CHS business; that's the existing business, from twice a day to once a day, we should get a fair share of that.

But then on top of that we can attack, as David mentioned and I want to remind you, we can attack a very large market that with Coreg, the current Coreg, is just not competitive and frankly we don't even talk about it.

That's the hypertension market.

Because, if you want to treat hypertensive patients, once a day is mandatory.

Nobody is going to prescribe a BID drug in hypertension.

So we couldn't really go there with Coreg, even though it's on our label.

But we will go there with Coreg CR.

We will get a full range of -- it's not going to be the low -- the patient that can be taken care of with a diuretic or an ACE.

It's going to be the more resistant, severe, for instance, African-Americans in America have real problem with hypertension.

Clearly, Coreg is a pretty powerful drug.

There will be physicians trying it.

So this is why it's tricky to even do it internally.

We are not sure about the percentage of conversion because we've got this added market that is next to the conversion market and will benefit.

Kevin Wilson from Citigroup.

On the asthma market in the US, could you tell us or share with us some of your market research on the degree of saturation it has been achieved so far in that ten years of growing it?

And then comment, perhaps, on what you might think might happen when a new entrant enters the market at midyear?

Will the market expand?

Will you lose share?

Obviously, you lose some share, but how much?

Secondly, on CapEx, could you give us some sense of what the breakout was of this year's CapEx?

Going forward, will you see the same sort of levels maintained?

Will it drop back to more historic levels?

I don't have all the data, Kevin, on saturation of the market.

I do know, because we were running this asthma test, do you have asthma, that we were doing that in response to the fact that we know there were a lot of -- it's not undiagnosed asthma, but it's undercontrolled asthma.

That is the real opportunity, and that was what we saw in the [goal] study and the concept studies, where patients could actually get control of their asthma and in fact we could get patients through Advair to be symptom-free.

So that was the real message as opposed to untapped asthma potential, was getting patients more to goal.

Again, remind you that the opportunity with Advair and Seretide is beyond the asthma market; it relies more on the COPD, which is much more of a virgin territory for us.

I think on CapEx you'll see the sort of current levels the next two to three years as we invest behind the vaccines business, and [it was in off] for the manufacturing area in total.

Beyond that, I think we will come down to sort of more normal levels.

Jo Walton from Lehman.

A couple of industry and a couple of financial questions.

From the industry perspective, David, you talked enthusiastically about some of the things in the Medicare Part D and the low prices.

Are you concerned that together with those low prices are a number of plans which are effectively giving generics only or generics only through the doughnut hole?

Do you think that that could be a problem and we might actually see an even bigger switch towards starting with generics and you, as a branded company, are getting boxed into a smaller area?

The second element is to do with pricing.

You have taken, I believe, headline pricing, some pretty substantial prices on Advair in the last couple of years.

Do you think that that is sustainable going forwards?

Do you think, in the next few years, you will be able to take two 5% price rises a year?

On the financial side, looking at your R&D investment overall, we are obviously seeing a lot of it through the GBP3.5 billion in the P&L.

But increasingly, with alliances, companies are being encouraged to capitalize investment.

If you were to put all of your new product investments in, how much more are we effectively seeing that now is perhaps off-balance sheet but under the old accounting standards a couple of years ago, would have been through the P&L?

Is that perhaps part of the reason you are able to keep your R&D at only 14.5% of sales whilst doing more and more in your R&D?

Just a final quick product-related question.

A number of us who have followed [Axo] through the years have seen Geperione before.

What have you seen about Geperione that the FDA didn't see last time it rejected it?

Let me start with the price increase.

Just to remind you, the published price increases are not the price increases that we get.

I think, in general in the industry you are going to see a slowing down of the price increases because of things like Medicare Part D and more people moving into plans, and more people into various health insurance schemes.

Relative to the question on the generic plans, first, to remind you what I showed on the slide, that overall to our business, Medicare Part D is only 10% of the business.

The phenomenon that you're describing, and it's a good question, is that there are a lot of people that have gone for the very generic, generic plan, which is heavily oriented to generics.

If you reach the doughnut hole, they will give free generics in there.

That may encourage physicians for people in those plans to start with them.

Now, remember, the kind of people that sign up, often, for the cheapest plans for the people that feel they need the medicine the least.

The ones that want the best medicines or that use medicines most frequently are willing to pay more upfront.

So I think that's all part of it.

The other thing that I think will happen is that there are a lot of efforts underway to try to fix the doughnut hole.

We would like to be able to, for example, for the poor that can't afford it, to pay for their drugs through the doughnut hole.

But unfortunately, the way the law is written today patients -- when they reach that, they can't use those savings accounts towards their costs so that, when they reach the end of the doughnut hole, they would be covered again.

So there are some fixes, some interpretation to the legislation that may go through that would help us to fix the doughnut hole, which would allow people to not have to go to the bare bones generic plans.

Just on the R&D, again I want to repeat it.

We can grow R&D with revenues and do fine, thank you very much, even with the expanded Phase III pipeline we have.

The reason is, it's very easy to save money in R&D right now.

It's very easy; you switch a trial from US to Poland, you save $9000 per patient.

So, compared to the past, to the way we used to do it.

There are many other reasons.

You talk about CRO's and sending armies of managers for clinical trials -- we do 95% electronic data capture on our trials, 95%.

We save a tremendous amount of money when we do that.

Our data centers are going to India -- a tremendous amount.

There are savings right, left and center for anybody who is interested in operational excellence that's a lot more efficacious than anything else you can do in the Company.

We have started to do it; there's plenty of room left.

Therefore, I know you always ask, are you guys going to have to increase R&D?

Well, you were asking seven years ago, when we were doubling and tripling the few assets we had in our pipeline.

It never happened; we have been able to form the pipeline that is three times larger than in 2000 and a lot more late-stage and therefore a lot more -- theoretically, more expensive, than what we had.

But that's because, at the same time, there is a dynamic of tremendous cost savings that is available to us, which we can do without any disruption.

It's not the off-balance that explains it; we do deals, there is some off-balance.

But we depreciate it, we take write-offs when a program is terminated.

As you know, many of those programs don't make it.

You have to fish into that lake, and sometimes you catch a fish and sometimes you catch a shoe.

So I think that's pretty much the way it goes.

If you want to add anything?

I think it's being done consistently over a period of time.

As JP said, sure, you put some of these milestones on the balance sheet; but then, [when they] finally write them off -- so they don't just stick there forever.

It's only the success ones that stay there.

I'd just reinforce the point.

Within R&D, Moncef and his team are making, year-by-year, significant savings.

It's those savings, actually, that fund the increased programs that charge the P&L to give you that sort of very flat percentage of sales overall.

So I think it is just hard-earned, that percentage.

Moncef, you want to take on the Geperione study?

Yes.

Let me introduce, for some if you who have not met our new head of R&D, Moncef Slaoui.

A small clarification for something that JP said in his presentation.

We have 15 program decisions to go into late-stage development.

It's not always start of Phase III, just to clarify for everyone.

Geperione, it's actually very simple.

The FDA rejected that product that was filed already for a while, because it did not have two positive efficacy trials in depression, which is a regulatory requirement.

The reason they didn't have it is because the FDA had rejected the particular trial that Fabre-Kramer had concluded was a positive trial, and the FDA concluded otherwise.

Since then they ran a second efficacy trial that came out clearly positive, and that's what's going to go to the FDA.

The FDA agreed that they would take it into an advisory committee, and that will be happening in the next few weeks, the filing.

David Beadle at UBS.

Just following up on [Jay's] question on Geperione, I believe Organon do get royalties if it comes to the market or they did in the original return agreement with Kramer.

I just wondered, I presume that comes out of Kramer's, that you pay them rather than you paying an additional amount to Organon?

If you will pardon the pun, I suppose you're breathing a little bit easier now you have got the reissued patent on Advair.

I wonder if you could just comment on what that means.

What happens when, and where?

With the reissued patent.

It's a simple story.

We wanted to ensure that this patent was rock solid.

You know, in Europe those combination patents don't have a lot of value, they are being challenged, successfully, in most cases.

But in the US environment for patents is very different.

So we looked at the patent, and we rewrote it so to take into account some of the judgments that had happening, in fact, in the UK, where some aspects of the combination patent had been challenged.

We absolutely basically put an armor plate around that patent, eliminated anything that could be attacked, that could be construed as doubtful or inexact.

Remember, those patents were written originally by human beings, and human being sometimes make mistakes.

So this was a way to really test the system and say, yes or no is there, and inherent synergy in the combination of those two products, [and it varies], then the patent is valid.

So that's all we did.

Now, when you do that you ask for reexamination of a patent so you take a chance.

In fact, you risk the patent when you do it.

They could have come back and said, well, now that you have made all the changes, we don't think this is a valid patent.

So this is sort of double-or-nothing, a little bit.

That's what happened, and they reexamined the patent, and the patent has been reconfirmed by the patent office.

That doesn't mean it won't get challenged; but when you go in front of a judge and you say, well, here's what happened, judge, this is a lot stronger defense than if this was the first review of the patent that was written 15 years ago and nobody can relate to it anymore.

I know, on the Geperione deal, the deal is with Fabre-Kramer, and anything that they owe downstream is their responsibility.

We do pay royalties to Organon, but on Arixtra, not on Geperione.

Alexandra Hauber from Bear Stearns.

I was hoping to get some more information on the Arixtra approvable letter.

You sounded quite positive, I believe, that this can be launched this year, so we assume you don't need additional data, given that Phase III was pretty good in the setting.

Is that the right interpretation?

Second question is, I noticed on the -- oh, I didn't notice on the slide for [well into] Phase III that basically [Super Adlea] wasn't on there.

Which one?

Super Adlea.

I think. (multiple speakers) Are you still choosing between the two candidates of the long-acting?

And when can we expect a program to go into Phase III?

Third question is just for Julian, just to remind us how we should look at these restructuring costs [for channeling] the base.

Are they coming out, or is that just some ongoing thing?

Or is that some savings potential for this year?

Then the final question is, could you just remind us what is going to happen in September on Coreg when the composition of matter patent expires?

Because I believe you have never challenged the bunch of generics who are planning to come in?

Can you still sue them then, when they are planning to launch?

What is going to happen?

Okay, the last one I do not want to comment on.

There is obviously an adversarial relationship with the generics and Coreg.

As always, we will do our best to defend.

Of course, if that defense is attacked here and that is launched CR it will make it a moot point, so I'm not going to say anything.

On our Arixtra -- Moncef, do you want to comment on the FDA, whatever we --

It is not requiring further trials.

We are in discussion on some statistical analysis and other -- of course, we can't predict what the outcome is but that's --

Add on the restructuring costs we spend between GBP100 million and GBP200 million every year.

It's just part of running our business.

It drives savings for us; it will be there every year.

And [Horizon] we have multiple choices this year.

We are actually running more than two programs; it's a quite complicated program.

There is also -- we have not been too specific because this is really multiple options.

There's also the option of doing a combination product with [Alamna].

Alamna looks pretty good, but, again, more to come as the year unfolds.

So '07 is going to be helpful as a year to clarify what exactly do we have to replace Advair and create Super-Advair or Horizon, as we call it, at GSK.

Now it's too early because all the data is not out, but there are many bets ongoing and we will sort them out as '07 proceeds.

Thank you very much for your patience, and thank you for beating the weather.

Some of your colleagues didn't -- preferred to stay home to watch the Web site.

But we appreciate your courage.

Thank you very much.