葛蘭素史克 (GSK) 2008 Q4 法說會逐字稿

Ladies and gentlemen, if I could get your attention.

Thank you very much for joining us today.

And in just a few minutes we will start the formal presentation.

Just to give you an idea of what we're going to do over the next hour and a half or so, I will make a couple of introductory comments now.

And then I'm going to ask Julian Heslop, the Group Finance Director, to take you through the numbers for last year.

I will then come back to update you on where we are on our strategies I outlined to you last summer.

And then Moncef Slaoui, our Chairman of Research and Development, will give you a presentation just to update you on how things are going in R&D, culminating with a specific update on several of our more mature drugs which are making transitions as we speak.

And then we will obviously have a Q&A session at the end.

So that is pretty much the layout of this session.

Before I hand over to Julian, I just want to context and give you my impressions of where we are as a Company.

2008 was always going to be a challenging year for the Group.

We knew we were going to face a pretty heavy hit from genericization of some of our key heritage products.

And we were also going to bear the brunt of the reduction in sales of Avandia, following the issues of 2007.

And of course that would be most acutely felt in the US marketplace, and that is of course exactly what happened.

I have to say though I'm delighted with the performance of the Group during this period.

I think the delivery of our results, which certainly when you adjust for the legal charge we had to announce last week, absolutely met or exceeded expectations of consensus, really reflect the underlying strength of our core businesses.

In fact, if you look at the organization, our core pharmaceutical business, excluding generics and Avandia, and of course pandemic contracts, which tend to be very volatile by their nature, accounts for GBP16 billion of turnover.

So of the group total of about GBP24 billion, GBP16 billion is in that core portfolio of brands.

And that core group grew at 10% last year.

Really a very strong performance.

And within that, our vaccine business grew 15%.

Our emerging markets business, a key priority for us going forward, grew 12%.

And our biggest product in the group, Seretide/Advair, grew 8%.

I am particularly pleased in the case of Advair to see the acceleration of volume growth in the US as we progressed during the year last year.

So the core business last year, very strong, very solid.

Of course we are impacted by the genericizations and the Avandia story, but actually going forward those things obviously start to dissipate in terms of their impact.

There will still be more genericization this year, but we're starting to come through to the end of that chapter of the Company.

At the same time last year we saw the introduction of a significant further portfolio of new products that I will talk about a bit later on.

But again, 2008 was a highly productive year for our R&D organization, not just in discovery, but also in progression of molecules all the way through to market and final approval.

And in the year 2008 I'm very proud that we had more new products approved by the Food and Drug Administration than any other Company.

And if you look at new chemical entities and new vaccines, so real breakthrough innovation, of the 24 molecules that FDA approved, 17% went to GSK.

This is the highest of any company, and I think bodes well for our ability to complete the R&D process.

In many other ways we see, and I certainly see 2008 as a turning point for the Group.

It is a turning point because we are seeing the pipeline deliver.

It is a turning point because we are beginning to see the genericization impacts come to an end.

It is also a turning point because we really, I think, committed ourselves to, and made absolutely crystal clear, what the strategies are that we think are going to drive this Company forward this year, next year and beyond.

How are we going to make sure that we achieve sustainable growth with a reduced degree of volatility, compared to where this sector has been in the past?

How are we going to make sure that we find a business model which can absolutely thrive in what we know is going to be the environment of the future, where payers demand greater value for money, where there may be more conservatism from regulators.

And where generally the standard is going to have to be higher to achieve premium returns.

That is the whole point of the redesign of the business model of the Company.

And that revolves around three core strategies of the Group.

How do we drive greater global diversified growth, deliver more products of value from R&D, and simplify the organization.

Now today we have announced an expansion in our restructuring program that we started about 15 or 16 months ago.

Why have we done that?

This is really should be seen as a catalyst to accelerate the change in the way this organization operates.

So this expansion of the program is all about making sure that we reduce investment in the activities which may have been attendant with the old facets of our business model, which we no longer see driving the Company forward, allowing us to invest more in those activities which we believe will drive forward the Company in the future.

In particular, areas like vaccines, consumer, areas like the emerging markets, and of course our new pipeline coming forward.

For 2009 it also gives us the opportunity to make sure that as we expect some pressure on our gross margin as our product mix changes, as we sell more emerging market product, as we sell more vaccine product, as that gross margin comes under a little bit more pressure during the year, the restructuring program gives us a chance in 2009 to ameliorate some of that.

The purpose of the restructuring program is really to accelerate the shift in resources from what we used to do to what we believe we have to do to underpin our future success.

We have also announced today a change in the way in which we intend to communicate with you and with the marketplace by saying that we are no longer going to provide short-term, specific numerical earnings guidance.

Let me be very clear about this.

It has got absolutely nothing to do with how we think this year is going be or anything else.

It has got absolutely everything to do with my absolute desire to keep the dialogue focused, both inside the Company and with the market, on what are the key activities we need to execute to secure the future of this Company, and ensure that as the industry goes through all of its change, we come through that as a winner.

That is why we're changing the dialogue.

What you will have seen in the press release, and obviously we can talk more about both today and in the future, is we are providing more insight in terms of some of the cost lines of the business.

And Julian will talk more about that.

And some of it is in the press release.

And we will also make very clear what are the key performance measures that I'm watching and that I expect to be judged by in terms of whether or not we're making the right progress in this Company.

For example, are we growing marketshare in our emerging markets, where we grew 12% last year?

Are we growing our marketshare in our consumer businesses, where last year we grew share in both our oral care business and our nutritionals business?

Are we able to drive more cash off from this Company?

Last year we grew net cash inflows by 19%.

Can we reduce our working capital?

We reduced our working capital in Q4 by GBP500 million.

Can we maintain a robust mature R&D portfolio?

We still have 30 drugs in Phase III development even after the launches that take place during 2008.

Those, along with some others, will be the kind of hard measurable metrics that we will be watching this organization with.

And we believe if we can make progress on those dimensions, then we really have a very high probability of executing our strategies.

And we're convinced that our strategies are the keys to ensure that we're successful going forward.

I think this is a good moment as well to once and for all reiterate that because we have a real confidence in our strategies going forward, and I particularly after last year, having watched the people inside GlaxoSmithKline have a real confidence in our people's ability to deliver, we are making it very clear that we have no interest in a classic megamerger or transaction in the pharmaceutical space.

I don't know how much more clear I can be about that.

But take it from me, that is not on our agenda.

Of course, we will still look for small acquisitions, bolt-on acquisitions, as we have talked about in the past.

But the classic type of transaction, which of course created GSK, is not something we foresee as being important to us going forward.

Nothing that has happened in the last three weeks changes my view of that.

We believe we have the right strategy.

We believe that our best bet is to stay focused on delivering this strategy and making sure we create shareholder value by making tough, disciplined choices, by allocating our resources in an appropriate way to maximize returns and maximize value to patients.

And to do that without being distracted by major transactions, which may or may not add value over the long run.

We have a plan.

We believe in it.

We're going to stick to our guns and deliver on it.

On that basis, frankly we're coming into '09 not in some kind of delusion, but with real confidence.

We obviously know the environment around us is tough.

We obviously know that the economies around the world for in a tough place.

And therefore inevitably there are going to be ups and downs in terms of the economic activity in markets in which we operate.

Maybe some governments will do some things which impact our business.

We are well aware of all of those challenges.

But to be blunt, we also see an equal number of opportunities.

And one of the great benefits of GlaxoSmithKline is that we have a truly global business present in a number of key business segments, with a very rich portfolio of products flowing into our vaccine, consumer and pharmaceutical sectors.

That gives us the tools to take advantage of opportunity and to minimize the impact of whatever environmental pressures we may see around us.

I would be happy to talk more about that later.

But it is within that context we really go into 2009 with a real sense of confidence.

We think we have the right plan.

And we think in 2009 we will make good, further progress on the strategic direction we have previously laid out.

With that, I am going to invite Julian to come up and take you through the specifics of 2008.

Good afternoon.

I would like to start -- I will focus for today's presentation as usual on constant exchange rate movement.

And I will also exclude restructuring costs.

I will come back to restructuring costs though later.

As you can see, the turnover in EPS declined 3% and 9%, respectively.

But we saw in the year tremendous weakness in Sterling, and that gave us a 15% currency benefit of the EPS line.

That is the reason that EPS went from 99.1p to 104.7p.

And you will see we had a strong free cash flow performance.

This just splits turnover between the Pharmaceutical and Consumer segments.

And I will cover each in the slides that follow.

This looks at Pharmaceutical turnover by geography.

Emerging markets performed well, growth of 12%.

Strong performance from Advair and vaccines.

US pharma clearly suffering from generic competition to a number of brands.

Europe pharma vaccines up 28%, compensating for declines in Avandia and declines in HIV.

The rest of the world, which comprises Japan and Asia-Pacific, declined 1%.

Good performance with Advair, but offset by price reductions in Japan, and also lower Relenza sales.

So that is the geographic view.

This chart cuts the pharmaceutical turnover in a completely different way.

I will come back to the core in a moment.

Products impacted by generics, there you can see we lost GBP1 billion of sales as a result of patent expires and generic competition.

Remember Avandia started declining in May 2007.

It was inevitable we were going to have the year-on-year decline in '08.

And we saw that, as you can see there was a 40% decline in Avandia.

And pandemic sales, they are very hard to predict.

They are inevitably volatile, given that they relate to government orders, had a good year in '07, a tough year in '08.

'09 has only just begun, but you will have read that we got a government order in the UK for a 10 million doses of Relenza.

So that is a good start to the year.

If you look at that core, the core can be split into two.

On the left hand side you have products with turnover over GBP100 million that are growing -- key growth products.

And on the right everything else.

Within everything else you have, for example, the antibacterial portfolio of GBP1.4 billion.

You have most of the HIV portfolio, and products such as Flixotide and Serevent.

If you move now to the growth portfolio, good year with Avandia, sales up 8%.

Good performance in Japan, and volume growth in the second half of the United States.

Vaccines, if you exclude the pre-pandemic sales, the vaccine portfolio excluding that grew 20%.

And brands like Cervarix and Rotarix are now making a good contribution to sales, together representing nearly GBP300 million of sales in 2008.

Avodart grew 27%, benefiting from co-prescription indication with Tamsulosin.

And also, as you know, there is the REDUCE trial results on prostate cancer coming out in 2009.

Lovaza we bought in December '07, and on a pro forma basis grew 71% -- a good acquisition.

And finally you can see the other smaller products at the bottom of that chart.

Overall they contributed a 19% growth in terms of that portfolio.

I think that is quite a helpful way of looking at that business, and certainly one I'll use going forward in the future.

This is just simply products that were mostly approved and launched in '07 and '08.

They contributed nearly GBP800 million of sales.

And I expect those to be a significant contributor to growth going forward.

Consumer Healthcare grew 3% during the year.

It wasn't unaffected, as you would expect by the recession in the latter part of the year.

But actually if you look at the sales in quarter four, it was the European nutritional healthcare business that suffered most.

But globally we still delivered a 2% growth, so very robust performance in difficult times.

In OTC for the full year, alli was down 53%.

But remember we're comparing alli to the high launch stocking in its launch year.

And actually that branded at the moment generates on a consumption basis equivalent GSK sales of about GBP94 million.

So not bad for a Consumer Healthcare brand launched in the United States only 18 months ago.

Also in OTC we had lower sales with our NRT portfolio.

We lost volume and share to private label.

Excluding those two, the OTC segment grew 7%.

And included within that is Panadol sales growth of 10%.

Good performance from oral healthcare, up 6%.

Sensodyne continued to storm ahead growing by 12%.

And Aquafresh, which you may recall in previous years has declined, grew 3%.

So very strong performance from that segment of our consumer healthcare business.

And nutritional healthcare, up 8%, with good performances from brands such as Lucozade and Horlicks, up 7% and 13%, respectively.

And Ribena was flat.

Now the numbers.

Cost of goods, you see cost of goods went from 22.9% to 23.7% of sales.

Now this charts aims to tell you what happened.

You will be aware that the regional and product mix is increasing the cost of goods as a percentage of sales.

If you think about it, we lost to generic competition very high margin brands in the US.

High gross profit margin, very low cost of goods.

Also, as part of our strategy, we aim to deliver more growth in the Consumer Healthcare segment, in the vaccine segment, in the emerging markets segment of our business.

And quite clearly each of those has a higher cost of goods as a percentage of sales.

So it is almost inevitable that you've got that 1.5% increase in the cost of goods.

Restructuring helped us.

All other items fundamentally includes increases in raw material prices.

We had some pretty heavy hefty increases at the beginning of the year -- just general online inflation.

And we benefited from a slight increase in inventories during the year.

Finally, currency helped us.

We have a lot of manufacturing infrastructure in the UK, and it is very helpful clearly when sterling devalues.

Holidaymakers may suffer, but for GSK it is great news.

So that really tracked what happened in terms of 2008.

Looking forward in 2009, I expect a similar sort of picture.

And I would guide you towards 24% to 25% cost of goods margin for 2009.

SG&A, we split SG&A here between core and legal costs.

Legal costs, as you see, rose too from GBP255 million to GBP611 million.

And you will recall the GBP248 million charge that we announced last week, and that clearly is a key contributor to that increase between the two years.

It is impossible to predict legal charges, but if you look back over the last three years, I think you can reasonably conclude that a figure for legal charges of around the GBP300 million mark is a good ballpark estimate of what a company like GSK is probably going to pay out from year to year -- probably within a range of GBP250 million to GBP350 million.

There will, on occasions, be the need obviously to resolve long-standing settlements, and sometimes those will be within the provisions we have established.

On occasions but there may be a need to take further one-off charges to resolve those issues.

Rest assured, we aim to resolve them at the lowest cost.

But there are issues out there we have made good progress on a number of them over the years, but that is always a risk, I think, in the pharmaceutical business.

If you look at SG&A, you see it went from 28.9% to 27.7%, let me explain that in a similar sort of way to the last slide.

Restructuring benefit, again benefiting us, other costs -- other inflation mitigating part of that benefit.

And then currency, what is slightly unusual in SG&A, where we have a broad split of SG&A costs across the world, and what that is, is exchange gains in the last quarter on intercompany settlements.

I can explain that to some of you in more detail afterwards, if you would like the explanation.

But in a sense it is real gains that arrive on that intercompany settlement as a result of exchange movement.

When I look at SG&A, in 2008, although those gains are real, I look at the underlying SG&A rate at 28.5%.

Because normal years those exchange gains and losses are very small, and basically don't hit the radar screen.

And certainly going forward in 2009, I see no reason why they won't be zero again.

Guiding you for 2009, our expectations from the 27.7% is SG&A as a percent of sales will be slightly higher than they were in 2008.

This chart just tracks the performance that we have made in bringing SG&A costs down over a period of years.

Again, I would remind you, I see the 2008 number, although 27.7% was reported, excluding legal charges, I see it as 28.5% to give you a good, comparable comparison year-on-year and eight years on eight years.

Moving on, R&D, if you look at that chart, you can see R&D expenses were up 2%.

Two things are driving up R&D expenses.

The first is bringing that late stage pipeline, that increased late stage pipeline, through to approval.

And the second thing is the need to get new indications and sustain the portfolio that has just being launched.

Those two factors lead to quite significant increases in R&D.

However, restructuring brings that increase back.

So the 2% is the sum of those two activities.

The strength of the pipeline, the need to grow the brands that have just been launched, pushing costs up, and restructuring bringing them back almost, but not quite to neutrality.

Other operating income, you can see, was up slightly from GBP475 million to GBP541 million.

And within that, there were GBP311 million of royalty income.

I think the number last year was about GBP214 million.

So better quality of other operating income.

I would guide you to a slightly higher number for 2009.

Interest, clearly with the share buyback program that led to increased debt.

The increased debt led to a higher interest charge.

And you can see what it was for 2008.

If you look at quarter four, interest was around about GBP200 million.

There were some one-off items in that.

And if you strip those one-off items out, the quarter four interest charge on sort of an ongoing basis, if you would like to put it that way, is around about the GBP175 million.

If I was forecasting 2009, I would use that GBP175 million adjusted quarterly number as the basis for my forecast.

Tax rate, slightly above the 2007 rate, slightly below, I think, my forecast of it a few months back, but pretty close nonetheless.

I don't think those charts need any up explanation.

In my career I have never seen anything quite like it.

It is going the right way.

We provide this chart to you every year.

It shows you the impact of dollar and euro movements.

We have added yen, given the huge movements in the yen.

And we then told you what you we tell you every year, which is if exchange rates remain at their year-end closing level, there would be a 25% gain in 2009 as a result of currency.

I can't predict what currency rates are going to be next week, so if anybody here can predict what they are going to be for the year, good luck to you.

But at least you now have the formulaic ability to work out its impact on GSK.

Quarter four, only a few comments on quarter four.

Clearly that quarter four additional legal charge we announced of GBP248 million impacted the EPS decline for the quarter.

Without it, EPS would have declined 9%, more in line with our ongoing performance.

And the other thing to explain is currency.

The currency different was 32%.

If you applied our simple formulaic approach, you would come up with the answer, 24%.

What was the other 8%?

The other 8% was those exchange gains and losses in the last quarter, which I talked about in SG&A.

You remember I said there was a benefit to the actual rate results -- there was a benefit.

We got it in quarter four.

That is the other 8% of that 32% currency benefit.

Remember, in all likelihood, it won't be there next year in quarter four.

It will be minus 8% in quarter next year.

Time may prove me wrong, but I suspect not.

This just simply shows you the impact of the restructuring in the second column of numbers on the results before restructuring.

And clearly the total results are more affected this year than they were last year, given that the program, remember, started in October 2007.

Free cash flow, this is the total operating profit after restructuring charges.

So clearly down reflecting the higher level of restructuring charges.

But the non-cash elements of that come back in depreciation and other non-cash items.

That is why they are higher.

And also they come back to the extent that redundancies have been charged, because they had been announced, but not paid, they come back in that line increase/decrease in other net liabilities, which is positive.

Bottom line, a good performance in terms of free cash flow, nearly GBP1 billion up on the previous year.

What do we do with our free cash flow?

60% of it went on dividends.

And then the remainder, together with additional debt, funded share repurchases and the purchase of businesses.

You may wonder what the GBP1.99 billion is doing at the bottom.

Remember, that the bulk of our debt is in foreign currency.

It is in dollars and it is in euros.

Most of our earnings are in dollars and euros.

It makes every sense to actually have your debt in matching currencies.

So as a result if you move from opening rates, which for example I think was GBP2.03 for the dollar, to closing rates, which were GBP1.44 to the dollar, means that that dollar debt translates into a higher sterling number.

Most of it is termed out 5, 10 or 15 years, so it is not cash item, but when you reconcile back to net debt, you clearly have to bring it into account.

And a 10% movement in currencies either adds or subtracts GBP1 billion to the net debt number.

This shows the major restructuring costs.

It shows you the old program with a cost of GBP1.5 billion.

It shows you the new program with a cost of GBP3.6 billion.

Probably the thing that is most different about the two is a new program, which clearly includes the old, has a higher proportion of SG&A.

So it is the SG&A lines that are being focused on more in this increase to the program than was the case before.

That is why, in terms of the total program now, you see 36% proportion representing cuts in SG&A.

This is an expected phasing to major restructuring.

I should stress our objective is to complete the program as quickly as possible, not to hit the numbers on the chart.

But in terms of an indication to you, I think that is a helpful indication as to where we now expect those charges to fall.

This was the savings expected from the program that we announced sometime.

So this incremental savings from the new program, from the expanded program.

So from the additional spend we are generating GBP1 billion of savings by 2011.

And then if you add that to the existing program, you see the total savings of GBP1.7 billion, comprising GBP1 billion from the new program, GBP700 million from the old program.

The colors give you an indication of whether it is coming from R&D, manufacturing or SG&A.

In conclusion, 2008 was a challenging year with both generics and Avandia.

And clearly we ended up delivering a number that was slightly lower than guidance, but solely as a result of that GBP248 million legal charge, hence the announcement last week.

Restructuring is resulting in significant cost savings, and as Andrew has outlined, it is changing the way we run GSK.

We have very strong cash generation in the business, which you saw from the cash flow.

And we are fortunate to be in a strong liquidity position with GBP4.7 billion of readily available liquid assets.

And debt maturities over the next two years totaling GBP1.7 billion.

And we continue to use our free cash flows to grow the dividends, as we committed, and also to basically invest in our strategic priorities.

Thank you very much.

And I will pass back to Andrew.

What I'm going to do now is really update you on where we are in terms of our strategy.

This is it, very simple, very straightforward, unchanged since we last talked, obviously, and something we're going to stick to over the next few years to really make this Company perform at the top level it can.

It has been a very busy year at GSK.

And there is no way I can possibly describe to you everything that is going on inside the Company.

So I'm going to pick out a few points just to illustrate some of the changes which are going on, and some of the areas which we're focused on.

Before I do that, I just wanted to mention, one of reasons why we are able to run quite as much as we are doing in parallel in terms of change, is because of the caliber of the management and the people we have inside the organization.

And particularly in the last few months we have been able to really strengthen our executive management team with the hiring of Abbas Hussain, who now runs our emerging markets business, who was previously the President of Eli Lilly Europe.

The hiring of Dan Troy as our General Counsel, who was formerly an FDA Chief Counsel, so has a tremendous insight into the US legal system and all the challenges that exist there.

And then most recently, of course, the hiring last week of Deirdre Connelly as President of our US operation.

She was previously President of Eli Lilly US.

By bringing in people like that, plus all of the people we have inside the Company, we have really been able to operate many, many change programs in parallel.

I am going to touch on a few of those just to give you a sense of what is going on.

What we have also been able to do, as you know seen from Julian, is maintain very strong performance of our core business in the base.

And so before I go into what has is changing, I just want to update you very briefly on some of the dimensions of progress within our core.

I will just pick out the US, because the US has taken the brunt of the downsize this year with generics and Avandia.

But underneath the US remains an extremely competitive and dynamic business.

You see here four key products in the US marketplace.

Advair, our biggest product worldwide.

Very strong performance last year.

It began the year slowly, built momentum during the year in the second half, accelerated its growth of volume.

So very strong performance.

And we're also delighted with the FDA Advisory Board that just took place in December, clearly took a positive view with regards to the ongoing risk/benefit profile of Advair.

So we come into this year really with good momentum on Advair.

The marketplace I would say for respiratory products in the US, a bit like the entire marketplace, is soft.

There is a reduction in doctor visits generally in the US.

You can speculate as to why.

And you can see that our volume growth is really delivering for us obviously direct marketshare gains.

And you're well aware that last year was the year where competition came into the marketplace.

So showing that we're still able to grow marketshare despite the entry of new competition I think reflects on the strengths of our US business.

Levitra and Avodart, two other examples from the US.

Levitra is the acquisition you see there, continuing very strong share acquisition.

This is a product which we believe has very significant legs.

Continue to resource this fully.

It is one of the products that has benefited from the reorganization of our salesforce.

Avodart, a product that has been building for long time.

You see now much more material.

The co-prescription indication last year has helped a lot.

And obviously we wait keenly to see the results of the cancer prevention (inaudible).

I also just included at the top right of this a slide demonstrating the performance of Advair or Adoair in our Japanese market.

We launched there about a year ago.

We have recently in the last few weeks got the COPD indication and the pediatric asthma indication.

We see very strong performance here.

This is showing you the overall respiratory marketshare growth, because obviously there is some cannibalization from Flixotide and Serevent into the combination [product], but you can see the net impact is very positive.

And also, I'll remind you that it was only in the second half of last year that we were able to have four week prescription durations written by doctors in Japan.

Up until then it has been on the standard two weeks introductory prescription duration.

So we have high hopes for the ongoing performance here.

But you see just from these three US examples, and one in Japan, some continued very strong evolution of our competitive position in our core base business.

In terms of updating you a little bit on our overall strategy, I want to talk briefly about how we're developing our global business.

And I'm going to pick out for today, and my intention would be at each of these sessions to probably pick out slightly different examples so we cover the waterfront holistically over the year, but not all at one go.

Just picking out for today, I'm going to update you little bit on what is going on in US pharma and the reshaping of that business, what is happening around new vaccine launches, our consumer business, and emerging markets.

Now before I get into the detail on the US, I think it is very hard to talk about the US without reflecting on how might the marketplace changes in the next few years.

It is a new administration., we will wait and see when the new HHS Secretary is nominated to see exactly what the timing and what the changes are likely to be made by the government.

But it is obvious that there is a sense of change in the air in terms of this administration, obviously starting with the President, really focused on wanting to improve coverage and to start to address other features of the healthcare market in the US.

From our prospective we see obviously there is a range of possible outcomes here.

My personal experience so far in having had the chance to run our US business for the last few months, and spend time in Washington, my personal experience so far has been that the incoming administration is looking for a bipartisan approach.

It is working extremely constructively on this particular agenda.

And is looking for ways in which they can make rapid progress without being bogged down on some of the historic controversial issues, which have prevented previous healthcare reform.

That is very reassuring.

The other part that is reassuring clearly is that one of the primary objectives is to bring very many more people into the healthcare pool than we have seen in the past.

By bringing more uninsured in and by making it easier for the uninsured to access healthcare, that will be a volume driver.

The third area which is encouraging is the emphasis on compliance.

And we -- if they were a solution to the poor compliance, that record of patients in the U.S., and elsewhere for that matter, we would potentially be a very significant beneficiary.

To give you an example, Advair on average has about 5 to 6 prescriptions a year fulfilled by the patients who are prescribed.

Now you know that, particularly if you have COPD, it is a twelve month a year disease.

The fact that somebody only fills five or six groups a year shows you that there is a significant opportunity for improved fulfillment, improved health outcome, and clearly that is a potential upside for us.

And the new administration is very focused on that.

On the downside risks, clearly there is discussion about reimportation.

I think that has receded a little bit in the rhetoric over the last few months, particularly during the ending days of the campaign.

There is clearly discussion around price levels and comparative effectiveness.

From that perspective, we have and we have led the way in Europe in terms of how we can operate very effectively in an environment of comparative effectiveness.

And I think it is very unlikely we will see the US move to something akin to for example NICE, although it may very well be that we see some features of a NICE reflected in the way in which the US tackles this issue.

The bottom line of what I'm describing here is that the US evolution of healthcare, the timing is uncertain, but clearly coming.

The extent to which impacts happen are probably further out than nearer in, although you can't rule out a short-term impact.

And there is going to be swings and roundabouts of volume and price.

How exactly that lands, we will have to wait and see.

And we should be encouraged, I certainly am, by the attitude that everybody in this process appears to be taking, in trying to ensure this is a bipartisan approach.

The final point I would make about the US environment is it is very important that the government recognize where the real issues of healthcare cost progression are, because it is no longer the pharmaceutical bill.

If you look at last year's growth in healthcare costs in the US, somewhere in the 6% to 7% range, actually branded pharmaceuticals contributed only 0.5% of the growth.

The vast majority of the driver of healthcare inflation in America is now hospitals and administration costs.

That is really what the issue is that needs to be addressed from a cost dynamic perspective.

I will just give you that background as a perspective.

Obviously there is going to be aspects of this which come as surprises one way or the other.

But we come into this year very engaged in the dialog, very ready to contribute ideas and initiatives, just as we did in Europe, and actually pretty confident that we're going to be able to manage this fine going forward.

Let me touch on a few more details about the US organization.

As you know, at the fourth quarter last year we announced that we had done a major restructuring of our US salesforce.

We rescaled downwards our primary care organization.

We eliminated 1,800 primary care physicians.

And for the first time since we created GlaxoSmithKline, we consolidated the entire primary care organization under one management structure.

Previously they had been running under what was loosely called the Philadelphia structure and a research Triangle Park structure.

So no heritage there then.

We kind of that rid of all of that and said, you know what, it is GlaxoSmithKline.

We run it under one management structure, and we reduced 1,800 positions.

Of those 1,800, 350 people were transferred into our growth vaccine and oncology salesforces, where we have doubled up the size of our operations because of the pipeline.

About 450 territories were already vacant, so those obviously just didn't get replaced.

That left us with 1,000 redundancies.

That is the change that we made last year.

As part of that change, more subtly, if you will, we have made -- we have moved a long way toward, and are almost at the point, where we have one representative per customer for each brand.

So we have destroyed the duplicative calling phenomena of the industry over the last few years.

Secondly, we have ensured because of that that our representatives have a higher level of specialist knowledge on their disease area.

And then as you go up the management hierarchy, just one level about the sales representatives, we have integrated GlaxoSmithKline.

So for example, if you are the representative in Eastern Dallas for Advair, that is what you sell, and you are accountable for the sales of Advair in asthma.

There is nobody else who you can rely on to cover it, so we are driving up accountability in our salesforce.

If you go out the up to the Regional Vice President for Texas, that individual is able to make trade-offs for the whole Company.

So imagine there is a managed care company, or a customer, who wants to do some kind of transaction with us.

Previously that would have had to go back to corporate headquarters in Philadelphia or RTP.

Now it can be resolved on a local level.

So the nuances of this change are partially -- are beyond just the downsizing of the salesforce.

It is driving up accountability and specialization of customer facing representatives, and driving up the capacity of our distributed field management to make decisions on behalf of GSK's whole portfolio when it comes to commercial contracting.

That is done and in place, all up and running, all transacted within about a month, a very efficient reorganization.

Right now we are in the process of now making the changes to our head office or back office organization in the US.

So to reflect the change in the salesforce, we are now working through what that means for marketing, managed care, all of the support organizations.

And you should expect to see announcements on that over the next two, two and a half months.

And certainly it will be finished by the time we get to the end of April.

That is underway.

The employees are well aware that.

So that is the kind of structural changes which are going on.

It has much to do with capability development as size, and very reflective of the way we believe the selling model in the US needs to evolve.

Much more specialization, much more accountability of sales representatives, and a local capacity to contract locally with managed care authorities to ensure we get the best possible coverage going forward.

Now what you'll also see, and on this slide we make it very clear, we are also rebalancing our general investment mix in the US marketplace.

And so in 2009, as an example, we will be increasingly targeting our DCC activities, and overall plan to reduce our DCC spend by about one-fifth over what we spent in 2008.

I think over time you should expect to see us become more and more focused on ensuring we only use DCC where we think it is absolutely the right tool to use.

I think that will give us, over the next few years, opportunities to reign back what we have been doing in this area.

We are also making the first steps in terms of changing our value proposition and our pricing approach.

A good example of that is in production of Promacta.

It is the medicine we had approved and launched just before Christmas for thrombocytopenia.

We have launched that medicine -- significantly lower price to the competitive product in the marketplace.

In fact, physicians will be able to use our product somewhere in at least 30% less expensive than the alternative.

I think it is about time that we brought value to the table in terms of the dialog with customers in the US.

And we see this as a clear opportunity.

Promacta is also obviously greatly benefited by being an oral medication.

It requires much less involvement, if you will, from the physician in terms of how to administer the medication.

And for the patient clearly is much less invasive.

We are optimistic that the medicine itself will do well, but it is an important signal of the Company really starting to think about price and ways in which we priced as a key part of the mix going forward, which as you are all aware, hasn't necessarily been the case in the past.

I'm going to touch on a very clear example of where we have gone hunting for new volume, and we found it in what you might find to be a pretty surprising place, but I am going to describe that in a second.

And finally, I'm just going to reiterate how pleased I am to have Deirdre Connelly join the Company to run this business.

Deirdre has done a phenomenal job at Eli Lilly in terms of turning around their US operations.

She's got tremendous track record in this industry.

And she has the right values and high levels of integrity to lead a GSK company.

And her first day in the office will be next Monday.

And I'm sure she is going to hit the ground running right from day one.

Now in terms of looking for volume, this is an example.

Ventolin, you probably -- many of you hear never thought we would be talking about Ventolin again, since I think we launched it in 1969.

Here we are with Ventolin.

You may have noticed on a slide that Julian showed that we actually sold just over GBP330 million worth of Ventolin last year.

And here's one of the reasons why.

We have a very big relationship with Wal-Mart, the biggest retailer in the world.

We are a huge supplier of their of pharmaceuticals, OTC medicines and vaccines.

And that has allowed us to start to really create new value opportunities for both companies.

I personally spent a day in Bentonville with Lee Scott at the end of last year to review our join businesses.

That really led to this kind of initiative.

What we have done here is create today Ventolin under a Wal-Mart banner.

It doesn't sound like very much, but as a result of that, what that means is this is the Ventolin, this is the form of albuterol which Wal-Mart basically sells.

And what you can see here is this is sold at a $9 price point to patients.

So for $9, patients who go into Wal-Mart can get the original brand.

Oftentimes that is less than their co-pay.

It is certainly less than they were paying for generic albuterol from other companies.

What you can see here is in the first month we shipped 750,000 units, and our marketshare trebled.

This is a good example at a completely different stage of a lifecycle of a culture in the Company to make sure that every single asset has to be worked.

It is not at the sexy end of the business of new product introduction, but it is definitely the profitable end of the business.

And that is the kind of example we want to continue to challenge our organization to look for.

Let me move on now to talk briefly about vaccines.

As you know, this is a major part of the Company.

During last year, 2008, I'm waiting to see the final audit numbers from the external organizations, but I think were very close to becoming the biggest global supplier of vaccines, with the very strong performance we had, particularly with the introduction of products like Cervarix in Europe and the continued growth of Rotarix in the US.

And the slide really just aims to represent to you just the momentum and the scope of our vaccine business.

You can see to the right hand side, really positive momentum in terms of our various marketed products coming through.

Rotarix, I have mentioned.

Kinrix approved last year in the US, a key niche opportunity for booster vaccination in the 4 to 6 year-olds, about a $200 million market opportunity, just started.

Boostrix just approved with the adult -- unique adult indication just before the holidays.

Prepandrix, we just -- as you know, we had shipments last year.

I'm expecting more shipments this year.

Although as Julian mentioned, Prepandrix and Relenza for pandemic stockpiling are inevitably going to be very bumpy.

I was looking at our numbers just the other day, and last year I think we sold GBP57 million of Relenza, which was massively down on the year before because the year before we had lots of contracts.

The contract we just got from the UK, just that contract on its own that was announced last week, doubles the sales of Relenza '09 versus '08, even if we don't sell anything else.

And I think it is a very good example of just how prone to contract and volatility this business is.

I just want to mention as well on this slide, Synflorix.

We had the positive opinion of Synflorix last week from the European regulators.

Obviously we would expect that to be converted to a full approval shortly for Europe.

I want to make one particular point about Synflorix.

One of the reasons we have taken a long time to bring this vaccine to market is we have gone back several times to redesignate the manufacturing process to make the cost of goods low.

What is that important, because we see this as a key vaccine for emerging markets.

So this vaccine is not just going to be a European story; this vaccine is going to be an emerging market story.

We are building capacity to support emerging markets.

And we're going to have a price capability better than the competition because our of our low cost of goods.

So a very, very nice opportunity coming our way.

Finally Cervarix.

It would be remiss of me not to mention Cervarix.

Very strong performance last year in Europe and the rest of the world.

It continued to win the majority of competitive tenders.

I think in Europe now we took something like 80% of the volume that has become available since we came on the market, including obviously the huge UK tender and the Dutch tender, the two biggest tenders which have been so far anywhere in the world.

Both winner takes all, both won by GSK.

That is what is driving the performance of Cervarix.

And we're absolutely on track to complete our filings to the FDA, as we previously guided.

So no new news, other than everything going very well, both in terms of the marketplace and in fulfilling our obligations to FDA.

Let me move on to another key area that we have emphasized going forward, which is emerging markets.

You know we have been making a number of transactions in this space.

At the end of last year we did three transactions through acquisitions.

Earlier in the year we did the Aspen partnership.

And I think it is safe to say you can expect more in this space.

We will continue to acquire in this space.

We had a fairly wide list of targets under assessment right now.

And I think it is inevitable that when we see the right opportunity meeting our financial hurdles we will pull the trigger and make more acquisitions in this space.

In terms of what are these acquisitions doing for us, they are giving us diversity of portfolio.

They are giving us an opportunity to spread the access to GSK products, because we have greater price variability through these different portfolios, particularly Aspen.

We are also increasing our advertising and promotion investments here, and increasing salesforces, particularly in China and Russia last year, with significant increases.

But we will continue to invest in these areas.

If you look of the impact on the business, what you will see here, just as a few examples of what this has led to, Middle East, North Africa, the acquisitions we made at the end of the year on their own increased our marketshare by 1 percentage point from 8.3% to 9.5%.

In Egypt we immediately become the biggest company, with just under 9% marketshare.

And across Middle East/North Africa we are suddenly present in almost every key therapeutic area at various price points, so we can appeal to different income bands within the system.

It is important that we continue to build this.

We're absolutely conscious that there will be volatility in some emerging markets.

But this is the strategy.

We have to blow through the short-term volatility and make sure we build a business which is really going to be there as these markets become more and more material.

The growth of 12% last year really demonstrates what these markets can do.

And remember that 12% included no contribution from the acquisitions.

All of the acquisition really start contributing to sales from now onwards.

They are not in the 2008 run rate.

The Aspen relationship is going very well.

Just to give you an indication of that, the Aspen partnership should feed into GSK Company 200 product registration opportunities in 2008.

That is the beginning of the wave of programs we have come through.

And the best way I can think of describing Aspen is that through that deal we essentially acquired a pipeline for emerging markets, just in the same way as we invest in-house on a pipeline for the Western markets.

That is going to be a big driver of incremental growth going forward.

Let me move on now to the consumer business.

A little bit the same kind of layout of slides.

What you see here along the bottom are the five things we believe we have to be excellent at to compete in the consumer space.

You heard from Julian that we had a good year in the consumer space.

In fact, we grew marketshare in the oral care segment.

We have an 18% marketshare of oral care, the toothpastes segment, we grew share.

We grew share in our nutritionals segment where we have an 11% marketshare.

We marginally lost share in the OTC segment, but only because of US smoking cessation.

But for that, we would have grown share in the OTC segment as well.

On all three dimensions, even in markets which are clearly under pressure from the economy, we have grown marketshare.

That has been what is underpinning our growth during last year.

How are we doing that -- marketing excellence, innovation of our brands, expanding our geography for each brand, buying new brands, and switching brands.

That that is the strategy we have in consumer.

What you see on this slide is an example of the different products.

I think a couple to pick out for you perhaps.

Lucozade, my personal favorite, continues to be a really dominant brand in the UK environment.

Some of you may have, or you may not have, noticed that Pepsi launched Gatorade against Lucozade last year.

A great year to show that we could grow marketshare even when Pepsi launched Gatorade.

I think you'll see less of Gatorade around now than you would a few months ago.

So great performance from that business.

We have been vested a significant amount in a new bottling facility for Lucozade.

Just to give you some orientation of that, our facility at Coleford manufactures 1 billion bottles of Lucozade and Ribena a year.

One truck arrives every ten minutes with empty bottles to be filled, and one truck leaves every ten minutes full of full bottles to go.

So this is a huge consumer business, very dynamic.

And the innovation that has been put together around things like Lucozade Alert has been what has helped us grow, even last year when we had an awful summer, which obviously impact nutritional drinks demand.

Let me mention a couple of other.

Sensodyne, last year Sensodyne took 35% of global toothpaste growth.

Of all the growth in the global toothpaste market, Sensodyne took 35%.

Why?

Because we have got a great brand position with Sensodyne, and then we backed that with the Pronamel innovation, which is all about protecting against acid erosion.

That has driven that business, and we have rolled out across more and more markets.

That is a great example of what we're doing with the products.

In terms of acquisitions, as you know, we have just bought Biotene.

The first sales have been booked by GSK this month.

And subject to regulatory approval, we will close on the 8th that acquisition of Alvedon.

Again, what we will do with these brands is we will start to examine them geographically, just like we have done with Sensodyne, just like we have done with BreatheRight.

All we have done there is we have taken brands, we have invested in their brand image, we have innovated their formulations, and then we launch then into new market after new market after new market.

The last thing I would say on this slide is you should expect us this year or next year to begin a process of simplifying our consumer portfolio, and taking out of the portfolios the smaller products which aren't really contributing.

And over time we will start to really focus this around the top key profit driving brands and simplify the rest.

That is going to be a way in which we can really enhance margins here at very low liability to sales.

There is no timetables schedule, but you should anticipate seeing that kind of simplification going forward, as we really have now a strong portfolio of global brands.

I just thought I would share this with you.

It is an example of a bunch of the innovations we've done.

Somebody asked me at an interview at lunchtime, do you innovate your consumer brands very often?

I think this is a good way to answer that question.

You can see here on this slide, that almost every month we're launching a significant new claim or point of innovation on the products.

Why is this important?

Well it clearly keeps a brand life there.

But I will be honest with you, in an economic environment that we feel now, if you want your products to be put at the front of the shelf by retailers who are under pressure, then you need to give them a reason to believe your brand is going to move off the shelves.

So you need a great brand heritage, you need a piece of brand innovation, and you need to back your brands with advertising and promotion.

If you do those things then the retailers will keep your brands on the shelf.

And that is how you keep your marketshare position going.

I think that is a good example of how we're supporting our key products with these various claims.

If any of you are interested in exactly what they mean, or if anybody's looking to be -- lose some weight because of alli, whatever else, let me know afterwards, and we can talk about what those claims really mean.

But that is the kind of innovation that we're driving towards.

How is that delivered?

I won't go through this in too much detail because I have mention some of the growth rates already.

I do just want to pull out BreatheRight.

It was an acquisition.

I think it is a really good example of GlaxoSmithKline disciplined acquisition skill set.

It is a competitive acquisition.

We acquired the company.

We are exceeding our already tough financial metrics.

We have launched now in 57 countries.

We are just about launch new formulations.

This right now feels like a GSK product, it has returned phenomenally well to the Company.

Just go down to the bottom, look at Horlicks.

Obviously a very significant product for us in India.

And you can just see the scale of the distribution capacity that Horlicks gives the Company just in India alone, increasing to 700,000 outlets this year.

Now let me move on to the next key theme, which is simplify our operating model.

And here this is an area where obviously the restructuring program is a key catalyst for change.

It really helps us to accelerate what we're doing.

It releases resources and it starts to dismantle old parts of the business model, and allows us to build new parts of the business model.

I thought it worthwhile just to share with you some specifics.

This is by no means an exhaustive list, and I have deliberately included very financial and material things, and things which are more cultural, because I think it is really important that you understand that the change that is going on at GSK is absolutely fundamental in terms of how we want to make this Company growth oriented at a lower cost base, with a simpler operation, focused on delivering shareholder returns as quickly as possible.

So a few examples here, which aren't surprising to you.

We have announced 12 factory closures in the last year or two.

I'll give you little interesting example around how our teams were able to rechallenge some assumptions and massively change the profitability of one of our new drugs, Syncria.

Syncria is a [gliflon] for Type II diabetes.

In fact, the day we announced it went into Phase III.

When the team first looked at this we're going to use an outsourced manufacturing strategy.

It was going to involve a very significant amount of capital expenditure and at a high cost of goods.

Having gone back, really simplified what they are doing, and the collaboration between R&D and manufacturing brought back a solution which is in-house, halved the cost of goods projection, and saved the Company GBP150 million of CapEx.

That is the kind of delivery we want from the teams inside the Company.

Let's go to a couple of slightly more off the wall things.

We have just signed, in fact I signed with Steve Ballmer the week before Christmas, a global corroboration with Microsoft, where Microsoft will run all of our desktop collaborative tools, reducing by 30% the costs that we incur in IT managing our desktop environment.

Bear in mind we have over 100,000 employees.

I think we have about 100,000 computers, believe it or not.

There is a pretty significant cost associated with running that network.

It makes us responsive.

It makes us being able to do a lot in parallel.

This allows us to do it much less expensively and with a higher level of reliability.

Then to the sublime we have massively simplified the way in which we sign expenses off inside the organization.

Purely cultural, but as you can see here, we have managed to eliminate 250,000 opportunities for somebody to push some paper around a desk and put a signature on the bottom.

That is just an example of the kind of cultural simplification we're driving towards.

Just one example.

There are many more, many much more important than that, but I just want to give you a full spectrum of the big stuff through to the little stuff.

The things that drive profit today and the things that really underpin the culture of the business.

Are we over on this?

No.

Because as far as I am concerned, the best way I can describe simplification is it is a good start, and there is a heck of a lot more to go.

This is an agenda we are going to absolutely be relentless on.

Now I'm going to finish off, and before I introduce Moncef, I want to give you my perspective of how R&D is doing.

Our key third strategy is to deliver more products of value.

Why?

Because we believe, all else being equal, that the average yield of a new product in the future will be lower than the average yield of a product in the past.

Why?

Because medicine is more specific, because pricing is going to be more difficult, because regulators are going to be more conservative and push to a greater risk benefit profile.

To compensate for that, we have to have a strategy which delivers more products.

We need to make sure we never fall back into the trap of having one great product every seven years and then six years of nothing.

We have to be able to bring wave after wave of product.

We can fall back into the trap of having a R&D organization spending GBP3 billion a year producing very little.

If we spend GBP3 billion a year our shareholders demand, and should, get a return from that.

That is what we have to get to.

So we need volume of products, and they need to be products that demonstrate not just clinical but economic value to society, otherwise we are going to struggle to get them reimbursed.

That is the strategy.

Now let's look at what we have been doing in R&D.

I'm going to take you through a series of slides which I hope context for you not just how we're doing this at a high level, but the results we are seeing.

And then Moncef will take you through more detail of what is going on.

Now you know that we have historically structured the Company in a group of therapeutic areas over the changes over the last few years called CEDDs.

This is basically the structure of our current organization by therapeutic areas run by CEDDs.

Within each of the CEDDs are a number of Discovery Performance Units.

Discovery Performance Units are the organizational construct I described last year.

These are essentially lab-based, or maybe two lab-based, populations of people.

So 30 to 60 people all working together.

So multiskilled, multifunctional teams focused on a particular set of targets or pathways, looking for a drug.

So this is specialization.

It is integrated, and they are local.

They are not doing video conferences with people on the other side of the planet to see how the experiments are going.

It is a much more personalized approach, much more akin to what we saw 20, 30, 40 years ago.

And faraway from the notion that discovery is an industrial process.

Which as long as you give somebody a process map, any idiot can do it.

I don't believe that.

Moncef doesn't believe that.

This is about re-personalizing discovery.

These are the 35 discovery units which have all now been reviewed by the Discovery Investment Board that we created last year.

Many of you call it a Dragon's Den.

Quite a lot of our employees regard it as a Dragon's Den now having been through it.

Through that process 34 teams were elected, if you will, to go forward and given their three years' money.

They are on this slide.

About 35% of all the discovery we were doing before has been terminated.

So an awful lot of activity which was going on has now stopped, about 30% to 35%.

And about 35 times have progressed and are now up and running as DPUs.

And they really form the building block of R&D.

What you have to imagine is 35 DPUs, labs, double labs, aggregated by therapeutic area under a CEDD, which will be acting as a mentor organization, maybe making some trade-off decisions or prioritization decisions if that is necessary, really making sure we have the overarching strategy for the disease area right, and that is what feeds up into discovery.

So much for internal.

That is our internal organization.

And it is 35.

So let's call those -- I call those discovery engines -- 35 of them.

As you know, we also have a significant number of external partnerships.

What this slide shows you are the number of partners who we have operated through that what we call the CED is our external collaborative organization.

These are companies who essentially all have one or more programs where we have taken an option over what will happen.

Basically this is a mechanism to minimize risk.

It maximizes our opportunities, because what we're doing we are using typically either no or very low equity ownership, combined with small upfronts, and then milestones to reward these companies to develop drugs outside of the organization.

If they make it, they will also get royalties.

So then one way to think about this is that today's profit pays for the internal R&D organization through the R&D cost line.

These are going to be paid for by royalties downstream, but only if they make it.

This is a big risk minimizer for the Company, because it massively expanding our R&D capacity without putting huge amounts of money upfront.

What it also does is hugely increase the diversity of our research capability.

Because these people are not GSK employees.

They didn't grow up inside GSK.

They think differently, and there is a good chance they are going to come up with the answer before we do.

The purpose of this is risk minimization of investment and maximized opportunity through diversity of research approach and research culture.

That is what we had at the beginning of 2008, what we have now is this.

During 2008 we signed a further 21, or expanded a further 21 collaborative deals in this way.

As you can see, we now have a very substantial network of external companies who are devoting their energies in their labs to progress leads, over which we have all the options to take to market.

Some of these companies you will be very familiar with, some less so.

And you will also note that there is some academic institutions there, as we have begun to implant personnel into places like Cambridge and Harvard.

In addition to that, we also have a venture fund, which I announced last year, which has taken straight equity positions in interesting early-stage companies.

These are not working under option with our development organizations, but this is where we are taking small start up equity stakes in companies that we think one day might be interesting.

That really represents, if you will, our discovery world inside GSK.

It is multilayered.

It is very big.

And it has got an awful lot of diversity within it.

Now what happens then?

Obviously we do go into full development.

We have that thing called phase two, which just to remind you, we're never going to talk to you about again, because that is when all the stuff gets cleaned out.

That is going to be an area where we really focus on making sure that we get the problem drugs taken out of development.

That is going to be an area we don't talk about very much.

Once thing that have gone through phase two, they are coming into full development.

Our goal, one of the performance metrics that we really going to strive to maintain, is we want to see 30 assets held in Phase III or preregistration, on a steady-state basis.

Will we be able to manage that quarter by quarter?

Probably not.

There will be a bit of bouncing up and down.

But that is the goal, to make sure that overall we keep around 30 in that advanced stage.

Obviously, I'm delighted that we were able to do that last year.

If we can keep that 30, we should be in a good position to give the kind of flow we need to the market.

One of the ways in which we can add to the 30 is through business development and licensing.

And this slide is a slide that was published recently by BCG, who did a survey of all the companies who were trying to sell their products to big pharma.

This is really a set of tests around how did your company perform in the eyes of the biotech company on the key dimensions of licensing negotiations.

I'm delighted that you can see on this slide how well GSK did.

Just to orientate you to it, the height of the bar tells you what the score was for the highest company.

And the orange color is where GSK is.

So you can see where the bar is 100% orange that meant we were the highest.

Where there is a little bit of daylight to the top, it meant somebody else was better than we were.

You can see on most of the stuff, and particularly the stuff where it counts more to the biotech company, we did pretty well.

I am particularly pleased we didn't do so well on pays the highest price, which I think reflects a pretty interesting balance, of we do very well in terms of convincing the biotech companies that we're going to do the right thing with their medicines.

We don't necessarily have to be the highest payer.

And to reiterate a statistics I have mentioned before to some of you, when we look at the programs we have brought in, of all the programs we assessed and brought into the Company between 2001 and 2008, 79% are still active and in development.

When we look at all the programs we assessed and rejected, only 56% are still active in development somewhere else.

That shows you that not only can we bring products in competitively, but we make pretty solid choices around the ones we turn down and the ones we bring in.

That is how we can further supplement our full development organization.

The key question then, is can we get them to market.

This just reflects to you the flow of products we brought to market and had major roll outs for during 2007, 2008.

You can see it is a pretty significant number of products.

I am also, as I mentioned already, very pleased to see our relative performance in terms of getting approvals from the FDA, with 10% of all [NC] and vaccine approvals in '07, and 17% in '08.

The two years where FDA has become more conservative have been the two years where GSK has had more approvals than anybody else.

So we have a big discovery organization, and effective, focused development organization running at about 30 medicines.

Significant flow of products, with more than our fair share of approvals.

And obviously the final part is how are the products actually performing.

And what you have seen in these accounts is that the products I have just described to you generated GBP784 million of new sales in 2008.

The key to our strategy is to remember that obviously the class of 2007 and 2008 will still be here in 2009 and '10, but they will be added to by this year's portfolio and by next year's portfolio.

What is really changing in this business is we really are in a position where we can see it through to having a number of new products added every year to these portfolios.

Remember as well that plus or minus, because through restructuring and efficiencies we have been able to make sure that our R&D spend has not grown very much during this period.

We have also been able to hold our SG&A spend as a proportion of sales either flat or reduced it.

I think what you are beginning to see is the dimensions of a business model which can work.

You're beginning to see an R&D organization which can demonstrate that it can flow product through on a sustained basis.

That we can get them approved.

That we can do that within reasonable limits of historic R&D spends.

And that we can commercialize much more complicated portfolios without massive increases in SG&A.

That is what underpins the fundamental changes in the strategy of GSK, and is very different from what has historically gone on in the industry.

What I would like to do now is hand over to Moncef, who will take you through a much more personal view of what has been going on in R&D.

Good afternoon.

What I would like to do in the next 20 or 25 minutes is two things.

I would like on the one hand to frame for you the significant changes that Andrew described to you to our R&D organization in the context of the global strategy we embarked upon since 2006 to transform R&D in an organization that can transition, progress and deliver 30 programs in late stage development at any time point.

Over the past two years, two and a half years, we have made I think pretty good progresses implementing this strategy throughout R&D, discovery and in development.

For the sake of time I am going to focus a number of examples that I will use to illustrate for you what we're doing on the discovery, but I want to make clear the changes are happened through the same strategies throughout R&D.

In the second half of the presentation I'm going to give you a snapshot perspective on a number of programs in late stage development that have met significant milestones over the past three or four months.

One of the objectives is to demonstrate to you that while we are performing R&D, we are keeping our eye on the projects, we are delivering the pipeline.

And I think we will continue to deliver the best performance in the industry, as we did in 2007 and 2008.

Four key strategies underpin everything we're doing in R&D to transform it -- focus on the best science, re-personalized R&D, diversify through externalization, and focus on return on investment.

I'm going to take you through examples to illustrate what we're doing here.

The first one is focus on the best science.

What we're trying to do here is to make sure that all the money and resources we have in the discovery are focused and spent on those areas of basic biomedical sciences that are ripe for the discovery of truly transformative medicines.

In fact, what we have done through the year of 2007 is conduct an exercise which we call the therapeutic area rebalancing exercise.

We review in depth 17 different therapeutic areas in terms of the basic science underpinning them, not what we're doing internally.

And we ask ourselves, is there new sciences?

Are there breakthroughs there that still allow us to discover other medicines?

We did that with our internal experts, but also with hundreds of external experts.

At the end of the year we came to conclusions regarding our pipeline and our investment.

And you can see your on the slide, for instance there were areas where we just -- that science is stagnant over the past five or ten years.

And we decided to exit them, because we are going to come with a breakthrough in medicine, for instance, in neurology or gastrointestinal diseases.

There were other areas where we judged the science to be mature, such as for instance metabolic diseases (inaudible) sciences.

What we did is we refocused our team from those classical targets like [p pods] or reuptake inhibitors, and put them on the emerging new science in those areas, such as sirtuins, for instance, through the acquisition of Sirtris.

Or mitochondrial biology, which is truly an extremely important new field in this area.

We have also decided to enter new fields, such as ophthalmology because of the promise they hold.

And we decided to expand immediately our investments in areas that are here and now, today, ripe for discovery of really transformative medicines, such as biopharmaceuticals and critically immuno-inflammation.

Quite a change for to our discovery footprint.

And in the process of doing these reviews, we were able to identify great talent within our organization and outside of our organization that we have then elected to lead the 35 Discovery Performance Units and the CEDDs that Andrew has described to you.

The second key strategy we are pursuing to transform R&D is to re-personalize R&D.

And I'm not going to go into the details.

I think Andrew did a great job describing that to you.

Except to tell you that we did ask the 35 Discovery Performance Units leaders and the CEDD leaders, -- that is early in 2008 -- to come with strategic plans, three-year strategic plans to tell us what they are going to do with the new science and the breakthrough science that we have identified.

And we asked them to assess whether we had the internal expertise in-house to deliver on that science.

And when we did, great, let's have an internal Discovery Performance Unit.

And when we didn't, we asked them to look outside.

Are there companies, are there groups, universities, academic centers that have the best expertise in that particular area?

If they do, great, let's go and partner with them.

And then again, Andrew described to you what we're doing there.

And that is really with three objectives -- access expertise very quickly where it is, leverage infrastructure, and share the results.

Those three things are the heart of our third key strategy for transforming R&D, which is to diversify our drug discovery through externalization.

I'm going to expand a little bit on that to tell you it is not about numbers.

It is about very specific scientific objectives.

And I'm going to just give you a few examples.

For instance, in a number of cases we look at platform technologies that could transform our business.

Anacor is a company we normally have a strategic partnership.

They are the world leaders and experts in boron chemistry.

This is new chemistry -- not so new, but it is different chemistry from carbon chemistry that prospects a different chemical space, different intellectual property space.

It may allow us to discover new medicines where carbon can (inaudible).

In terms of biological pathways and understanding of particular disease areas.

I will cite an example of ChemoCentryx.

These are the discoverers and world leaders in chemokines, molecules heavily involved in immuno-inflammation.

Rather than reinvent the wheel, we are partnering with them for that work.

Of course, in a number of instances we're also interested to access an asset that complements our pipeline.

And you can see the examples on this slide.

When you put together the 35 internal Discovery Performance Units and the 30, 35, 40 strategic partnerships that we have, all these engines of discovery allow us to achieve two things that I think are extremely important and very different from how R&D was done before.

First, they are easily scalable.

You can actually increase the number of performance units or decrease them, have them internal, have them external, in a much easier way than when you have a huge ocean to move.

Secondly, they combine depth and breadth.

This is something that didn't happen well before.

We need to be present in many areas and we spread ourselves thin and we lose the depth and expertise which are key to that educated intuition, to that expertise, to that judgment of our key for drug discovery.

Through this process we allow each unit to have the depth, and we multiply the unit to gain the breadth.

I think those are very important drivers of our strategy.

The fourth and final key strategy underpinning our transformation of R&D is to focus on return on investment with two key drivers.

One, we want to take money away from infrastructure and invest it in our projects.

And, two, we want to have clear deliverables, clear milestones, and higher hurdles for every dollar invested in R&D.

Practically, I think you saw on one of the slide of Andrew that we have announced some rationalization in our R&D sites, with some sites closures in the UK.

We a5re also looking at our clinical development footprint.

We are present in 70 countries to conduct clinical trials.

We are strategically focusing on 40 countries.

All the gains made are reinvested to fuel our going late stage pipeline.

We're also looking at the therapeutic area level.

Again, Andrew cited for you the Discovery Investment Board.

Maybe give you a few live examples there.

The Discovery Investment Board is a board that is balanced between internal R&D leaders and external experts, that are either venture capitalists, biotech CEO, reimbursement experts.

The Board has conducted a ruthless assessment of those strategic plans of the 35 Discovery Performance Units that we have.

We looked at the talent, the expertise, the leadership.

We of course looked at the science, the hypothesis.

We looked at the deliverers.

We looked at the resources they are asking for and the [adequation] between the resource and the deliveries.

And we looked at what is the objective, what is the milestone.

I have to tell you this was quite a challenge for our organization.

Our teams had to learn to write a strategic plan.

They had to learn to justify their science.

They have to learn to justify the resources they are asking for.

They had to learn to take personal accountability clear and neat for deliverables for which they get the money to spend and the resources to use.

It was quite a transformative process.

And for many of our DPUs it was hard.

Some of them had to come twice, maybe even three times to the Discovery Investment Board before they had a plan that made sense.

Some parts of the plans were actually not invested, and others have been beefed up because we thought there were no conditions and therefore the science was really interesting.

Through that process we have truly transformed I think our discovery investment footprint, which I will describe to you on this slide.

You can see in the two different colors our investments in the period of 2006 to 2008, and the investment in the period of 2009 to 2011.

You can see that we moved away from those areas we decided to move away from, and invested more in the areas that we thought are right for the discovery of novel and transformative medicines.

Now return on investment is also something that we want to embed everywhere on all key decisions we make into the organization for all our projects.

First and foremost of all is the most expensive decision we make in R&D, which is the decision to take a program from early discovery into late stage development.

For those decisions we have again put a ruthless process to ask our teams to demonstrate, not only the safety and efficacy of our programs, but also their potential for differentiation and reimbursabality.

In fact, we make sure that we don't leave a single stone unturned that may come back in late stage development and haunt us later on.

Our ambition is to decease attrition in late stage development to the minimum that we can not predict safety in large number, long-term [ultra tox], things like that.

A few examples on this slide.

Two programs, solabegron for overactive bladder and Factor Xa have shown good safety and good efficacy in our development plans, but they had limited potential for differentiation from the competition.

We decided to de-prioritize them.

We're currently looking to partner them outside of the organization.

Earlier in the pipeline we have a 5HT1 program that was designed to allow for very fast onset efficacy in depression.

We designed our proof of concept study to last 15 days.

Either the molecule delivers on its promise, or it is terminated.

It is clear, it is neat, it is cheaper.

And no negotiation there.

The hurdle is higher.

Now with certain investments it is not only about investing less, it is also about investing smart, and where we feel that we have the right molecules.

And that is the example I would like to share with you on our HIV Integrase program.

We felt, and we saw earlier on we had a very good scaffold.

We pushed very hard this program, very aggressively.

We pushed three molecules in pilot in the clinic.

We're currently in our Phase II studies.

Fingers crossed, if everything goes right, we will have shaved two years from the program.

So this in a nutshell are examples that illustrate for you the bold strategy we're using to transform R&D.

And again, four key strategies -- focus on the best science, re-personalize R&D, diversify through externalization, and focus on return on investment.

Now I think with the team we have done a pretty good job implementing this strategy, and this has not been without challenges, particularly to the morale of the organization.

However, I think we have moved along and 2008 and 2009 is a year of strengthening, and is a year of embedding these changes and these values into the texture of the organization.

I believe we really have turned around the productivity and the focus of the organization.

And the kind of performance to have seen in '07 and '08 is definitely something that we commit to sustaining year on year on year.

While transforming R&D, as Andrew said, we have continued to produce.

A number programs have been launched, and we described them to you.

And unfortunately as always in R&D, some programs have been terminated in late stage.

Actually we had two terminations in 2008.

And that depletes our late stage pipeline in terms of our objective of having more or less 30 programs in late stage development at any time point.

But in 2008 we were also able to reload that pipeline from our drug discovery engine.

And we had no less than five new molecular entities progressing through Phase III development, and actually more programs start new Phase IIIs, which are secondary or tertiary indications of programs that were already into Phase III.

And in the second part of the presentation here what I'm going to do is just give you a very quick snapshot on some programs that have been approved and launched.

Two programs that have been filed with the agencies, and some of them are news here and now.

And two programs that have progressed into Phase III.

This is just over the last three and four months.

We have been very fortunate.

As I was saying, we have been very productive.

We have every intent to keep the momentum going.

The first program I would like to do you about this is Promacta.

This is our oral [thrombopoietin] for treatment of short-term and chronic idiopathic thrombocytopenia.

Andrew told you about it, but what I want to say about this program, what is special about it, is this is a very efficacious medicine.

More than 60% of patients demonstrate a sustained increased in their palate count, and more importantly they demonstrate a clinical benefit in terms of bleeding, reduction in severe bleeding, decrease in the use of supportive medicines.

And the safety profile of the medicine is very good.

I think R&D did a tremendous job delivering this medicine.

I am going to show that to you with one member.

In October of 2005 we had the first internal analysis of the first Phase II study in patients suggesting efficacy of -- at that time eltrombopag, now Promacta.

In the summer of 2007, 26 months later the file was with the agency.

26 months later, I think it is a record in the industry.

And I believe that Promacta is going to be a very important medicine for patients with thrombocytopenia, whether it is idiopathic, induced with chronic liver disease, or induced by chronic hepatitis C, or maybe also induced by chemotherapy for cancer.

The second medicine I would like to tell you about is actually a vaccine, and it has not been approved.

It is almost approved.

We had a positive opinion from the CGMP.

This is our pneumococcal vaccine, Synflorix, for the prevention of invasive pneumococcal disease, as well as otitis media.

I was involved actually in the inception of this program when I was with our vaccine R&D organization at a time of its design.

We went after two differentiation objectives.

The first one had to do with cost of goods and capacity.

We used a novel chemistry to allow for that.

And as Andrew said, it is extremely important to be able to afford this vaccine for all children in the world, developed and developing.

The second differentiation factor we went after was to use a protein antigen as a carrier for the polysaccharide that comes from another organism called Nontypeable Haemophilus Influenzae.

That other organism is responsible for 40% of all cases of acute otitis media in children.

So that we could hit two birds with one stone and have a vaccine that prevent acute otitis media that comes from pneumococcide present in the vaccine as polysaccharide, or prevents acute otitis media that comes from Nontypeable Haemophilus, and the antigen present in the vaccine is the protein called Protein D.

We conducted a field efficacy trial called POET, and we demonstrated that this vaccine had absolutely a remarkable overall efficacy against all cases of acute otitis media -- more than 30% -- when Prevnar in its best performance 7% or 10% efficacy.

That is because of that Nontypeable Haemophilus Influenza antigen.

And we're currently conducting another large Phase III trial with the final formulation of Synflorix that has 10-valentcy of polysaccharide to demonstrate its safety and its efficacy in preventing invasive disease, as well as acute otitis media, mediated both by pneumococcide or by Nontypeable Haemophilus influenzae.

I think Synflorix is going to be a very, very important vaccine.

Now moving on to programs that have been fired.

Pazopanib, this is our VEGF inhibitor.

And this is new.

We actually filed Pzaopanib for the treatment of advanced renal cell carcinoma with the FDA on December 19, 2008.

We didn't announce it.

This is part of our strategy to talk to you once we have worked the -- once we have achieved what we plan to achieve.

Like other VEGF inhibitor, it is very efficacious against solid tumors.

And like other VEGF inhibitors, is has a VEGF inhibitors it has good safety profile.

It will probably have slightly higher frequency of high-grade elevation of liver enzymes, but fully manageable by the oncologist.

Unlike other VEGF inhibitors, it has actually a very good tolerability profile.

You may know that other VEGF inhibitors in this severe fatigue, mucositis, food-enhanced syndrome to the point that patients have to discontinue treatment.

We feel confident enough for that delta in tolerability profile, because we embarked onto a head-to-head comparative study on efficacy, tolerability and safety versus sunitinib.

This a well-advanced study currently.

I believe that Pazopanib is going to be a significant, if not the new gold standard, VEGF inhibitor because of this much improved tolerability safety efficacy profile as compared to other VEGF inhibitors.

The second program that has been filed with the agency was actually just filed last week, of Ofatumumab.

This is a monoclonal antibody against CD20 antigen, like Rituxan monoclonal antibody.

And it is being developed for treatment of a number of hematological disorders, as well as autoimmune disorders.

This program is a partnership with Genmab.

And it is a live demonstration of our focus on the best science and our focus on return on investment.

We went after this program because of the science.

Two reasons.

One it is a human antibody, and therefore it is unlikely to induce antibodies against itself when you inject it into patients, like Rituxan does.

Secondly and most importantly, it is much, much more potent [minimalizing] tumor cells that express CD20.

So that when the tumor cells expressed low density of CD20, it can still be killed when we use Ofatumumab and Rituxan after we first kill them.

The translation in vivo of that observation is that this particular antibody should be effective against refractory chronic lymphocytic leukemia, which is a type of tumor that expressed CD20 in very low density.

We have conducted a Phase III trial, a Phase IIb/Phase III trial.

This is where we focus on return on investment.

We didn't hide, we didn't go sideways from the killer experiment.

We went for it.

If that is a differentiation, let's test it.

We were very pleased in the middle of the summer to have the data from that study, showing a 52% overall response rate in this highly refractory population.

The data was presented at ASH.

I think it made quite a splash.

And I was very pleased to read last week that somebody is already labeling off Ofatumumab as a new gold standard CD20 antibody.

And I think they are right.

Moving on now to programs that have started Phase III in the past three, four months.

Darapladib, this is our LpPLA2 inhibitor for the treatment of atherosclerosis as an add-on to statins.

Now I know that some of you have had questions as why did we progress this program into Phase III.

We had two reasons, science and medical.

The science tells us we have data from pre-clinical studies.

We have data from epidemiology, we have data from a number of clinical studies, including imaging studies, that when each taken separately show that this works but may not the good enough to go into Phase III.

But when we look at them holistically, they all converge towards the same conclusion, and I believe give us quite convincing, if not compelling, evidence that this will be an effective medicine for the treatment of unstable plaques and treatment of arthrosclerosis as an add-on to statins.

And that is the medical reason.

50% of patients on statins still have exactly the same risk of cardiovascular event or stroke.

There is a huge medical need here, and a huge opportunity of course for GSK.

So we progressed into Phase III, which we didn't run into it blindly.

Like for any other programs, we carefully designed our Phase II program.

We identified critical criteria.

If they are met, the programs continue.

It they are not, we have stopping rules as well as opportunities to adjust the plans.

We have also looked at the cost of this study absolutely line by line.

And over the last year the team has been able to shave 30% of the cost of the whole program, just by challenging every single line.

The last program just to cite it in a minute, and Andrew told you about it, that we are just announcing today is the start of our Phase II program with Syncria, our GLP-1 for treatment of Type II diabetes.

This is a weekly subcutaneous injectable.

Great Phase IIb data.

Good efficacy, nice impact on weight loss.

And most critically, actually a remarkable tolerability profile in terms of [gastro introcemic] side effect, which are known to be an issue for this kind of medicine.

Clean profile, nausea and vomiting.

Importantly, our Phase III program incorporates the new FDA requirements for approval of a new diabetes medicine.

So we're up and running here.

And hopefully we will be able to beat everyone to the finish line.

This actually is a broad perspective and view of what we're doing in R&D.

I hope I have relayed to you the observation and the conviction that we are well underway to transform our R&D organization into one that can fill its late stage pipeline with 30 programs at any time point, and flow them as medicines to patients in a sustainable year-on-year basis.

Thanks.

Maybe I will ask now my colleagues for Q&A.

We're going to open to Q&A now.

If you could -- there are ladies with microphones, if you want to put your hand out, they will bring you a mike.

We will call on you and we will go from there.

Andrew Baum, Morgan Stanley.

Three questions.

First, Andrew, could you share with us your vision for what GSK will look like in five years' time, by maybe giving us percentage of sales and EBITDA, if you feel like it of the consumer health plus, let's say low value health solutions?

So for example, you gave the example of your generic albuterol within that segment.

Just give a sense of how important it is going to be within the relative context of the group.

Second, for Julian, perhaps you could just explain the decision about guidance, or rather the lack of guidance, compared to where you have been previously.

And then finally, a question for Moncef.

Given the filing for Cervarix in the US, which Andrew alluded to, and the reduced state of Avodart, perhaps you good give us your conviction levels on whether we'll see a positive registry decision in the US in the next 18 months for both those compounds?

And as far as how I see business go forward, I'm always very resistant to predict in proportionality going forward, because it implies -- if I say, oh, it would be great if consumer doubled as a proportion of sales.

It sort of suggests I'm happy for the rest of the business to slow off.

So I'm very resistant to doing that.

Where we expect to see growth, and I absolutely expect to see us be able to grow our core pharmaceutical business.

I think that we should expect to see the US come back to growth in the future, as it burns its way through the genericizations.

We need to see, as we always have done in Europe, sustained, robust performance.

And Europe again last year, as you know, again with price cuts across the marketplace, delivered really robust solid performance and excellent takeoff of new products, in particular Cervarix.

We want to see all of that happened, but clearly we will put an emphasis on we want to see more growth in emerging markets and more growth in consumer than we have had probably in the past.

So if anything you would predict that you would see then those to be bigger.

I am very reticent to say give you some kind of framework, because they will be what they will be.

The emphasis is that we want to push all of these things in parallel

In terms of the low value opportunities, for me those are -- basically what we're doing something like Ventolin -- remember, obviously in the US, think about [Respirix] as a good example.

A lot of focus in driving that high-value opportunity with Advair, and in R&D we've got a very nicely moving portfolio of substantial new respiratory products coming forward, so we see that being clearly a strategy.

I think what we're saying is where we can go back into those older markets, which are being, if you will, written off to generics, and we can find a way where we can re-establish our brand at a reasonable return to the Company, why wouldn't we do that?

Because it is just taking share away from the competition.

It is additive to our business.

How big that is going to be, I don't know, but it going to keep chasing after them if we see them.

I think in terms of guidance, what is going to make GSK a success going forward is delivering on those long-term strategies Andrew has talked about, Moncef's R&D pipeline, ensuring we have a good, strong late stage pipeline.

Bringing those products through, making them successful products in the market.

Diversifying the business away from white tablets.

Growing all parts of our business, but diversifying into areas with prolong life.

Not really focusing heavily on the short term.

Regrettably whether you like it or not, guidance has a very short-term focus on the business.

And quite frankly, from time to time does force you into making decisions that are not in the best long-term interest, because of that overwhelming need to hit guidance.

We have concluded it is much better to run GSK on the basis of those key strategic objectives that Andrew talked about, rather than just focusing on what is going to be this year?

I think it is inappropriate for me to predict what the FDA will do.

But I can tell you why I feel confident for these two programs.

Cervarix, again, [of SNL] is very intimately associated with.

All the reasons we designed that vaccine are panning out in terms of safety, and with the use of an novel adjuvant, safety of the vaccine is actually very good from everything we have seen.

In terms of efficacy of these vaccine, particularly in regard of cost protection, and that is very, very important, for [HPV types].

And also in terms of duration or protection.

I think the agency has now all the data from -- and continues to have all the data from final analysis.

But I feel confident that should lead to an approval.

For [reducing Advodart] I would say the fundamental design of the trial, and the kind of study population you went after in terms of risk of prostate cancer is very different from previous studies.

That gives me confidence that the outcome will be positive.

And we will know about that in the coming months.

Alexandra Hauber, J.P.

Morgan.

Just coming back to the guidance question again, I think I understand that you will not sacrifice the ultimate goal of securing the future to the back of some shorter managed targets.

I guess that is what you're saying.

So of course the question is, for me what is then the yardstick by which we should measure the progress of GSK's performance and your performance on a more short-term basis?

You mentioned emerging marketshare.

You went over that part of it quick for me.

So if you could just elaborate on that again.

And maybe also establish a bridge from those yardsticks to shareholder value.

The second question I have is, you said if you have 30 late stage (inaudible) you are in great shape.

Could you just give us where that number 30 comes from in terms of what attrition rates, what sort of sales revenue you can get to?

And the final question I have is on those Synflorix cost of goods, just so that we can appreciate it, if your starting cost of goods were 100, where are you now, and where will you be after five years of yield optimization?

In terms of the guidance question, clearly what I very keen to do -- the future of this Company and its competitiveness will all revolve around the execution of the kind of strategies we have talked about here, and really evolve this business model.

And if you step back, and you think about, let's just reflect on where this came from a year ago, if you will, when I took over, you think about the sector.

The factor for the last seven years haven't really delivered much shareholder value for its shareholders.

One or two exceptions.

The sector itself has been pretty moribund.

It requires something quite different to start to move this sector [toward now].

Some people might think it requires another big transaction -- we don't.

But we have to start addressing the challenges of the sector.

Why are investors concerned about this sector?

Why have they not invested as heavily as you might like?

Why have they derated?

Well, because there hasn't been enough growth.

There has been too much volatility and too much risk.

How can we start to tackle those in the sorts of ways I have described?

But that is going to take -- you can't do these things in one quarter.

And to make the kind of shifts, even just a discussion of restructuring which I alluded to today, the kind of big swings of reducing resource on some historic parts of the business and building up in others, supported with things like acquisitions take time to do.

It is critical that we get this right.

And it is critical that we focus on getting it right.

Now of course we are still focused on short-term performance, because we know that the better we do in the short run, the more capacity we will have to propel our strategies forward.

And it puts us in a stronger position on a general front.

But I really want the dialog with the market to focus on the things which are going to change the business model, and potentially lead to shareholders viewing the Company in a different light, the light that they have viewed us in the sector in the past.

That is why we're making that shift.

In terms of how you measure, what will we do is -- and I have alluded to some, and in the press release -- if you read through that press release, you will see several places where I use the phrase, this is a key performance measure.

That is very deliberate.

I haven't attached a table with -- here is a table of 10 performance measures.

But if you read that press release, you will see the things that we believe need to go in the right direction for us to be on track.

They include things like marketshare in some of the key areas.

They absolutely include progression of pipeline into maturity and reimbursement.

And just this to tie the loop on that one, Moncef and his team now in R&D can't maximized their bonuses unless we get reimbursement of a new drug.

Not simply Phase III conclusion, not simply filing, not simply approval, but reimbursement.

And by focusing on this strategy we are really winding it back in and aligning the whole organization to make sure we get the performance we need from the organization.

So if you see things like that.

And you'll see other financial things, like working capital.

We have a very clear objective to drive out more working capital from the Company.

You saw the first half GBP1 billion was released in the fourth quarter of last year.

We expect to ramp that up during this year.

As we have these sorts of dialogs, or whether we're in briefing sessions generally, my expectation is I would expect to be asked questions and give you answers on how I think we're doing against those metrics.

Whether we're doing well, badly or indifferently, we should be held accountable on those things.

I believe that will drive the performance of the Company.

In terms of the Synflorix story, I think the real question is what is the cost of goods going to be relative to -- people don't use strep pneumoniae vaccination in the emerging markets very much.

Although you might be aware that there is an advanced market commitment agreement being put together by multilateral donors for a very significant initiative in this area.

The thing that has held people back is the cost of goods of goods being inhibitory.

Obviously what we have tried to do is develop a vaccine which would be accessible to [multilateral] donors.

And that is a significant reduction compared to what they are currently being priced at.

In terms of where the 30 comes from, that really -- I made a comment around the average yield of the future medicines.

That is very simply take a view on what you believe an average product might yield in the future.

What kind of growth rate we think would be acceptable to the market in terms of what the kind of the performance we should have from this Company on a sustainable basis.

And then it is just a question of how many products you need to drive that that performance.

So that has come very much from -- if we need X number of launches per year yielding on average Y, how many do we need to have in the hopper at any given point in time, knowing that on average drugs stay in Phase III and registration for three years.

And knowing that you'll have some attrition even in that pipeline.

So it is a product of that kind of analysis.

So it is not a coincidental number.

And I know you're going to ask me over supplementals.

I can't leave everything to [Alexandra].

But listen, over time, I think it is pretty clear, and I think if you look at what we achieved last year, you can sense that we feel like the achievement from R&D conversion to product last year was pretty reasonable.

We had essentially 12 products of all types launched.

We had four major [NCs] and vaccines approved.

And in the US we had six altogether.

So we had two line extensions and four [NCs] and vaccines.

And I think you should sense from the body language and description of '08 we feel pretty good about that.

You can see pretty quickly, if you're thinking 4, 5ish, and you work through what attrition is in Phase III and how long a drug stays in Phase III, you can see where the 30 comes from.

I would guide you to connect those two pieces together.

Our reflection on how '08 looks, and where the 30 comes from.

And you're not going to go too far wrong on that.

Of course, is not a perfect science, because obviously if one of the drugs turns out to be much bigger than the average, fantastic.

But we are trying to be really, realistic.

What we're not doing is sitting here and thinking, let's bank the farm on discovering a blockbuster next Wednesday.

Because that is what has gotten the industry into trouble over the last 7 or 8 years.

You can't dial these things up to order.

What we are focusing on is, let's have an R&D organization which has enough of a feeder system, big enough and diverse enough, to give us a really high probability of having a big enough portfolio of advanced drugs.

Some which will be small, some medium, and hopefully some big.

All of which have points of differentiation.

All of which are reimbursable in what will be a tougher environment.

As long as we can make that work on a consistent basis, and have year after year flow, then the fact that the average yield is lower is not important.

The average yield has to be huge if you only have one drug a decade.

If you have five or six a year or whatever the number is going to be, then obviously the average yield can be different.

As long as you can do that with some degree of efficiency in your SG&A and R&D, which I think what we have shown you is we can do that.

(Inaudible question - microphone inaccessible).

So therefore the question is, is that your goal to grow GSK (inaudible) the market?

No, a growth rate which investors would regard as being a good performance, so not the market.

The market meaning the stock market or the shareholders of the Company.

Yes.

Jeff Holford, Jefferies.

Just the way you were encouraging us to look at the business now, is there any kind of long-term aspirational growth goal for the Company?

And along that vein, although most of the generic wave has indeed washed over the Company, you do still have Advair out there in the mid-term.

And conceptually do you see the end of CER earnings declines on a five-year view?

The strategy number one of the Company is to deliver growth for the organization.

I think the short answer to the question is, yes.

The whole point of what we're trying to do here is move the Company into position where we can deliver sustainable growth.

I'm not going to give you a specific timeframe or window for those things, but that is the purpose for everything we are focused on doing.

And clearly the big pressures which have prevented that happening have partially been Avandia, but largely being genericizations, and over the last few years the lack of new product introductions.

What you are seeing is a rebalancing of that.

So more new product introduction coming into the business than we have had for a very long time.

And I hope what you are getting a sense of is we have high expectation we can sustain that.

And gradually a reduction in genericizations.

We have a lot behind us.

This year we've got to burn our way through the last bits of [lamitil] in the US -- Imitrex in the US.

And then Valtrex, depending on whether or not they can supply, we will see when and if Valtrex actually faces generic competition.

We anticipate it towards the end of this year.

But as you know, there is some issues around who might or might not be able to supply.

Now from then on we are in a very different place.

You're absolutely right.

Of course Advair sits there as a very significant product for us.

But as I have said repeatedly, Advair is an unusual product in the sense of not being, I think, a patent story.

It is a story about whether or not people could actually manufacture product which meets regulatory hurdles, and whether or not they are substitutable.

And the timeframe in which that evolves is very questionable.

I absolutely cannot give you guidance on that because who knows.

If you look at track record of things like fluticasone and [syametrol], which have both been off patent now for awhile, in some cases -- in some countries for several years, we still don't see any generic there, on something which is frankly a lot easier to manufacture than Advair.

We will have to see.

Meanwhile, obviously we're pushing very hard on our [respiratory] portfolio in R&D.

You saw yesterday the very positive news about the steroid fluticasone furoate, which is a steroid we are developing alongside our other programs.

So you know now that we have a long-acting once a day bronchodilator.

You know we have a very effective steroid, we talked about yesterday.

And you also know we have an anticholinergic inhaled molecule cutting through.

You also know we have a [dual pharma for marva] cutting through.

And there are other programs in non-inhaled arenas coming through as well.

So the real story to how does the medium to long run growth of this Company look like, will depend on when and if Advair faces generics versus the arrival of the new respiratories, plus the arrival of all of these other waves of products.

Our goal is to make sure we get there as soon as possible.

Kevin Scotcher, Liberum Capital.

I've got three questions.

Firstly, Synflorix in the US wasn't mentioned.

Have you given up?

Secondly, ROI, what is return, and what is investment in terms of your definition?

Is return Andrew's average yield?

And finally, a quick question on the gross margin.

I will not call it guidance, let's call it suggestion for 2009, is that at constant exchange rates?

As far as Synflorix is concerned, we continue to review what we should do in the US.

We haven't finally decided yet.

But it is clear that Synflorix, versus Prevnar is a much more complex an innovation outset of the US because of the presence of the different pneumococcal subtypes.

So particularly good in Europe, particularly good in the emerging world.

I think we're more -- we haven't finally decided.

I think we're more likely to tackle the US with a different type of vaccine to Synflorix.

Now we haven't finally concluded, which is why we still said it is under review.

My expectation, subject to some further analysis, is actually it probably won't be Synflorix we take in the US.

It will be a different vaccine focused on more some of the unmet need in the US.

I don't know think there's any point in running up into the US without something that is differentiated properly.

And that is probably what we're going to do.

I guess we will make a decision on that, I would think in the next few months.

We're not far away from making a decision on that.

Do you want to talk about --?

The cost of goods steer is based on actual rates for the (inaudible) range.

And return on investment for R&D is actually a reimbursable file.

As Andrew explained, the goal post for R&D now is to be able early on to see that we have a medicine with promise of a significant clinical benefit, a differentiation, and a rationale for reimbursement.

Those are the points that we take into consideration.

And clearly the numbers are part of that equation -- numbers of programs.

Kevin Wilson, Citi.

What do payers what for novel (inaudible) medication.

You just talked about -- or actually (inaudible), but are payers you consult say they need?

And I think your comment about Advair scripts, anything you fill five times a year.

Secondly, what is your OTC medicine marketshare, and what is the target for OTC for all nutritionals, so that we can benchmark these in the coming quarters?

Thirdly, regarding the industry and the FDA, the issues that the industry as a whole have had with getting products through FDA.

If the industry is asking the wrong question, what confidence do we have that your organization is asking the right question in clinical development and regulatory, particularly in context of (inaudible)?

I'm going to obviously let Moncef handle that question.

As far as marketshares are concerned, our marketshare in OTC is 14%.

Last year we lost 0.3% of the marketshare points mostly because -- well, all because of nicotine smoking cessation in the US.

As I wrote it in my notes, I think, US consumer was the one cloud on the horizon for the consumer business.

If you adjust for nicotine in the US we grew OTC marketshare by 0.3%.

So nicotine was about a 0.6 share point delta, 14% now.

And our oral care marketshare is 18%.

So that is in the toothpaste segment.

We grew that share by 1 point during last year.

And our nutritional business is 11% of marketshare, which again we grew marginally last year.

Clearly we are in the business of going marketshare.

And I think you have to -- what you have to do is judge us on whether or not we're able to continue to grow share in those segments.

Absolutely.

Do you want to answer the --.

I want to frame what I want to say in a modest humble way, frankly.

I would say it really depends how you set your expectation.

If you want to come with a (inaudible) file and expect an agency to approve it without asking any questions, that may be actually something that they [aren't going to do].

If you're able to identify the right issues and questions and address them proactively, and set your expectation at the right place, and have the right insight, you're going to be successful.

How do you know that?

There is a retrospective measure of that.

Avandia, we could have pulled it absolutely on day one in May of 2007 when it happened.

We didn't.

We looked -- this is absolutely really where say always we need to focus on the best science.

Every agency listens to rational science, supported by clear data.

We analyzed the data.

We identified the issues.

We built a position.

We worked with the agency.

We were very pleased with the outcome.

We will repeat the exact same thing with (inaudible).

Sorry, it happened in December.

I can tell you in terms of that (inaudible) we have worked very closely with the agency to Avandia.

And of course we awaited their final guidelines, but we were able to predict many things, where they may come from.

So it is a matter of working closely with the agency, setting your expectations right, and doing the right science.

I'm saying this really in a humble way.

It is just a matter sometimes our expectations were set (multiple speakers).

Do you want to mention Darapladib specifically?

I mean, the question was both Syncria and Darapladib, do you want to just mention it specifically?

[For Darapladib] with the agency frankly, it's going to be a matter of the outcome status.

We could have said, and said we want to have an approval on the basis of an [IV] study with an [imaging observation].

Well, for that kind of medicine as an add-on to statin, I would agree absolutely it is unreasonable.

And we've designed our Phase III trials based on an outcome study where the endpoints are adjudicated by independent specialists, etc., in a way where we will address all the issues that could make our endpoint invalid proactively.

And I believe we have a very strong plan actually with [Darapladib].

I think just back on to Advair, if you look at what payer will be looking for there, first of all, yes, I think you have to divide that market into two pieces, asthma and COPD.

There is much more unmet medical need in COPD than there is in asthma.

We know that in asthma, Advair delivers a very high standard of control.

That is a much more difficult place to demonstrate where you're going to get incremental benefits in your treatment.

I just think it is important -- I know -- and partly this is our fault historically, a lot of people are very fixated on son of Seretide, son of Advair equals asthma.

That is not a good assumption to be making around projects horizon.

Not a good assumption to assume it just looks like Seretide.

I've specifically just mentioned a portfolio of molecules which were in development.

For all the obvious reasons in the world, we have never come out and said exactly what we're doing here.

You know what the components are but we haven't really described the way we are putting together.

But I like you, and I think what's hidden in your question, is obviously a son of Advair in asthma is going to be a tricky sell to payers; I agree with you.

I think you have to therefore focus on where is the unmet medical need.

Clearly in COPD, and as I've described from a portfolio of molecules that we have, we have a variety of mechanisms which can get to incremental benefit over what is there.

Now the interesting part around compliance is the extent to which end markets like the US we can open up opportunity, how do we really make that five or six groups go to 9, 10 or 12?

That is a very interesting, huge opportunity, and that meets, I think, one of the hidden upsides of all the anxiety around the discussion of healthcare reform will be around how we can find solutions to that.

I think we've got more possibility of that now than we have ever had.

We have Graham, over there.

Graham Parry, Merrill Lynch.

A question for Julian just on the inter Company settlements FX benefit on the SG&A line.

Presumably that is a one off, but I just wanted to check whether the timing of those payments was something that related to the timing relative to the end of the quarter.

So is there something that could actually revert in Q1 or is it something -- that is just locked in?

You're right.

It relates to the quarter.

So there are closing balances at the end of the quarter that clearly move into the new quarter.

So it is possible that you could get a recurrent.

What causes it is huge volatility, which we have in quarter four, which is very unusual, I mean massive currency movements.

Generally, from year-to-year they're negligible.

And I very -- I think I've referred to them once before in this past three or four years.

But it's the volatility, not a gentle movement that does it.

So essentially FX rates stayed the same; this isn't something which would revert back out in Q1?

No, and FX rate moved gradually, it doesn't have much impact either.

But if it moved like that, it does.

Then I had a question on the comment in the press release about the generic Advair in Poland and the litigation there.

I was just wondering if you could clarify were there actually any products being sold there.

It was a noninfringement finding -- the validity of the patents.

Could you also just clarify what further actions are going in other European countries on generic Advair?

So there was no product sold in the Netherlands.

We saw some evidence of companies thinking about, I guess, is the best way to put it.

I've got a [theme out with] origin with an Internet, some kind of Internet activity.

Anyway, for whatever it was, we filed the suit and you saw the result, where the court both upheld our position and also interestingly made relative comments around the UK previous rulings, which are quite interesting, I think, and potentially helpful, we'll see, going forward.

And most of the other activity is in Germany, where we have a couple of companies moving around -- we filed infringement actions against a couple.

We've got one in Ireland.

And as far as I know, that is the only litigation we've got underway in Europe.

To be honest with you, Graham, I would fully expect to have these kind of flurries all over the place, to be honest with you.

Remember the primary molecule patents have already expired.

There is a combination patent.

And then there are a series, and most of this noise is around the combination patents.

Remember there are then a series of other technology patents associated both with the aerosol and separately with the [viscous], which are also potentially going to come into play.

And even if you get through all of that, they still have to be able to manufacture the stuff on a reliable basis.

So I'm not totally surprised to see these things, obviously, Germany and Ireland happen to be where it's going on at the moment.

We will see how they go along and we were pleased with the Dutch results.

Maybe time for one or two more.

Richard Foster, J.P.

Morgan.

Two vaccines questions to start with please.

One on the flu vaccine.

Just wondering what you will be doing next year to complete in this space.

We have seen overcapacity and maybe a touch light on your vaccine sales in the fourth quarter.

I believe you're looking to increase your capacity to supply the US market.

Is that on hold or what are you going to do to [ship] effectively and compete there?

Second or wondering if you could update us on the progress of the Hib-MenCY vaccine in Phase III.

Are you facing any extra clinical development hurdles like some of your peers?

And finally, a question on just clarifying your growth.

You have mentioned a lot of -- you will be managing to grow the business.

Are you looking for growth on the top line or on the bottom line?

And you're thinking about that.

As far as flu is concerned, basically last year was a very good year for flu outside of the US -- it was an okay year for us in the US.

But it was a very good year for us elsewhere, Europe in particular had a terrific performance.

You're right, there were a surplus of supply into the US.

And my expectation going forward -- first of all, we don't have any big new capacities coming onstream.

That has already come onstream last year.

So there's no new big increment anticipated from us.

My expectation is that we will rebalance our volumes globally, because what happened last year was an awful lot of supply got trapped in the US and there were still other countries in the world who could have bought more and didn't have any supply.

So it's a tricky market to get right.

I think that will be part of what we do.

The second part, as you know, we have a flu improved program underway, which looks to get a much higher efficacy product, particularly for the elderly, which as you know, the whole, generating a really effective immune response and level of protection among the elderly, with depleted immune system is tricky.

Clearly, also, they are the people most at risk.

And so that is really I think the unmet need still exists in the flu marketplace.

And that will, in the medium-term, be how we want to address this.

But in the short run, I think it is all about trying to rebalance our supplies to make sure we recognize where the gluts are and where the gluts aren't.

Do you want to address the Hib-MenCY?

The Hib-MenCY, again, I was intimately involved in the design.

The issue with that vaccine is interference in the immune responses in children.

The vaccine [is a] most important vaccine and there is usually a Hib response interference.

And sometimes a [laryngitis] response interference.

And sometimes a level of local [reactor didn't see it] because of the Tykerb protein [unit].

And from the inception, that is exactly where we invested to have a different composition on the vaccine.

Things are running smoothly and the safety studies are progressing.

[Know later].

As far as growth is concerned, I'm focused on making sure this Company gets back to sales growth and continues to drive this growth.

And my view is the sales growth ultimately is what creates shareholder value.

It's what delivers -- in a business like ours, with the kind of margin structure we have, it has to all be about driving sales growth, and then the rest will follow.

And we need -- that's clearly what our strategy lays out.

Our goal is to get that on a sustainable basis and to take out the volatility that we've seen occur.

On the meningitis vaccine, what sort of timeline are we thinking on the Phase III?

(multiple speakers)

I think it's going to be not too long -- from this year.

This year.

This year.

Yes?

Probably the last one.

I've got two more, I think, and then we have to close.

Yes.

(inaudible) from [Murabai] Securities.

Sort of a general question really, but something I muse about, which is I wonder if you could give some insight on how you might expect to set about persuading the Commission to shift away from perhaps well-established and highly effective drugs in oncology to the new GSK products, where clinical experience is probably much lower.

I'm thinking particularly effectively that Herceptin versus Tykerb, and Tykerb versus Herceptin.

And your CD20 molecule versus for Rituxan.

One can easily say you might pick up resistant patients, but how do you penetrate into the mainstream market?

Well I'm going to make a comment about particularly in the US about some issues there, but maybe Moncef, you can start off by just talking about the evolution of the clinical data.

Because I think on Tykerb in particular, it's really important to think about where Tykerb is going to be two, three years from today, not just where it is on day one, because clearly you're really comparing apples and oranges when you think about Herceptin today and its data set and Tykerb today and its data set, and that will change.

I think Moncef should start there; then I'm going to touch on another issue.

Well, the key is to have a clear clinical benefit to the patients, otherwise there is no reason indeed to switch from one medicine to the other.

Tykerb holds two advantages.

One obvious and one seems to be clearly demonstrated.

[Saluse 1] it's an oral medicine; it doesn't require the same infrastructure and costs associated with the delivery of an injectable.

The more critical one, for which we have seen a number of converging evidence, for which we need data to demonstrate it and have it on the label is actually a potential capacity to prevent brain metastases.

I think that is absolutely transforming.

And the data will come from our adjuvant study, [Alco].

And think about this.

A small clinical entity is able to penetrate into the brain and deal with very small tumor growth that is establishing itself in the brain.

An antibody cannot do that.

We have data, very clear, suggesting to us that there is an impact there.

There is clear data from the use of Herceptin, but the number one tumor sight for relapse in patients treated with Herceptin in brain metastases.

Now, I can't predict what the outcome of the study is going to be, but if the outcome is as we hope it to be, I would see compelling evidence for every woman who has breast cancer entering an adjuvant treatment to take a medicine which is more effective in preventing brain metastases two or three years down the road.

That would be an argument.

For Ofatumumab, I think it's about the potency of the medicine.

If Ofatumumab demonstrates clearly higher efficacy than Rituxan in particular settings and we are not going to shy away from a head-to-head comparative study, the advantages will be clear to patients.

Now, in oncology, obviously, you don't switch a patient from one medicine to the other.

You switch the physician's decision to start the patient from one medicine to the other.

And I think that will -- the data I believe in both cases will be based on actual superiority.

Either -- and [Fidopin] is frankly [to] our ability, which may translate into efficacy.

Actually, this is actually sad, but this is important for you to know.

Patients who take other [regest] inhibitors have a zebra type [of health] because of the impact of the medicine on hair discoloration.

And the zebra effect is because they have to discontinue the medicine.

Because of the priority profile of the medicine.

It's so unbearable patients have to stop it, particularly the fatigue.

There is a medicine that has equivalent efficacy without that.

Patients will adhere to the medicine longer, it should translate into a clinical benefit.

Once again, we are running a head-to-head comparative study.

We're not going to base it on [clearly] who demonstrate it.

So those are the kinds of approaches we're taking.

Just in the interest of time, I'm going to go to the last question, I think.

Yes.

Thank you.

[Mick Cooper], [Taout] Securities.

On the emerging market, what is the growth that you are targeting?

And in relation to that, how effective is [bitliba] in relation to different countries and different brands, which [cohort] should we be looking at?

Sorry, just missed the last part.

Which [would you] be correctly looking at and how is that going to be delivered with regard to different countries and the different -- what are the key brands, as well?

Well, as far as our goals in emerging markets, our goal there is to grow marketshare.

So we want to grow faster than the marketplace in the emerging markets.

You saw last year we grew 12%.

The acquisitions we've just made, you can obviously accelerate that this year, all else being equal.

In terms of where we have seen very strong performance, Middle East has seen a very robust and appears to be an extremely strong performer for us.

Russia, likewise.

I have to say Russia is a market where I've paid particular attention in terms of what is happening from an economic point of view, particularly around things like distribution channel and the wholesale liquidity.

But notwithstanding those issues, to keep an eye on Russian is an important growth opportunity.

And China.

We absolutely are significantly reinvesting in China, building up our Chinese organization; intend to bring more product to market.

We've just signed a joint venture with Neptunus to develop the flu business in China.

Those have to be the kind of places where we expect to see significant growth coming forward.

But the objective is to grow share and, obviously, therefore, grow ahead of the market.

Okay.

I think we're out of time.

I appreciate your time and your questions and your interest in GSK.

Thank you very much.