葛蘭素史克 (GSK) 2009 Q2 法說會逐字稿

Good afternoon, everybody. Thank you all very much for joining us for today's Q2 presentation. You will all have seen the release we made to the market at 12 o'clock, and what we plan to do over the next hour or so is take you through a series of updates of various parts of the business, and then obviously give you a chance to do Q&A.

I'm joined today by our CFO, Julian Heslop, and also Chairman of R&D, Moncef Slaoui, and both of them will talk to you in a few minutes and join me on the stage for questions toward the end.

I'm just going to make a couple of introductory comments before Julian gives you a detailed review of the quarter, and then I will come back a bit later to fill in some more information on some of the things which changed inside GSK.

As I start though, first of all, I want to reiterate to you the strategy that we laid out a year ago. It's 12 months since -- some of you or many of you were in this room with me 12 months ago -- to go through the strategic direction I wanted to take GSK, and these are the three core strategies I laid out. To rebalance the organization in terms of going for more diversified global growth agenda rather than be overly dependent on just one or two assets or one or two business types with particular risk profiles.

Secondly, to make sure that our R&D operations, whether they be in consumer or pharmaceuticals or vaccines, delivered real products of value. And we're much more rigorous about the way in which we allocate capital in those businesses. So a key theme around making sure R&D delivered over a sustained basis, recognizing that we didn't want to be a company which was totally dependent on the uncertain arrival of a blockbuster, but one which was capable of exploiting a portfolio of products, which we expect R&D to deliver on a sustained basis rather than a feast and famine syndrome where we have a product once every seven or eight years and have to make it carry the Company forward.

And the third area is to simplify the operating model of the Company. I'll talk more about these different things as we go through, but I want you to just be reminded of those three for no other reason than we are absolutely convinced this is the right direction to take the Company.

The progress we've made over the last 12 months has been positive on all of these fronts in terms of execution of strategy. And I think you see and continue to see in Q2 gradual positive movement on all of these agendas. And I think you'll see more of that during the presentation today.

I just wanted to summarize a little bit some of the metrics that I am watching, in terms of the performance and improvement in the Company. What you see in the upper left is the proportion of our business, which I would characterize as being 'white pill,' developed market, so really the historic or the perceived historic business of the Company.

When I talk about diversifying, I don't often get asked the question, but the real question is what are you diversifying away from? Well what we're diversifying from is the small pill, developed market. Why? Because those markets have historically been -- have become more and more unpredictable in terms of things like intellectual property protection, risk of patent revocation, et cetera. They have historically or they have demonstrated that from an R&D perspective, they've been volatile in terms of predictability of bringing through breakthrough medicines. And from a pricing perspective, these developed markets, Europe and US, are clearly at a stage of maturation compared to many other markets in the world.

It doesn't mean we're coming out of small molecules. It means that we want small molecules or 'white pills' in the US and Europe to represent a more balanced proportion of the total than the dominating proportion that it's had historically. What you see here is the progress we're making. Partly due to the changes in the US business, but largely due to the very strong growth of all of our other businesses, which I will talk about later on.

To the upper right, what you see is the other key metric of the health of this Company. Are we replacing and replenishing our product portfolios? And what you see here on the vaccine and pharmaceutical business, a very significant increase in the contribution of new products.

In this quarter alone, we delivered GBP377 million worth of new product sales. That's up from GBP265 million in Q1. And you can see that for the whole of last year, it was GBP642 million.

That's been driven by a number of new products. Some are small, some are medium, and some are destined to be very big. Already within that group, you see Cervarix and Rotarix, two new vaccines, representing very significant growth opportunities, which, of course, in themselves serve the purpose of diversifying away from exposure to small molecules.

Along the bottom, three key areas for sustained growth in the organization. We set out a goal for ourselves to maintain a significant advanced development pipeline, with roughly 30 assets in that pipeline. You see again we've sustained that level of activity despite the fact that we've had a number of products launch and therefore leave this portfolio of products.

Of course, we've had a few assets we've terminated because they didn't meet the standards we think they can achieve, including a couple of assets we've taken out because we just didn't think they were differentiated enough. They were fine, but they just were not differentiated enough. SGLT2 would be a good example of that, where we took a strategic view on that, not based on the quality of the molecule, but based on whether or not we believed it could really succeed in the marketplace we envision over the next few years.

Notwithstanding that level of dynamism of products going out for success, products being taken out because they don't meet our standards, we've also been able to replenish with a significant portfolio of new assets, which keep that 30 roughly steady state. I'm sure we will have quarters where it slips below 30. I'm sure we will have quarters where it goes above 30. But somewhere around that 30 level is where we want to sustain R&D in terms of having a flow rate of assets so that we know we will be launching multiple new products every year.

Something I talked about last year was our commitment to use our resources more aggressively in terms of acquisitions. You've seen us make a whole portfolio of acquisitions. They have been exactly the type I described. They would be bolt-on acquisitions. We would not engage in big M&A, classic pharmaceutical M&A. We absolutely will not engage in classic pharmaceutical M&A, but we will continue to aggressively look for bolt-on acquisitions.

There's been a wide number of those, four in this quarter alone. They've been focused in areas such as emerging markets. They've been focused in areas such as vaccines, and others. Those acquisitions have all been in line with our strategic agenda. Where we found ways to execute transactions without using cash, we've done that.

So, for example, the recent transaction with Aspen, involving assets which the Company no longer needed, a factory we didn't need in Germany anymore, some tailed products we didn't need allowed us to build a position in Aspen and strengthen our position there without using cash.

So we are very mindful about the application of our investment resources. We are very thoughtful about where we make those acquisitions. But I thought it was worthwhile just bringing together that all of those acquisitions have acquired GBP1 billion worth of sales turnover, 90% of which will not appear in our numbers until going forward. So 90% of it is only just either starting or will arrive in our numbers as we go forward, which clearly is a source of improved acceleration going forward.

And then the final part, because we are going to talk a lot today about progress in R&D and other parts of our business, it's absolutely important to remember that we remain very focused on making sure that our cost basis is appropriate. We announced last year an accelerated cost reduction program, targeting GBP1.7 billion relief by the end of next year. I can confirm to you we are absolutely on track for that. There's no question we're going to achieve that.

Within that cost reduction, we're taking the opportunity to do some significant reallocation of investments. So we are taking money away from parts of the business that we no longer believe are going to return at the rate that some other new areas will, and we are moving that resource to invest in those areas. The obvious beneficiaries for that have already been emerging markets, our vaccine business and our consumer business, and I will talk a little bit more as I go along.

That's just a handful of context metrics that I would look at for this Company. And what it tells me is that GlaxoSmithKline is changing. This Company is changing. There is a lot to do still, but rest assured, the strategies I laid out a year ago are being executed. We are delivering on what we said we would do, and the Company is changing. And it's changing in its fundamental risk balances. It's changing in its ability to deliver sustainable flows of products and assets. And it's changing in its nimbleness and speed and ability to open up new growth businesses, which I will discuss a little bit later.

With that, I'm going to ask Julian to come up and take you through the detail of Q2 before I talk a little bit more about the strategy.

Thanks, Andrew, and good afternoon.

I'm going to focus, as always, on performance excluding the middle column restructuring costs, but I will come back to those on a slide later. And I will talk about movement at constant exchange rates, not at sterling.

So for the quarter, turnover was down 2%. Consumer healthcare was up 9%. Pharmaceuticals was down 4%. Operating profit, as you can see, was down 6%, and we did benefit from higher asset sale profits this quarter, although we suffered from higher legal charges, so there was a net benefit there. And we finished the quarter with a 4% decline in earnings per share, which was a significant improvement from our first-quarter performance. As you can see at the half year, we're down 16%.

If I focus on pharmaceutical turnover by region, in the US, you can see that we are down 15%. And the key driver of that is patent expiry for a number of products, followed by rapid generic competition. Within the US, Advair grew 7% and our vaccines business grew 22%, partly offset by a decline of 8% in HIV and a further continued fall with Avandia.

Turning to Europe, Europe grew by 1%. Avandia grew 3% in a largely flat market. Vaccines were up 7%, and we saw declines in HIV and CNS, but overall, a small growth there. In emerging markets, we were up 14%. We did benefit by a couple of percentage points from acquisitions.

And in Japan, you see we're up 7%. In Japan, Advair, a new product, doubled its sales, albeit to only $49 million, but that's growing well in Japan. The rest of the world, we're up 6%. So with the exception of the United States, we grew in each of our regions.

I showed you this chart for the 2008 results. I'm coming back to it. I think it is a good way to look at how GSK is performing. I'll come back to core in a moment. Influenza comprises seasonal and pandemic flu vaccine, and also Relenza. And as you can see, it was up, albeit modestly, in the quarter. And within that number of GBP105 million, you have GBP60 million worth of Relenza sales that were up, and GBP30 million of pre-pandemic sales that were down.

Avandia continued to decline, and it's too early at this stage to judge the extent to which the record results will have a positive impact on the Avandia trajectory. But at the moment it's still in a downward direction.

This chart I think shows very clearly the impact of products that were impacted by generic competition, and at constant exchange rates, we lost just under GBP0.5 billion of sales from that generic competition, equivalent to roughly 10% of Q2 '08 sales.

If you come back to the core, the core grew 7%. I like to divide that into two. You've got fast-growing products, just over half; they grew by 14%. You've got the balance, just under half, which declined by about 1%. And in the latter, you have HIV, which declined. You have antibiotics, which increased slightly.

If we look at the bit that grew, the 14%, Advair continued good growth of 9%. Within that, as I said before, US, up 7%; Europe up 3%. The rest of the world, up 27%, and a good performance in emerging markets, where we grew by 17%. Vaccines, excluding influenza, grew 15%. And you will see from the chart we delivered good, strong performances from a number of smaller products, Avodart, Ventolin and Lovaza. It's great actually to see Ventolin, a product that two or three years ago we'd pretty much assumed was in permanent decline, starting to grow again.

This chart shows you in the green H1 and H2 sales of US products impacted by generics. And in the yellow, it shows you H1 '09. It doesn't show you H2 '09 yet. That's to come. But hopefully, the message you get from this chart is that we will see a lesser impact from genericization in the US in the second half compared to the first half.

Andrew touched on this, we all know that small molecules in the US and in Europe suffer very rapid generic competition following patent expiry. The message here is simple. The proportion of those products as a percentage of total sales is declining. Going in the right direction.

New products contributed GBP377 million of sales in quarter two. Good performances from Rotarix and Cervarix, both of which were over GBP70 million in sales. And the performance in the quarter was GBP100 million better than the performance, more than GBP100 million actually than the performance in quarter one. So those continue to grow, continue to make a good contribution to overall GSK performance.

It was a starring quarter for our consumer healthcare business. It's very hard even as an accountant to be pessimistic about 9%. A very good performance. If you look at the various product categories, oral healthcare -- the Sensodyne franchise grew by 14% and continued to take market share. Within Aquafresh, we were down 1%. If you segment Aquafresh, what you see is the paste business was up 1%. We suffered in the White Trays business. And as you'll understand, White Trays are very susceptible to the economic recession, for having a much higher price point than toothpaste. Overall, oral healthcare though rose 7%.

Lucozade declined 4% in the quarter, but that was a much lower decline than the decline we saw in quarter one. So that is definitely moving in the right direction. We had a great June. One month doesn't make a year, but it's certainly moving in the right sort of direction. Horlicks continued to perform strongly, up 17%, and it was Horlicks that drove overall nutritional healthcare up to 2% growth.

In terms of OTC medicines, the biggest part of our consumer healthcare business, as you can see from the chart, we did deliver tremendous results from alli. In Europe, very successful launch, and overall the product delivered GBP82 million worth of sales in the quarter. NRT, which has been declining in previous quarters, grew 12% in the quarter. Overall, though, a 13% growth within OTC. In terms of acquisitions -- acquisitions added about 1% to consumer healthcare turnover growth.

Now to the financial numbers. Cost of goods, 24% in the quarter, exactly in line with the range of 24% to 25%, which I gave you at the beginning of the year.

If you move on to SG&A, this excludes legal charges. And as you can see, went up from 30.1% of turnover to 31.7%. Why did it do that? This bar chart hopefully explains the various chunks that explain the 31.7%. Restructuring continued to benefit SG&A as a percentage of sales, and as you can see contributed 1.4% of reduction in SG&A costs in the quarter.

And strategic investment, we put all of it back into investment in growth -- into consumer healthcare, into emerging markets and into Japan. That is our strategy. It's paying off, but it's very clearly part of that overall process.

Now you will recall in quarter four last year, I talked to you about some very significant exchange gains that we made on intercompany settlement, which I explained to you brought SG&A costs as a percentage of sales down for the full year. And I talked about a 0.8% of sales benefit for the full year.

I should have known that what was a profit in 2008 would become a loss in 2009 as sterling moved the other way in relation to other currencies. And that's exactly what's happened. So in quarter two, we had an exchange loss on intercompany settlement, just over half the profit that we had in quarter four last year, and that has increased SG&A as a percent of sales. Those are the factors that drive the 31.7%.

If you exclude legal charges, my expectation for the full year is that SG&A as a percentage of sales will be around about 29% of sales. And within that number is about 0.4% of sales, which is those exchange losses that we've incurred year to date. I'm assuming in giving you the 29% that we have neither gains nor losses in the rest of the year.

There, you see legal costs GBP85 million in the quarter, pretty much zero last year. And that makes up the total SG&A performance for the quarter rising from 30% of sales to 33%.

Other operating income. Other operating income is GBP405 million for the quarter, significantly up on the 2008 number. And you will recall we guided you very recently to a number of GBP700 million for the full year, GBP700 million being other operating income plus profit on disposal of associates. That's the GBP115 million year to date we have in respect to the Quest disposal. That excludes two things, that GBP700 million combining other operating income, plus associates.

The first thing it excludes is the profit we will make on the Aspen transaction in respect of those tailed products we are selling to Aspen as part of that deal. And that profit will be realized as and when Aspen closes, so that's excluded.

And in addition, it excludes the profit in respect to the HIV transaction. Under current accounting, that will create a profit if it happens in 2009. If it happens in 2010, the accounting standards have changed, it will create no profit at all, so we will have to wait and see. Dependent on timing, there will either be a profit or there won't be. And that, as I said, is excluded from my GBP700 million guidance.

If you look at interest, interest in the quarter, higher than the previous year. Higher than the previous year because of the increase in average net debt if you compare the two years. Also we are receiving less interest on the cash on deposit. We did have a benefit in the quarter, because as I stressed, sterling strengthens those dollar debts that we have, significant dollar debts, of over about GBP12 billion on euro debt. The combined interest cost in dollars and euros translates into less sterling, so there was a benefit there.

Looking forward for the rest of the full year, we will pick up an additional cost, carrying cost, on the GBP1.6 billion euro bond that we issued at the beginning of July. Overall, I guided you to around GBP700 million for the year in terms of interest. My expectation is we will come in slightly below that, but not much. Tax rate, 29% is our forecast for the full year.

And overall, at the bottom, you see 31p EPS. Currency benefit of 18% overall. And my expectation for the year, which of course will be wrong because nobody can predict currency rates, but assuming currency rates stay unchanged from the position at 30th of June, I expect a 15% benefit for the year.

Results, and then the impact of restructuring. GBP186 million of restructuring costs in the quarter, roughly the same amount as we had last year, and that gives you a total result after restructuring costs of 28.3p; play is 24.6p in the previous year.

Cash flow, GBP2.2 billion of free cash flow generation in the first half of 2009, pretty much in line with the performance in 2008. You will see if you look to the third line, that working capital actually generated cash rather than absorbed it. And if you look further down, you will see that capital expenditure and money invested on intangibles was broadly at the same level as the previous year.

So what did we do with the free cash flow? Very simplistically, as that chart shows you, we paid dividends to our shareholders. We covered pretty much most of our acquisition activity, and that was pretty much the use of free cash flow for the first half.

If you look down, you will see the net debt decreased by about GBP1.6 billion and GBP1.3 billion of that was simply the strengthening of sterling converting euro and dollar debt into a lower sterling number. So net debt at the end of the period was GBP8.6 billion.

In conclusion, a tough first half, significantly impacted by generics. We're expecting a better second half, benefiting from a lower generic impact plus higher pandemic vaccine sales and higher Relenza sales. We continue to generate a good, strong cash flow performance, and we intend to use that, as we have before, in dividend payments to our shareholders and to reinvest behind growing our business. And you will see the quarter two dividend maintains that 8% growth you saw in quarter one.

So thank you very much. I would now like to hand back to Andrew.

Thanks, Julian. What I'm going to do now is relatively rapidly go through some of the components of where we've been executing the strategy I described earlier.

Let me start just by looking at the business a little bit the way I look at it, and it's slightly complex obviously because we are a matrix. We have prescription business. We have the vaccine business, the consumer business. And then of course you have the geographies. And there are different dynamics as you apply different parts of these businesses around the world. But it's clear that all of the pieces of the Company that you see on this slide represent great sources of growth, either for geographic opportunity or because of the particular nature of the business in terms of RX, VX, et cetera.

Let's start with the US. The US is a business which has really been holding us back over the last year or so and this year clearly, and that's for a simple reason -- that we've had such a heavy burden of genericization to work our way through. We're in the midst of that. And for 2009, we actually see most of it behind us as you've just seen, and an improvement in the drag effect of generics going forward into the second half.

We shouldn't forget, however, that at the beginning of 2010, we will have Valtrex going generic, and there will be a little bit more of this to go through next year. The challenge is to make sure that our organization, A, gets through that as best as possible at a corporate level, and B, that we make sure that our US business is absolutely primed and ready to go on all of the opportunities we have and is fit for purpose in the changing environment in the US. So we are taking this opportunity to make sure that's the case.

Before I go into more detail on the US, I think it's worth reflecting that even with the level of drag that we've been taking from the US over the recent past, as a company, we've been able to hold -- and this quarter is a very good example -- very close to flat in terms of sales. As we go through the second half of this year, that drag is going to fall away. I'd expect to see the performances we've seen across our other businesses, consumer, RX, VX, other parts of the organization, to continue to perform at the kind of levels we've seen, and obviously that's what underpins our confidence going forward.

Now, if I look at the US specifically, while all of that genericization is going on in the background, we haven't been standing around doing nothing to rearm the US business. This is a very significant business for GSK, and it's one that we don't want to see in defense for any longer than it absolutely has to be. And that's all about making sure that we reload the organization with new products and we get those products going properly.

So you know over the last few years we've launched a number of products. Some have been line extensions, some have been relatively small, new specialty products, and some have been very significant vaccines. Those have begun.

What we see going forward are some key additions. So the Stiefel acquisition, which we will announce closure of imminently, will add something like $450 million to $500 million into the US business. It's worth recalling that 50% of the Stiefel turnover is in the United States. And obviously once we close, that will become part of the business. I will talk a little bit more about that in a second.

And then as I look forward over the next year or so, the US business will be the beneficiary of the launch of Cervarix, of ofatumumab, Arzerra. Both of those, as you know, are coming to the very end of their regulatory cycles in the US over the next few weeks and months. You will also see pazopanib, renal cell carcinoma, as you know, at FDA under review. Duodart, a combination of alpha blocker and dutasteride or Avodart already at FDA.

You've seen in the announcement today that we are shortly to file Menhibrix, a new meningitis vaccine in the US to go into a part of the market currently unserved. And you also saw on Monday the potential for us, assuming the second trial succeeds and replicates the first, an opportunity to look for us to file Benlysta in the US in the first half of next year.

So just from that portfolio of five or six quite meaty products, you can see the kind of opportunity to pretty rapidly recharge the US business.

And it's not just about product portfolio. We need to make sure we have the right capabilities in the US. That's why we began at the end of last year reconstructing our US sales force, partially we reduced its size. We took about 1800 positions out of the primary care operation. 500 of those were reinvested into specialty and vaccine businesses. The rest were released from the organization.

We continued during the last few months and more to go in terms of further changing the rest of our US operation to make sure it's both scaled and focused in the right way. Probably one of the clearest examples of that are the changes we've begun to make in our managed care operations to integrate all of our third-party activities together, particularly recognizing the likely increased role of government activity in US pharmaceutical marketplace.

So all of that change is going on. It's a big change to make, and it's going to take a while longer, but we're clearly making the steps we need to make, and we are well on the way through it.

The environment itself is, of course, very changeable around us. I would be the first to say that the chilling effect of the economic downturn has clearly been felt in the US over the last six or nine months, as we have seen a reduction in patient visits, a reduction in refills happen as people are clearly affected by the economic downturn. So that's a feature to bear in mind.

More importantly, is where is healthcare reform going to take the US marketplace, and how might that change the way we are going to operate? All of that has been incorporated into the way in which we reconstruct the business under Deirdre Connelly's leadership, the new President of US Pharma.

So the US is all about change, but it's very much about change in the sense of modernize the portfolio, get back to growth as fast as possible, and we want to see our US operations back on the offensive rather than in the defensive as quickly as possible. And as I mentioned, the portfolio of new brands due next year and beyond will give it real impetus.

Now, today, one of the huge products we rely on in the States is, of course, Advair. And I'm delighted to have seen the performance of Advair during this quarter up 7%, but actually I'm much more interested in what's happening on the volume of Advair. If I look at the US performance of Advair over the last two or three years, volume of prescriptions has not been very dynamic. We've seen a lot of dynamism in the mix. And of course, we've seen some price effect. But we haven't seen much dynamism in volume.

For the first time over the last several months, we've begun to see volume growth start to kick in again for Advair. I think this is due to the general settling around the controversies around beta agonists, which have plagued this area for the last two or three years. It's a consequence of the restructuring of our sales force, where we've got much more accountability in our field force.

In fact, just a month ago, I spent a day with one of our Advair sales reps in the US to see for myself the impact of the changes we've made and how it has made the representatives feel differently about their sense of ownership of the brand. And that's where success starts in our business. If the representative feels an ownership of what they are doing, then you will start to see quality activities. And we are just beginning to see the early signs of that in terms of duration of calls, amount of quality time we get with physicians and the like.

So volume is beginning to move. It's been moving gradually into positive territory over the last couple of months. The last four weeks we were up into the 2.5% type of range. It might not seem like much, but on a brand the size of Advair, this is a very material move and clearly something that I hope very much we will be able to continue.

I've also been very pleased over the last six weeks or so as we have seen our sales force changes bed down, our market share stabilize in the face of competition in the US. So all of that gives me some good reason to believe that Advair is in decent shape in the States.

If I look across the world, because Advair isn't just an American brand, it's a global brand. And whether we call it Advair in the States, Seretide in Europe or Adoair in Japan, what you are seeing in this quarter is tremendous contribution of growth from some of the markets where historically we haven't had huge presence with this product. Emerging markets up 17%. Japan up 51%.

And in each of these markets, we are applying different strategies to access the growth. So for example, in Japan, the partnership with Mitsubishi Tanabe has really improved our share of voice. That only kicked in toward the end of the quarter, and clearly gives us the potential to drive Adoair forward at a much higher rate. You saw in the first half already a very significant performance.

I also wanted to pay credit to the European business. Again, Europe delivered a very solid performance in the face of a lot of tough market environments and price pressures. Europe for us, whether it's on Advair or across the business, is an absolutely bankable, deliverer of performance in the organization. So across the board, whether it's on Advair or beyond, Europe is delivered. And you see here the strength of Advair not just in the US business, but across the world with 9% growth.

Now let me move to another source of growth going forward. I've already referred to it once, and that's Stiefel. As I said, we are very, very close to announcing the closure of this transaction. Stiefel is an opportunity for us to display a few things.

First of all, it's an opportunity to display the approach we want to follow. We've done it also in HIV to make the absolute most of the portfolios we have. And by looking at our business, clearly, we had a significant dermatology business. In fact officially, we were the number seven dermatology company in the world. You probably didn't know that. We didn't know that because we didn't really focus on it. So, what this has led us to do is to focus on a significant piece of our business, combine it with a specialty company, bring the two together, and it creates a very meaningful business.

Stiefel will remain an identity company out there. It will simply be known as Stiefel, a GSK company. We have kept on the management team of Stiefel. The transaction is essentially funded through the synergies which we can derive through the SG&A and manufacturing line.

One of the most interesting parts of this transaction from my perspective and one of the things which stimulated it in the first place is this is one of the very few transactions I have seen where I believe we can essentially take almost all of the manufacturing cost away and only be left with active ingredient. Why? Because much of what Stiefel manufacture uses capacity technology that GSK has, where we have significant spare capacity because of some efficiencies we made in our factories two years ago. We're essentially going to bring all of that activity straight into our factories, and we can eliminate a big chunk of the cost of goods.

One of the reasons why the synergy number was higher than people thought could be achieved is because unlike most transactions, we are attacking the cost of goods line, not just the SGA and the A&P lines.

So, this deal, very close to being finalized. You will see this start to kick in in the numbers of and also brings with it a material pipeline of products. Again, private company, Stiefel haven't necessarily talked a lot about what they are doing, but next quarter you will have the opportunity to see the kind of pipeline that Stiefel brings into this business.

And I also think it will create, has already created a real interest inside GSK to take molecules we are developing for other areas and look for dermatology applications. So the synergies around product generation are going to be material, and I think this is going to turn out to be a very, very productive acquisition.

Now, from the US and an acquisition of Stiefel, let's go to the other side of the world to Japan. As you know, I am very positive about our opportunity in Japan. Why? Because we've got such a strong product portfolio of new products to launch.

Over the next three or four years, I've said previously, there's something like 30 or 40 products to launch. Range of new products as well as line extensions, but really a constant flow into a market where most of our competitors are starving for lack of new products. So we have a very countercyclical opportunity to launch into the Japanese marketplace. We will see what happens with the Japanese pricing regime, but if the pricing regime changes in the way that's currently anticipated, that can only be positive for a company with a new product flow of the shape of GSK's.

What you see here are the launches over the last few years. Obviously, Adoair is the biggest winner of this portfolio. You know Japan is a relatively slow-burn market in some of these areas, but in a way, I don't mind. I've said all along our portfolio will be made up of small, medium and large products. I expect my businesses to be capable of making an effective return whether it's a small, medium, or large product.

Going forward, what you see over the next 12 or 24 months is some tremendous opportunities. So Avolve, Avodart, just approved in Japan. Cervarix will be the first HPV vaccine launched in Japan, uniquely across the world. Great opportunity for us. And then you see products like Promacta, Volibris and Xyzal, which was part of the UCB deal.

So Japan remains a very strong business for us. New products have already delivered GBP100 million worth of growth year to date. And I continue to believe that we will see this simply improve as we strengthen further our commercial operations there.

Elsewhere around the world, emerging markets. Again, everybody's talking about emerging markets. I'm well aware of that. Talk you through a little bit about what we are actually doing in the emerging markets. We've made a number of transactions, and we've made a number of strategic changes to accelerate our business. As you've seen, it's up to 14% in the quarter.

The emerging markets are all about trying to access bigger populations with different economic buying power than the traditional population. So, if you don't address this, all you are ever going to do is top slice the marketplace. And so finding ways to open up that volume marketplace is the key to the strategy at GSK.

Many of you know I've spent much of my career living and working in these markets -- five years in Asia, three years in Africa. And if there's one thing I've learned there is there is tremendous opportunity if you can find a way to tap the different tiers of the marketplace.

So what that's all about is making sure we have the right product portfolios, A, to fit the disease profiles, B, to make sure that where we need to, we can set differential prices in the marketplace. We need to make sure that we are more creative around pricing, and we need to make sure we have enough footprint across the world.

We start in a good place. We're always up there. Sometimes we're number one. Sometimes we're number three or four. We are always there or thereabouts. We need to make sure that in all of the key growth markets of the emerging markets, we are strong, and that's where acquisitions come in from time to time.

In terms of building the right portfolio, you know we've made a number of transactions either acquiring portfolios from companies like UCB or Bristol-Myers Squibb, or through partnerships, which have typically been non-cash consuming with companies like Aspen and Reddy's. What that's led to is a massive proliferation of our potential portfolio.

Of course, we don't take all these brands into every market. We give our general managers the choice of the brand so they can build their business effectively from the ground up. But essentially what they have the opportunity to do is select from some very famous historic brands such as Capoten, Duricef and others from the companies such as BMS and UCB, or to take branded generics from Aspen and Reddy's to allow them to open up different sorts of the market. You will see more and more of that being rolled out over the next few months.

And what it's allowed us to do is unleash a lot of energy inside our emerging markets. And what you have to remember is when you are dealing with 50, 60, 70 emerging markets, they are all heterogeneous. Philippines is completely different to Malaysia. Malaysia is completely different to Bangladesh, completely different to India. There's absolutely no point having a centrally controlled execution. You have to provide your general managers with a portfolio of weapons and let them get on and choose how they are going to do the job. And that's basically what we are doing.

Now, another key driver, and not quite uniquely, but almost uniquely in the industry available to us is the global presence we've got in vaccine. And clearly leveraging the vaccine portfolio is going to be a key driver for us. As you can see, we have a decent market share in the emerging markets. You can see we're growing substantially ahead of the marketplace. And if you think about the new product portfolio we've brought forward, so particularly Rotarix, Synflorix and Cervarix, you can see that we have significant new vaccine opportunity to layer onto our base pediatric business.

Growth in the base pediatric business will be driven by emergent wealth in economies. And what we need to make sure is that we have the capacity and in some cases the local manufacturing capacity to ensure that we can plug in to those traditional vaccine opportunities. That's why you've seen us do deals like the Neptunus deal in China, and I fully anticipate we will do a series more of those sorts of deals across the emerging markets space. That is all about opening up markets and ensuring we have capacity of the right type in the right place.

So leveraging the vaccine business is extremely important. It's about the base business and then Rotarix, Synflorix and Cervarix give us very significant upside potential.

I'd like now to kind of blend two of those strategies and just show an example of something we've been executing over the last few months. And that's a combination of what we can do with our new vaccines and what we can do with price. And so in the Philippines, some of you may know, we made a series of unilateral price cuts on our business in the order of 20% to 35%, typically, in terms of price cuts. And we saw within the first three or four months, very dramatic increases in volume, but nothing more dramatic than Cervarix.

So in the case of Cervarix, we cut the price by 60%. And you can see within eight months, we'd increased the volume by 14-fold. And this is not immaterial volume. So at month eight, the actual number of doses sold was 45,000 doses of vaccine. So in a marketplace which historically you would sell basically nothing, you have the opportunity to generate very substantial business, and at the same time, move the perception of the Company.

And I was in the Philippines just six or eight months ago, weeks ago, met with President Arroyo, met with the folks who run the health authorities. Move the perception of the Company to be one which is part of the solution of healthcare in the Philippines rather than one that's simply a visitor taking money away. This is important in terms of the position of the Company for the long run, and it delivers a very positive return for the Company because more people are able to access high-quality medicines and vaccines.

If I kind of pull all of that emerging markets story together, so what? Well, MENA, Middle East and North Africa, is one of our very big -- often people don't talk about MENA because it doesn't fit into the BRIC definition. But we shouldn't forget the Middle East and North Africa is a tremendously important region of the world. It's a very cash liquid marketplace, and this is a market where GSK has a leadership position. We are number one in MENA.

But over the last year, we have massively increased our strength in MENA, by bringing together basically all of the things I've just talked to you about. So we bought businesses like BMS. We've increased our strength in a number of markets. We've opened up markets which have been historically closed, including places like Libya. We've brought in our new vaccines. We've been very successful in acquiring business that way. We've moved our Company from being present in four therapeutic areas of the top 10 to nine.

And the net of all of that is we've started to seek market share growth. Even where we were already number one, we're growing market share because of all of those activities. This is what we are going to do in all of our key areas of the emerging markets. What you are seeing is the strategies being executed, the tools put in place, and this is a good example of what happens when it all comes together.

Now, from emerging markets, let's go back to one of those other more functional engines of growth, which is vaccines. Our vaccine business obviously weaves through the whole organization, but remains a tremendously exciting place of innovation inside the organization. Just look at what's available to us over the very current short time frame.

So we've just rolled out Rotarix. You've seen the very strong performance of Rotarix. You see the very strong performance particularly in the US, but of course across the rest of the world.

Cervarix, you see the performance of Cervarix. In fact, since we've launched, GSK and Cervarix have taken 75% now of all the volume of all the tenders globally issued for HPV vaccine. So where we've been available to bid, we've won three-quarters of all the tenders which have been placed.

Boostrix, just getting going in the States.

We've just launched Synflorix in Europe. Now approved in 30 countries around the world. Clearly a major new entrant into this marketplace. Good start in the very early days in Europe. We'll see how things go, but it looks very promising for Synflorix. Cervarix, Japan, imminent; US imminent.

Hiberix, we just announced today. We are expecting monovalent Hiberix in the US shortly. And we also announced today MenHibrix, a new vaccine against meningitis infection in kids from as young as two months, going into a part of the marketplace which really isn't served well. You will see more about that.

That's just what's happening right now in this business on top of all the pediatric vaccine and of course, ignoring the therapeutic vaccines, where remember we have both lung cancer and melanoma now in advanced Phase III trials. So this part of the business is an extremely dynamic, productive area. And it's clear that this Company is moving to be a primary-care, specialty vaccine, consumer hybrid organization. And that's exactly where we want to be -- a hybrid of these high-growth businesses.

Now, the one vaccine that's not on this slide is obviously swine flu or pandemic flu vaccine. And basically this summarizes where we are on that vaccine. I'm sure there may be questions, having just spent two hours with the journalists where the only questions were about flu. Be tested to see whether or not this audience is the same or not the same. But in any case, a lot is happening at GSK with regard to pandemic flu. I will come back to the top two categories in a second.

We've announced today that we have also developed and had approved an antiviral face mask, which has been tested against previous strains of H1N1 and H5N1, although not swine flu, but no reason to really believe it will be any different. That's already in production. We've already signed contracts with governments, but the reality is we have a small capacity. And really the way to commercialize this is in a partnership with a big mask manufacturer, which we're aiming to do.

Yesterday, we announced a partnership with Enigma Diagnostics to bring in a point of care PCR diagnostic, which we think will really change the ability to differentiate strains. And most importantly, and the reason why we think this is important, most importantly will allow people that critical facility.

So imagine somebody at a power station or a nuclear reactor. In the situation of a pandemic, people might not want to come to work if you think you're going to get ill. The point of this is to show you are not ill and then come in to work. So the whole -- you have to think about the way in which the world might operate under the environment of a pandemic, and you start to see the utility of these point of test results.

As far as the two areas you are most familiar with, Relenza, we've made extraordinary progress over the last three months in terms of increasing our capacity for Relenza. At the beginning of this, we believed our maximum capacity was 60 million treatment courses. By the end of this year, we will be in a position to move into a capacity of around 190 million courses per year, a huge increase.

Partially driven by efficiencies, partly driven by expansion in our base capacity, and partly driven by the introduction of a new second device, Relenza Rotacaps, which have now already been approved by the first European government. The Swedish Rapporteur have just approved it. It will now go through European mutual recognition. Clearly, that has made a big change to our capacity. We will have 100 million treatment courses of Rotacaps capacity very soon.

And as far as the vaccine is concerned, you are well aware that we are manufacturing an adjuvanted H5N1 vaccine. We announced today, updated you today that we have 195 million doses under contract. We have 50 governments who are in dialogue with us. Some of those are literally this close to putting their pen to paper. Some are exploratory conversations, a spectrum of interest.

Suffice to say it's highly likely that the total order quantum for H5N1 vaccines will be very, very substantially bigger than the number that is in the release today. But we are simply being conservative and sharing with you when we have absolutely everything nailed down.

The timing and the pace of deliveries is, of course, a function of yield. We are in that process right now. We would anticipate first deliveries of the vaccine to take place in September. The pace of that will take as long as the yield takes. I would fully anticipate that we will be shipping and therefore booking H1N1 adjuvanted vaccine sales throughout September, October, November, December, and into the early part of 2010.

I also think it's worth just noting that there is a shift in the way governments are thinking about pandemic readiness. I don't particularly subscribe to the view that this is still a peak and trough phenomenon in terms of demand that we have seen in the past. My belief is that we will see this to be more of a peak and shoulder phenomenon. So, yes, we will have periods of extremely heightened demand as we are seeing now. But then I think we will see periods where there will be a fairly sustained demand.

Why? Because today, we have 50 or 60 governments who have adopted a stockpiling strategy for antiviral and vaccine, whereas last time, only two or three had. And once governments have moved to the stockpiling strategy, then clearly as they use components in the stockpile, you're seeing that right now, they will have to replenish. And if viruses change, they will have to replenish.

And so I think what you will see over time is big spikes followed by periods of activity, but not zero activity. So I think actually this marketplace is changing quite quickly around us. So, so much for flu.

Let me move to another area we have touched on in the past. This is an area we want to build in the Company, which is our biopharm. Obviously building up a presence in the large molecule non-vaccine space is a priority for us. You know we have five molecules in advanced development. We have had some terrific data come through on a series of those.

Arzerra, as you know, looks in great shape for the US marketplace. Benlysta, on Monday, you've all seen those results. You'll hear a little bit more about that in a second. Syncria trials going very well. Bosatria, already in the agency for HES, hypereosinophilic syndrome. Very small orphan indication. Much more interesting is the severe asthma indication, which is now coming through from discovery. Very exciting opportunity there. TRX4, a very exciting Phase III program in terms of diabetes Type I. So this area growing well.

Since I last talked to you, we've built this up. We have 900 scientists now on three sites across the world. Obviously, a lot of this is built around the Domantis acquisition, but biopharma is really coming through for us in terms of progress, both at the advanced and the early stage.

So to consumer, consumer business, you've seen a very strong quarter. 9% up. Obviously alli helped a lot there, but even not withstanding alli, a very strong performance. Market share gains across the organization and across the sectors. The only area where that was not the case was in UK nutritionals, mostly because of weather, but nonetheless, we lost some share there. And then generally very strong growth across the whole business.

How is that happening? For all the reasons we lay out at the bottom. The strategy of our consumer business is crystal clear. Excellent marketing, constant innovation, making sure our products are front of shelf. Geographic expansion of businesses we acquire, buy new businesses and take switches every few years from other companies or from GSK labs. You've seen all of that being applied.

In terms of the geographic footprint, we are truly a global consumer company. You see here the number of countries we market products in. Just to pull a couple out, Biotene, our most recent acquisition; we're just getting going with Biotene. But just to let you know it grew 26% in the quarter in the US, in a category which fell 1%. So again, just shows the strength of the Company to buy these brands. Good brands that are not necessarily in the strongest hands, get hold of them, and really drive some growth from them.

So terrific example, alli, absolutely phenomenal rollout of alli in terms of the performance of the product in Europe. Huge, consistent campaign rolled out across Europe, incredible distribution achieved. You've seen the numbers. And in fact, we've been elected or voted, whatever you call it, best product by a whole series of retailers.

And this is important for the Company because remember, Tesco buy all the other products from us, not just alli. So when Tesco say you have the best new product launch, the buyers at Tesco treat the rest of the people from GSK differently. It really helps to have these sorts of flagship products in the consumer space. And you see in alli a terrific performance.

Now, unlike the US, what we are also seeing is sustained demand through the subsequent weeks of performance. So this looks like a very, very promising performance indeed for the Company.

Incremental investment in consumer is all about A&P. And you see here absolutely a rigorous commitment to take cost out of non-A&P activity, so admin, bureaucracy and the like, and reinvest it into A&P. We are really doing everything we can to take money out of nonproductive areas of consumer and reinvest. And you see that very rapid ramp-up. That's one of the reasons why we are pushing things forward as well as we are.

Just to pick out an example, in the United States, of the top 10 SKUs for toothpaste, in the entire industry, five are GSK products. So 50% of the top 10 SKUs, top 10 best-selling packs of toothpaste are from GlaxoSmithKline. And that's because we have innovated our products and we advertise our products at the right level. So it's all about innovation.

One of the most exciting areas of innovation in the last few weeks has been the launch of the new line of Lucozade products. You know we have a very strong Lucozade business in the UK and elsewhere, but it's all based on carbohydrates. It's all based on how do you get energy back into the body. The new line goes into protein and muscle building. We've had a terrific start to this business. Again, it's a really good example of the entrepreneurial nature of GSK, where we are allowing our business to invest to go forward.

I'll also, despite the fact we had a slightly disappointing quarter for Lucozade, June was phenomenal, up 18%. We had the highest sales ever of Lucozade in June. And in fact, we sent 163 truckloads of Lucozade from our factory in June, the highest quantity we've ever sold. And I'm delighted to say even notwithstanding the shocking weather here, it's continued in July.

So, what I've just taken you through is basically a summary of some of the areas where we have done exactly what I told you we would do a year ago. A year ago, I showed you this slide. This slide is no different from the one I put up a year ago, and what you've seen is a series of executions of initiatives and actions that progress us forward on this agenda.

Now, by no means is that journey over. What it is, is very much a beginning. But it absolutely shows you that we are sticking to our guns strategically. The strategy is the right strategy. We are getting implementation, and it's beginning to show through in the change in shape of GSK.

Now, the last thing I want to touch on is the consequence of all of this change and the consequence of developing a different type of business model, is, of course, our day-to-day business model is more complicated. It's much easier just to sell white pills in five countries in the West than it is to do what I'm just describing. What I'm describing to you is a complicated series of businesses which are all focused on driving growth, all seek to hang together and pull synergy out of those businesses. But it's no doubt more complicated than the alternative. So we have to make sure that we simplify everything else.

So we want to make sure that we customize our operations, that we create diversity if you will in the areas where it creates value for the customer and value for the Company, but we have to simplify the stuff the customer doesn't see. We have to take some of the complexity out of the system, which is the last part of our strategy.

And just very briefly, to update you on that, the way we are going forward in the Company is a fundamental rethink in how we operate GSK. This has nothing to due with the businesses. It has everything to do with making sure we are a lower-cost, simpler, quicker decision-making organization.

So we are now rolling out -- and this will take a little while -- but we are now rolling out a change in our operating model as a company, whereby essentially I chair a management company. The management company will make the key decisions around resource allocation in the business, making sure that our strategy is located in the right place, but will only have a very few people in it, maybe 124, to be precise. There will be no more than that number in our management company team.

So the days of I work for the center or I work for corporate or I work for above country are gone. If you work for -- if you are part of the directional setting management of GSK, you will be in a group of 124 people. No more than that.

Everybody else will either be in a value creating unit -- they either discover, develop, make, or sell product -- or they will be in a support function. If they're in a support function, that will be a globally standardized support function, operating a plug-and-play capability so that all of our value units can plug in, take access to those services on the most efficient basis possible. That's the change we are going through.

How does that happen? It's going to require things like a global ERP system to be implemented. We don't have that today. It's clearly going to require it.

It's also going to require a significant change in the size and complexity of our support functions. So, as part of our restructuring, just as all of my heads of business have sales and market share targets for where they will take their business in the next five years, all of my support heads of organizations have a target to reduce their cost of support to GSK by 20% by the end of 2011 in real money. So they also have to beat any inflation that comes along.

So that is going to be a big shift in terms of how we operate the Company. It makes it simpler, lower-cost and a great to plug-and-play.

So really the way to think about GSK as an operating structure going forward is this management company, a very thin layer directing the Company, but underneath it, a much more coherent structure of businesses built around a common core. So the common core will have the support functions, and from that, the R&D, manufacturing and then all of the profit-generating businesses you see along the front, all will draw their services. And as we buy or build or grow other businesses, they will simply plug onto that common core.

This is a significant shift in terms of culture of the Company. What it will do is it will mean that every employee in this Company either creates value or has a job which supports the person who creates value. There will be no space to hide in this Company for people who simply watch other people create value. And that's the change we're driving to.

So, as a quick reprise of what we've been up to in the last 12 months, there's a lot of other stuff going on, but I wanted to show you a few signals. There is no better example of what's changed in GSK than what is happened in R&D. And I and Moncef have previously described to you much of what has happened in terms of process change, discipline of resource allocation decisions, discovery, investment abroad, all of those things. Today is a good day to update you on the content of what is going on in R&D, and Moncef will do that for you now.

Thanks, Andrew. All right. Glad to be here and talk to you again. And as Andrew said, I'm not going to tell you about the changes in R&D and implementation of our strategy there except to tell you that I am very pleased with the progress we're making, and very pleased that the 124 people setting the direction in GSK are also pleased and very supportive. I'm going to spend 20, 25 minutes telling you about top-line news. And in particular, I will focus on six projects that you can see here that have experienced significant progress over the past six months.

Before doing that, I would like just to tell you about two programs that are also part of the 13 late-stage development. The first one is darapladib. That is our LpPLA2 inhibitor for treatment of atherosclerosis. Six months ago, I told you about the start of our Phase III trial. 15,000-patient study called STABILITY I. Six months later, we have recruited more than 10,500 patients in the study. We're several months ahead of our schedule. This is a demonstration of the interest of opinion leaders in the science, and also of the medical need for an add-on therapy to statins for the treatment of atherosclerosis. I think a really impressive performance there.

Second, a bit of information here is around Syncria. Six months ago, I also told you that we started our Phase III program. We actually started five clinical trials, and we have already recruited more than 1,000 patients into those studies. Also, a few weeks ago in the ADA, we have presented our Phase IIb data that were very well-received and very impressive.

Now, after that meeting, I did get a few questions from people asking me, well, why did you go in Phase III? This is inferior to Byetta. I said, what are you talking about? And then I realized, people are comparing the HbA1c decrease that is in the package insert of Byetta, which is achieved at a 52-week study, with the HbA1c decrease achieved by Sinclair in a 16-week study. That's not the right way to look at the data, of course.

We have included a Byetta arm in our Phase IIb trial, and you should look at the HbA1c we achieved there, and you will see that Syncria is actually superior. And you will also see that the GI safety profile and tolerability of Syncria is actually tremendously improved.

So just a few clarification points before I move on to the six programs I would like to tell you more about. The first one is Horizon. We are very pleased to let you know that we have decided to embark on our Phase III program for the COPD indication with Horizon. Horizon is the follow-on program to Advair/Seretide. It's a once-a-day long-acting beta agonist and inhaled corticosteroid combination.

Now, it's actually unfair to describe it as a once-a-day program. Why? We have tested very carefully seven different long-acting beta agonists before we selected the one we wanted to move on with 444. We selected three inhaled corticosteroids before we selected 698, the one we wanted to go with. We have tested in our Phase I and Phase II studies more than 2000 patients. We have honed the best possible combination dosage before we embarked on a decision to go into Phase III. We shared that information with the agency, the FDA, in an end-of-Phase-II meeting that was very positive and very supportive and, based on that, decided to embark on our Phase III program.

We believe we have absolutely superior medicine here. We feel very confident. We have included in our program comparator studies to demonstrate superiority of Horizon, and we've also survival outcomes into the program. So really very, very actively confident and positive movement here.

As far as the asthma indication is concerned, we are ready to go, ready to press the button. We are expecting feedback from the FDA regarding their expectation for a safety trial on long-acting beta agonists before we can go. We expect to recruit the first patient in the COPD program in October of 2009.

The second program I would like to tell you about is Avodart, our 5-alpha-reductase inhibitor for BPH and for which we have recently announced the data of the REDUCE study, which is a four-year prevention of progression for prostate cancer study. And we were really thrilled with the data that we have seen, demonstrated a 23% reduction in the rate of progression for prostate cancer.

We didn't see an increase in high-[middle]-grade prostate lesions, defined as 7 to 10. We did see a small numerical imbalance in the Avodart group for the high [scaling] grade lesion, 8 to 10, and we're further characterizing what it means. Are we simply delaying the prostate cancers, or are we preventing it, is the question that we are assessing.

The adverse event profile and the tolerability profile of Avodart was as expected from our clinical experience. And we are expecting to file for the prevention of prostate cancer indication in the second half of 2009.

I want to show you some of the data that we have. This slide is really meant to give you an impression of the data. It's actually the risk reduction. And you can see that, of course, all the points are on the right-hand side of the unit, and they are all pretty consistent. And this describes whether the overall population, with 22.8% reduction in the rate of progression, but also, by strata, age and various risk factor.

And in particular, in the red circle, is the risk factor of PSA at baseline. And you can see that in contrast to the [PCPG] study, there is actually no interaction between the baseline PSA levels and the risk reduction. It's actually a very important point there for you to look into. Quite solid data.

In terms of adverse events, we have seen the same set of sexual function-related adverse events as we know exists with this mechanism, 5-alpha-reductase inhibitors. We've also, in looking at the very large safety database generated in the REDUCE study, observed a small numerical, albeit statistically significance, imbalance in terms of heart failure adverse events reporting. This is not adjudicative cases. In fact, as we stand today, we feel very confident and comfortable that this is not an issue. We have, however, in the spirit of transparency and cautiousness, informed the regulatory agencies about this finding.

Let me now tell you about two of our vaccines, Cervarix and Menhibrix. Cervarix is our HPV vaccine, and that's the vaccine that I was personally intimately involved in at its inception and in the design of our plans more than 10 years ago. And I'm going to take a minute and tell you what we aimed to achieve and how we made the composition of that vaccine, because 10 years later, we have the data to support, or not, what we aimed to achieve.

What was wanted to do was cervical cancer-only vaccine, not a sexually transmitted disease vaccine. That's the reason why we decided to only include into it high-risk HPV [types]. We also wanted to have a vaccine that would have a very long-lasting protection, therefore needed very high immunogenicity. And we also wanted a vaccine that would have a broad cross-protective response against the more than 70 different subtypes of HPV that potentially can be responsible for high-grade lesions, which are in fact impossible to all include into a vaccine.

That was our aim, and that's the reason we included two subtypes there, HPV 16 and 18, and that's the reason we put our adjuvant system [AS4] to enhancing our response and broaden it. And as you can see on the slide, over the past 10 years, we went into a number of clinical development studies that have tested the immunogenicity of Cervarix and compared it, for instance, to that of the other available HPV vaccines, and we have demonstrated superiority. I'll show you the data in a minute.

We are looking carefully at the persistence of protection. And we can show that, six and a half years into the study, we still have very solid protection. And, of course, we have very recently published on the cross-protective responses against other higher-risk HPV types, and we are extremely pleased with the data we have seen. We have also now a very large clinical database in terms of safety and adverse events associated with this vaccine. And there is nothing that we are specifically attentive to or worried about.

The vaccine, as Andrew said, is already available in many countries. And the PDUFA action dates with the FDA is very soon. And we look forward to making this vaccine available to US women.

Some sets of data here -- you can see on the left-hand side of the slide the immunogenicity comparative study to the other HPV vaccine. And you can see whether, for HPV 16 or HPV 18 in particular, across the age brackets we have a superior neutralizing antibody response that's achieved. On the right-hand side of the study, you can see the follow-on on HPV-007 protection study, or now 6.4 years down the road, still 100% protection against CIN2 lesions.

Most critically, you can see on this slide the protective efficacy in terms of CIN2 lesions or above or more severe that has been achieved in study 008, 100% for HPV, also for HPV 16 and 18. But also, remarkably, look at the data with HPV 31 and HPV 45. Look also at HPV 33 and 58. I think actually remarkable data.

In fact, if we sum up the whole thing and say regardless of what HPV type is causing it, what's the protection against CIN2 lesions in young women that are not yet sexually active, and therefore they are naive to HPV? This will be the birth cohort, adolescent population that would be vaccinated in the various vaccination programs, we have 70% protection. That number is to be compared to a number that's available on the [ASID] database for another HPV vaccine, where it's about 40%.

And if you look at the protective efficacy in all women, including those that are of higher age and therefore have already been exposed to HPV, it's about 30%. And that number is to be compared to a number of 17% for the other vaccine. So we have quite remarkable, I think, data and quite remarkable demonstration to the working hypothesis on the basis of which we designed the vaccine and defined its composition actually turned out to be true on that. That's nice to see.

I would like now to tell you about another vaccine -- I think you haven't heard often about it, which is our Menhibrix vaccine. This is a triple-combination vaccine of three conjugated polysaccharides, one that we are familiar withy, which is the PRP polysaccharide from HIB, but also two other polysaccharides from two meningococci. Those are bacteria that are responsible for severe meningitis in children, meningitis C and meningitis Y. These two serotypes are particularly prevalent in the US, and this vaccine composition is designed for the US market. I'll show you some data, actually, on the incidence of meningitis and its consequences in a minute.

We have run a large Phase III program with this combination vaccine. We have seen the data very recently. We are very satisfied with the data. The data will be shared in the scientific community shortly. And also, we expect to file this in the second half of this year. And we hope and expect to have a fast-track review because of the importance of this disease in the infant age.

These are the data on the incidence of meningococcal meningitis in infants. And you can see that there is a very high incidence in infants with a fatality rate in the double digits and very severe morbidity, because these children are actually impacted for the rest of their life.

I think many of you may be familiar with the trauma of meningitis in the late adolescence, when we go to college or the military. That's that small tick on the right-side hand of that graph. So quite a significant -- it is, I think, quite an important vaccine to make available for children.

With that vaccine, Menhibrix, and our [pediatrics] vaccine, we will be able in the US, once it's approved, with two shots to provide protection against eight different diseases -- diphtheria, tetanus, pertussis, hepatitis B, polio virus, HIV, meningitis C and meningitis Y. And if you add our oral rotavirus vaccine, Rotarix, we will be able to propose protection for children in their infant age against all diseases for which they need to be protected before the age of 1. I think this will be a very important addition to our portfolio of vaccines in the US, and we look forward to making it available to children in the US.

Going to now shift gears and talk to you about our biopharmaceuticals portfolio. Andrew told you about our integrated strategy for biopharm, which is, again, very aggressive late-stage in-licensing to build a critical mass, which allows us to build our infrastructure and our expertise and organization, and at the same time, actually an investment in a platform technology, domain antibodies that we believe will allow us to have differentiated set of biopharmaceuticals which we hope would allow us to be the leaders in this field by the end of the next decade.

And I'm going to show you the data on two programs -- Arzerra and Benlysta. Arzerra is CD20 monoclonal antibody. We have recently announced the data in refractory chronic lymphocytic leukemia patients. I would call them dramatic data, frankly, amazing data, and I will show them to you in a few minutes.

We were expecting an action date by the agency for approval in July. They have requested a three-month delay to be able to review the responses we have provided them on the CMC part of the trial. There is nothing we are worried about or they are worried about. They just needed time to look at more data.

So, I want to take here a few minutes to explain to you why we did the deed on Arzerra and what's the potential of Arzerra. The reason we went after Arzerra is because it's a very high-potency antibody against CD20, in contrast to Rituxan. And that's shown on the slide here on the left-hand side.

These two antibodies, (inaudible) CD20, which is an antigen on B-lymphocyte, the density of that antigen varies on B-lymphocyte. And you can see to the left-hand side of the graph, when the density of B-cells is low, there's actually very low [lightness] of those cells in blue with Rituxan when there is very high lightness of the stem cells with Arzerra.

What does that mean? Well, here is what it means. The data on the right-hand side are survival curves, historical, of patients with chronic lymphocytic leukemia. When patients are diagnosed with chronic lymphocytic leukemia the first time, they have the survival curve at the top of the slide. As their tumors become more and more refractory to various treatments, you can see a dramatic drop in their survival curves.

Concomitant with that, there is a dramatic decrease in the density of CD20 antigen on B-lymphocytes. This is the reason why Rituxan is not approved and doesn't function in the refractory chronic lymphocytic leukemia population. This is the reason why, with Genmab, our partner, we decided to test Arzerra in that patient population, because if it's superior, it's going to work. It was quite a bold move, I have to say. It was a single-arm Phase II/III study. And we went for broke, so to speak, because we were able -- we would be able to very quickly reach a demonstration of efficacy and potentially seek approval.

And we were very happy to look at the data and see that exactly what our scientific hypothesis was is what stands out. You can see here in red on the right-hand side of the graph the outcome of an interim analysis on 56 patients of our Phase II/III study. And you can see response rates in the two subpopulations of refractory patients with CLL of above -- 35% to 40%.

On the left-hand side of the graph, you can see [in wide] historical data with salvage therapy in these patient populations, clearly inferior. And you can see in terms of various side effects, and in particular infections, opportunistic infections, that there is quite a difference in favor of Arzerra. We look forward to the action date with the agency on the refractory CLL while pursuing aggressively the Phase III program to bring this Arzerra into front-line CLL.

And in non-Hodgkin's lymphoma, we are pursuing a parallel strategy. We also have running a Phase II/III program, single arm, in NHL. And we're going to look at the data, which will be coming in the next several weeks. And depending on how good the data are, we are going to decide whether it's good enough to file or whether we may need a comparative trial.

And as you can see also on the slide, Arzerra is being developed in Phase III and Phase II studies for various indications of autoimmune nature, in particular rheumatoid arthritis and multiple sclerosis. So I believe we have here a very superior molecule, and over time, as our clinical trials unfold, as we did with Cervarix, we will see the value of the molecule and its superiority.

Last but not least, very first data on Benlysta, our antibody against BLyS, in partnership with HGS, in the prevention -- or the treatment of lupus. Sorry, not the prevention. Lupus is actually a very severe, chronic autoimmune disease that is relapsing and remitting and attacks all the organs in the body, and in most cases, ends up with death in the patients over time. It is particularly prominent in women. It's more prominent in Africans and African-Americans and Hispanics than in Caucasians, but in fact it's present in the whole population. And in the West, there is about 1.5 million patients suffering from lupus and worldwide about 5000 -- 5 million patients.

The last treatment approved for lupus was in 1958. As you may be familiar with, many different strategies have been tested in lupus and have failed, one of the last ones being Rituxan. And the currently available treatments are very aggressive, with many side effects.

So what's Benlysta? Well, Benlysta targets a growth factor for B-cells, for a fraction of B-cells, not all B-cells. It's called BLyS. And when we put Benlysta in the body of a person, it traps BLyS and it prevents it from serving as a growth factor for all subpopulation of B-cells, of which are autoreactive B-cells.

Lupus is a B.-cell disease. Patients have antibodies against double-stranded DNA and against some nuclear antigens. So we prevent B-cells from growing, they go down, probably the immune response go down, the autoimmune response go down, and the harm goes away.

We, when we in-licensed the program with HGS, we looked very, very carefully at the Phase II trial that they had designed. The data there, and we very cautiously and thoroughly designed a Phase III trial, and I do think that the way we designed this trial is in part the reason why we are very successful with this outcome.

We designed two very large trials -- in fact, the two largest-ever trials done in SLE -- one called BLISS-52 and the other called BLISS-76 -- 52 and 76, with 52 weeks' observation and treatment for 76 weeks. One is primarily tested in Asia, Eastern Europe and Latin America, and the other is primarily in the US and Western Europe.

BLISS-52, we had the data. We announced them on Monday. We tested two doses, 1 milligram and 10 milligram, on top of standard of care. So placebo group here is not placebo. Placebo group is standard of care, to which we add Benlysta. That's a much higher hurdle, of course.

We also spent a lot of time designing the primary endpoint for the clinical study. And the primary endpoint is a combination of three different endpoints that must happen at the same time -- not or; it's and. And you can look at them there. The standard scoring system in SLE, the physician global assessment of the patients and organ involvement through the disease.

And you can see here the data. There's a wonderful dose response in terms of improvement in response rates. Those are very significant clinical responses. In a relative term, there is a 40% improvement between standard of care and the 10 milligram dose of Benlysta. Very impressive primary endpoint achievements, very highly statistically significant, as you can see there.

There's also very consistent secondary endpoints. Of the four predefined secondary endpoints, three have been met with statistical significance. They are specifically the which is the classical scale used to score SAE disease and you can see a cam that those related statistical significant improvements over standard of care. There is the [singled out], the physician global assessment of the patients' well-being. Again, very clear improvement, very statistically significant.

A very important point, which is a decrease in the amount of prednisone that patients have taken, expressed here as an increase of percentage of patients that needs less than 7.5 milligrams a day. And you can see that there is a statistically significant improvement at the 1 milligram dose and almost statistically significant at the 10 milligram dose.

And finally, there is a quality-of-life score for which at week 26, which is the data I'm showing you here, there is no statistical significance. But at week 52, at the end of the trial, there is statistically significant improvement over standard of care. So very consistent outcomes, both primary and secondary, and very clinically significant.

We're also very satisfied with the safety profile that we have observed. We're not seeing any signals on malignancies. We're not seeing any signals on opportunistic infections, of course. The study is six days old now, but we have looked at the data. We continue to scan the data every possible way we can. We're very satisfied with what we have seen up to now.

The BLISS-76 study that I described to you a few minutes ago will read out in the latter part of 2009, and we expect to file with the agency in the first half of 2010. We will look forward to making this medicine available to SLE patients as quickly as we can.

On that, I will end and ask Andrew and Julian to join me back.

Thanks, Moncef. Going to grab a seat. So let's open it up to questions, and if you could -- with the light, it's a bit hard to see, so if you could just shout out or stick your hand up. Yes, Kevin?

Kevin Wilson from Citi. Two questions. On margins, Andrew, long-term margins for the industry, could you talk a little bit about how you see long-term margins progressing, and GSK against that, in particular the impact of emerging markets' growth on those margins and why they won't tumble away, why you won't become a consumer margin business?

And secondly, for Julian, what assumption of second-half '09 units of H1N1 vaccine are implied by your SG&A guidance?

In terms of margin, Kevin, overall, my view is that we will see long-term gentle margin pressure in the industry. It's self-evident that US price environment is going to get more, not less, tough. And it's also evident that you've got more and more partnerships in drug development. You've got more and more royalty obligations, these sorts of things. If I look at two ends of the kind of spectrum, that says to me, you are likely to see that kind of phenomenon.

The challenge, then, is to make sure you go for broke. So it's one thing to have pressure on margins in a static business. It's a very different thing to have pressure on margin in a growth business, which is why getting our Company back to sustainable growth is so, so important.

In terms of the emerging markets, and I think actually, if you look at the segmental analysis that you will see in page 23 or 24 of our announcement today, you will see there the difference in margin structure between the European, the American and the emerging market businesses.

The thing you have to remember is that R&D is completely separate in that analysis, and certainly today, pretty much all of what Moncef does is for America and Europe. Emerging markets clearly have some benefit, but we haven't got very many drugs which we initiated just for the emerging market.

And so actually, you really need to adjust that emerging market rate by about 15%. So you either need to reduce America and Europe by something like that, or you need to increase the profit margin on emerging market, which actually, they're all roughly the same -- remarkably similar margin structure across the businesses. You kind of get there for all sorts of different reasons, but they are remarkably similar, which is, to me, why there is absolutely no downside for chasing growth in the emerging markets.

And of course, it delivers great growth, which is what we want. And although you're I think inevitably going to see from time to time macroeconomic cycles which disturb that, the long-term demographic trend is incredibly positive.

Julian?

We've obviously built in our forecast for Stifel and vaccines into the second half, but I hope you understand clearly we are not going to tell you what they are at this point. But clearly, they are impacted by a whole host of things -- yield, to mention one, and phasing of [governmental] is the other. But we've built in our best-case assumption.

I think it's also worth looking, if you go back to previous years, you will see that our SG&A as a percent of sales always comes down dramatically in the second half. So it's a trend phenomenon, which, if you went back and looked at last year, you would see exactly the same thing. We do tend to have a front-loading of activity. Not surprising; particularly in the consumer business, you want to really get a big push.

So partly, it's due to increasing sales. You are bang on the money. Of course, we anticipate there to be a significant quantum of sales revenue coming in from things like pandemic flu. Partly, it's just a normal phenomenon, that you see a kind of a -- a somewhat seasonality pattern in the --

Yes, if you looked in quarter four last year and you eliminated that exchange gain, we were at 26% of sales, just as an example.

Do we have a question number four? Can you shout? I can't quite see who it is. Can you --

[Karen Veducablis] from Societe Generale. I have three questions, the first one on the Horizon program. So is the delay in the launch of Phase III for asthma only due to the waiting of the FDA feedback? Or is it due to a lack of efficacy of [veyon Advair] versus other drug, or do you think there is not [enough unmet in that market] COPD?

So the second question, could you please give us the design of this Phase III study of COPD for patient [recruited direct FDA's endpoint]? And what would be the Phase III study design for asthma if you do a Phase III?

And third question, could you please tell us what is the percentage of sales in the US for COPD and asthma for Advair?

And a little other question -- how long it would take to have solid data in the Phase III?

What was the last question?

Yes, it's the last one.

Survival?

Yes.

The only reason we are not having Horizon in asthma Phase III studies yet is the FDA feedback that we're awaiting. There is no other reason of the type you have cited or have any other type. I'm not going to share with you our Phase III trial design because we don't want to share it with our competitors. And they may uncover it at the time it's published, and you will be able to see it also on the website.

For the survival, it's quite a significant timeline for those studies. It's balanced between the size of the study population and the number of events. As you know, those kind of studies are event-based. So again, a few years, but not enormous. There's a balance between the size and the follow-up period.

And in the US, COPD is about 40%, and the majority of the growth, significant majority of the growth. Sorry, did I say 40% or 60%? What did I just say?

You said 40%.

Sorry, COPD is 60%, and it represents a large majority of the growth.

It's Graham Parry from Merrill Lynch. A question for Julian. You didn't actually share any guidance this time around on cost of goods and R&D as a percentage of your sales, but you did give us an update on the SG&A. I was just wondering, can we just assume your previous comments on those ratios would remain unchanged?

I've got a question on flu pandemic orders and timelines and yields, and I know you touched on this. But I was wondering, is there a risk that to deliver the 195 million doses just even in your initial orders, that if the yield is so low that you would still be producing next year, for those orders, you might actually have to sacrifice some seasonal flu capacity? So should we be thinking about cannibalization of your capacity for next year? Or should we still be thinking of all these as incremental orders?

A question on Relenza -- do you expect to see demand to meet the supply that you've talked about? Do you think it's actually out there in the market?

And then a follow-up on the question on Horizon -- is your discussion with the FDA about how to start Phase III or whether to start Phase III? Thanks.

Okay. Let me ask Julian to probably give you a one-word answer on the guidance question (multiple speakers) on that.

I was actually going to give you a quick 12. Cost of goods, 24% to 25% of sales, no change, and R&D, slightly higher as a percent of sales than the previous year.

And Moncef, do you want to talk -- which is the same as previously. Moncef, on--?

How.

You hear that, Graham?

The answer is how, not whether.

In terms of flu, we will -- we don't know yet what the yield is, so we're -- production batches are up and running. Yield is a function of two pieces of the process. One is how much virus can you harvest from the eggs. We're kind of getting some clarity on that. The second is, what's the quality of the virus after it's been purified? And that requires a reagent.

So we have to wait for the reagent to be issued by the authorities. The global network, UK, US, Australia and others have a network of laboratories that generate standardized reagents, and you have to test your potential material against those reagents. Those reagents have not been issued yet. And so until we get that, we can't determine what the quality is.

So yield is a function of quantum of viral harvested -- virus harvested, and quality. That's why we don't know. We should know. We are expecting that reagent kind of anytime, but probably sometime in the next 10 days would be -- I would be disappointed if it was a lot longer than that, although I have to say, in the past, the reagent has been delayed. So it's not guaranteed.

In terms of the 195, I think it would be -- it's hard for me to -- well, of course, I can conceive of a situation so difficult where we can't manufacture 195 before the end of this year, but it's not easy for me to get to that point, right?

We are very clear, even in, I think, the announcement we've made today, that we fully anticipate, under any circumstance, pretty much -- which really tells you a little bit about the potential excess demand that exists beyond what we have announced today -- that we will be manufacturing pandemic H1N1 and shipping through the rest of this year and well into next year. So this will definitely be hitting the numbers in both years.

We've already manufactured the seasonal flu vaccine for the Northern Hemisphere. There will be less seasonal flu for the Northern Hemisphere from GSK than normal, not because of swine flu, but because the yield of the B strain of the seasonal flu is not very good. So nothing -- so please don't confuse the two. Seasonal flu has in it, as you know, several strains, one of which is a B strain, not an A, and the B strain this year is not a particularly productive strain.

And so that production is done. We are all over H1 and we are all on to H1N1 now, so we know how many doses we're going to have. It's going to be a bit less than it was last year. Actually, if you look at GSK -- you can draw your own conclusions to the others -- if I look at last year, how many we shipped and how many we got as returns, right? Provided we are very efficient in how we operate this year, my expectation is we will have very similar amount of sales this year from last year in seasonal flu.

So although we might make a bit less, if I look at the fact that we got some returns last year, as long as we learn some lessons from that, we can, I think, probably keep those numbers very, very much in the same ballpark. H1N1 then becomes a supplemental product for the Company, certainly over the rest of this year and into next year. The exact quantum of orders obviously still to be determined; the pace of delivery will be a function of the yield. So the lower the yield, the longer it's going to drag out. And then potentially, I guess, your question becomes relevant for next year's Southern Hemisphere, which for us is very small. We have a very small Southern Hemisphere seasonal business.

In the middle there? Yes, number six.

Just staying on the pandemic flu -- apologies for that -- just on Relenza. And what we are seeing, and I guess I'm asking for confirmation of this, is that the dynamic between Tamiflu and Relenza is changing somewhat from the 80/20 or 85/15 or whatever it was a year ago, closer to sort of two-thirds/one-third. Is that right? And then if it is, is that just a function of the capacity? Because obviously we all know that Roche decreases capacity, and obviously that will change now. But -- or is there a handle that you have managed to uncover that you are able to sort of increase that penetration?

Yes, it's a good question. I suggest, Graham, just to finish off your last question, everything we can make in 2009 is already sold. All right? And then next year, we will have much bigger capacity. We will see what the demand looks like then, just on that one.

So on Relenza, there has -- you are right, there's deftly been a shift in the proportionality. So the phenomenon of this marketplace in the last three months has been that many more countries have adopted a stockpiling strategy than had previously been the case. The stockpiles are bigger than had previously been the case, and they are more diversified than had previously been the case, which really speaks to the last point.

So whereas previously we would have seen relatively few countries having a stockpile at all, and within those stockpiles, they would have been as high -- if they could've been 100% Tamiflu or 95/5, what we are seeing is very much a movement toward 75/25, 60 -- maybe not yet 60/40, but certainly two-thirds/one-third type of numbers. And that's happening because they are buying Relenza and not necessarily buying Tamiflu.

So they are kind of diluting -- if they've already got a stockpile, they are diluting. And if they're building a new stockpile, then they are buying both in lower, in a more balanced proportion than they would have done. Why? Primarily, it's around anxiety to resistance to Tamiflu. So that's really the big driver of it.

Now, there are other kind of slightly more [necessary] reasons, but the fundamental reason is anxieties about resistance. And that was really stimulated by the CDC's report last year, pre-swine flu, about the profile of Tamiflu and Relenza in the US against circulating strains. And that had already laid the ground for a change in government mindset. And then, when swine flu came along, it triggered off a much more engaged attitude toward stockpile building and diversification. So that's why you're seeing what you are seeing.

Number four, please.

Marietta Miemietz from Societe Generale. A few questions, please. The first one, you mentioned 20% cost reduction in the support function. Was that actually baked into the original 1.7 billion cost reduction guidance, or is that incremental? And can you give us a rough estimate?

It's baked into the number. That's part of the restructuring, correct.

And the second question, I was just wondering, given your strength in OTC, why you didn't go for Prevacid 24 hours.

And my final question is surrounding pricing of Cervarix in the Philippines. I was just wondering whether this kind of price/volume tradeoff might also be a viable strategy for the West, and in particular the US, where, very clearly, looking at [Marc's] numbers, the volumes are very much lacking. And is actually whatever you do in the emerging markets, is that something that comes up in discussions with Western governments, and do they try to negotiate for price/volume tradeoffs in a similar way at the end of the day?

In terms of switch products and opportunities like that, basically we work on the basis that we are going to try and acquire a global switch candidate once every three years, maybe from our own portfolio, maybe from somewhere else. That's kind of nominally what we have in our goal. It's really -- so the benefit of alli is we can globalize it. Prevacid 24 would be a much tougher one to globalize.

We've obviously had experience in that marketplace with Zantac and Tagamet OTC. We've seen the performance of some of the other products. Frankly, it hasn't been quite as attractive a marketplace as some of our other options. So that's kind of the short answer on that one.

Cervarix and price reduction or price elasticity, I think the message is, what a surprise -- price is a part of the mix. And this industry hasn't necessarily displayed an ability to do that. What we're not going to do is approach this in a homogenous sense. So this is a very market-by-market phenomena. Clearly, it makes enormous sense in some of the emerging markets, particularly the Philippines, which happens to be an almost entirely cash marketplace, almost no government intervention.

So that's where it would be a good place to start. You will see us deploy this approach in selected areas of the world. And of course, in the West, we would look at pricing as well, as we have been doing over the last 12 months on some other areas.

But we're not -- one thing I'd probably promise you is it won't necessarily be a company with a press release. But for sure, pricing is part of our mix. I'm very -- one of the things I've tried to drive in the Company is price is a very legitimate part of the strategy to accelerate growth in the business. And I don't think -- it's slightly unusual to me in the pharmaceutical industry that hasn't been the case. But it is in most.

Number two? Alexandra?

Just a quick question on the working capital. Julian, the balance sheet numbers make it very difficult to see, given the currency impact, where it's actually coming from. So as I look at them, I would guess it's coming from receivables, but could you just tell us where that improvement comes from?

It's coming from payables; it's coming from receivables. To date, there's a lot of activity going on in inventory, but no money coming from inventory at this point. But it will, but not so far.

I was particularly interested about the receivable point because, as a competitor said, it's harder to actually bring the receivables down, because if anything, your payment terms can become unfavorable.

I think it's focus, Alexandra. I think historically, we've focused on lots of things, but not working capital. We've put a lot of focus on it now. People are very focused on getting the cash in. If you work hard on it, you'll more likely get the money than if you don't. Having said that, it is very difficult.

And then I have a couple of pipeline questions. First of all, on Benlysta, I think on Monday, when I looked for the first time at the primary endpoint of the study, I was just scratching my head about the [composite] endpoint. And it seems like two components of the composite endpoint are also secondary endpoints, so why is the third, the BILAGs were not the secondary endpoint? Question number one.

But then on the Bosatria asthma indication, can you tell us what kind of proof of concept you have on that? Because I was under the impression previously that it didn't work in asthma.

And thirdly, on Arzerra, we have been wondering for a long time how you moved that into earlier indication. And you indicated a head-to-head study in frontline. I haven't found such a study on Clinical Trials. Can you just tell us roughly what that is?

And finally, just on [Rizonix], what has the FDA asked you to do [that you'll now] be evaluating the filing strategy?

So, on Benlysta, to be honest with you, I do not remember whether BILAG was part of the endpoints [particularly] or not. I'm sure it's part of the primary endpoint. And there is -- there had to be no worsening of any organ system in the patient for the primary endpoint to be met.

So what you see on the primary endpoint, we'll have, because it is our end, you have to hit the three, right? So the secondary endpoint will almost by definition always be met if it's one of the primary endpoints. You see the point? Or it can be better. I don't want to tell you something wrong, so I do not remember by memory now what ranking was BILAG, but it was there. And I'm sure it's at least as good as the number you see on the primary endpoint.

On Bosatria, it's actually an interesting question you're asking there. We have learned the hard way as an organization that science is what defines a regulation, not a regulation defines a science. To test a molecule like Bosatria and have lung volume as the endpoint is not a very smart idea, because if you address the mechanism of asthma, the speed with which you are going to improve volume or decrease the decay of volume, FEV1, is going to be very different than if you use a bronchodilator. Of course, it's easy with hindsight to say it now, but that is the mistake we made.

We have published, actually, a study with Bosatria in terms of exacerbation episodes and hospitalization. And the data is actually absolutely impressive in severe asthma and in (inaudible) driven asthma.

For Arzerra, I want to ask the team to provide you with the information afterwards. And for Risonix, the FDA has done a number of analyses across the various indications of Risonix for [MSS]. I would label as not scientifically kosher, but fair to do. And I'll explain to you. I mean, we're talking here about patients that have abdominal surgery or patients that have high emetic chemotherapy for medium emetic chemotherapy. Those are different patients, different populations. They are taking different drugs. If you pool them all into one population, it's actually not scientifically correct. But that's what's done, and a number of observations were made that we are addressing. That's the answer to your question.

I have a question at the back, number five.

Jo Walton, Credit Suisse. A couple of margin and a couple of product questions. Notwithstanding your comments about long-term margins perhaps going down in the industry, three out of six of your focused pipeline products attract either significant royalties or profit shares. So what should we see about your margin from that development in terms of your external collaborations?

And on the consumer side, do you think the 2008 consumer margins are representative of what you will achieve going forward with all of your efficiency gains reinvested in more promotion, so that we won't see margin gains in consumer; what we will see is a higher topline sales growth?

And the two product-related questions -- I'm sorry to go back to Horizon again. Is there any chance that what the FDA is wanting is additional safety data? After all, it was potential issues with long-term [larber] safety from the SMART study. I just wonder whether you may have to do some more work before you really get into Phase III. How long could that take?

And the second product-related question is about pandemic flu, really about pricing and adjuvants. When you do a normal drug, you take a risk and you choose a nice high price. Here, pandemic flu, if I was a government, I would say there's very little risk for you doing this. I would like a nice low price. So what should we be looking for about pandemic flu pricing? And is any country being concerned about the fact that you are doing it as an adjuvanted vaccine? You haven't had so much success with adjuvanted vaccines in the US yet, for example.

Okay, Jo. So far as margin is concerned, what you are seeing, and you have seen over the last year or two, is the change even in the base business of some of that direction. So you've seen the loss of products like Avandia, Zofran, which were ultrahigh-margin, and you've seen a settling or the movement of the cost of goods in the margins to the more typical type of products. And you've seen that's obviously hurt in terms of margin compression.

I don't particularly see a very significant further deterioration in terms of where that average margin of products is going to go going forward. So when we structure deals and as we think about our business, we are aiming to have those gross margins somewhere close to where that kind of current base business is. It's not to say we won't see further erosion. We will at the margin. But I don't think we're going to see a cataclysmic fall in it.

What you've seen is the movement from the 95%, 98%, into territories more this kind of 75%, 80%, 73%, those sorts of areas. And I think within there, there's plenty of space for the kind of product we're talking about here.

So I'm sure there will be outliers, but direction of travel, nothing -- I wouldn't worry too much. Are they going to be 98%? No. Are they going to be 38%? No. Right? It's going to be in that kind of area I've just described.

In terms of the consumer business, for sure, we're going to continue to invest in our consumer business. But for sure, also, we are going to want to make sure that we do strengthen our margin. So at least it's not -- not that we want to massively turn into a pharma, business because actually in the past, that's what destroyed a lot of the growth characteristic of that business. But clearly, where we see opportunities to strengthen it, we will.

We just need to be realistic that -- the lifecycle of consumer is much longer. The investment, the A&P investment, for example, it's important to be sustained around that. And what we've seen, and I think we've demonstrated again in this quarter, is that by being sustained, by really investing behind the A&P, we are delivering really strong across-the-board across our consumer businesses.

So that's the first port of call. Where we see opportunities, having achieved that, to lock in profits to build the margin a bit, we will. But I wouldn't suggest it's going to be dramatic because the number one priority is be competitive with our peer group. Our margin in consumer is remarkably competitive with the best consumer companies in the world. And I don't mean those owned by other drug companies. I mean the big FMCG companies.

So what I don't want to do is set my consumer business a targeted margin which, by definition, in the long run makes them uncompetitive in there space. And that's really the measure there.

Do you want to comment on asthma before I go back to --?

On larber safety, I think it's very important here to realize we're developing Horizon combining the long-acting beta agonist and inhaled corticosteroids. And as per the advisory committee of the FDA in December, it's very clear already with Advair/Seretide, there is absolutely no events, zero events, when the two components are taken together.

So, I feel comfortable, albeit I cannot prejudge what the FDA comes back with, that the discussions and what will be the outcome is not more studies before you can do Phase III. I expect more discussions around numbers and age brackets. But this is a speculation. Obviously, you're asking a question that I'm not the holder of the answer. However, very clearly, the [road at] the advisory committee and our interactions with the review team and the FDA are in the direction I have just discussed.

So in terms of pandemic flu pricing and adjuvant, of that $250 million I describe in the press release as a US order for pandemic products, that included adjuvant. So the US government has already bought adjuvant from GSK. Obviously, they have other opportunities coming up with Cervarix, albeit a different adjuvant. They have another opportunity there to take a decision on how they regard adjuvants.

Let's face it, the US has never approved an adjuvant in the history of the US FDA because everything that's been there predates -- [Allum] predates FDA. It's not surprising to me that people are going to ask a lot of questions. The fact that they have just bought ASO3 from us for potential use in a swine flu scenario, and obviously we're making progress with Cervarix, let's get to the end, but I've got no reason to have a concern that there is some prejudice against adjuvant in the US because they understand, I think, the benefits that the adjuvant can bring in terms of improved immune response, broader immune response to protect against viral drift and antigen sparing, which in the scenario we're in today is tremendously important.

Really leads me to your next comment about risk in the -- I know you're only asking it to wind me up, but the notion that we've taken no risk in this is totally ludicrous, right? So this guy started the first experiment on adjuvant technology which is going into this vaccine in 1991. So we've been at risk on adjuvant research for 18 years. And while those adjuvant technologies are going to be applied to multiple vaccines, including Cervarix, including Moscarix, which has just started Phase III against malaria in Africa, including the flu vaccines, that's 18 years of research investment to get to this point.

That's on technology. To make the kind of volumes of vaccines that you are seeing us talk about today, and you can conceptually think about it in terms of if things go the way I've described they could, to do that, we've spent in the last four years $2.5 billion on infrastructure and capital to build the manufacturing capability to do the kind of thing we are now doing.

And just in the last month, we've had to put in place a sterile filling capability involving 10 different sterile filling factories across the world, some of which we own, some of which we have contracted, so that you can, in addition to everything else we do at GSK, fill all of these doses of vaccine without disrupting all of our other vaccine manufacturing.

That's the risk we've taken. Huge amount of investment -- as you well know, there are only one or two companies in the world who have taken that kind of risk. And without those one or two companies in the world, we would all be sat here looking at swine flu, thinking, what the heck are we going to do?

So that's the risk we have taken. Now, in terms of pricing, we've tried to strike a fair balance between the interest of the shareholders of GSK and society, because we are well aware of the kind of ways in which people might look at pricing in this moment, right?

So first thing is, for the rich countries, developed countries, we essentially have the same price. All the governments are paying the same price. We then have a tiered pricing structure for developing countries, so they get discounted prices. And in addition to that, we've given the commitment to supply 50 million doses free to the WHO. Within that context, we've had essentially no controversy about the price from government.

Okay. I think we've got time for the last one.

My question really follows on from your comments just then. I'm interested in how H1N1 is going to influence the politics of the debate around healthcare. You touched on it with the practical issue of adjuvants and the way that ASO3 may affect ASO4 and vice versa. But I guess I want to get a sense of whether there is a broader halo effect, and whether the innovation that you talk about, which is, after all, the major argument that the industry brings to the debate, can be capitalized in the current healthcare debate, both in the US and in Europe.

Well, I think fundamentally, to change the debate, the industry, and importantly, the companies inside the industry, need to change the way they are perceived. And the only way that's going to happen is through substance rather than spin.

And one example of substance is the way in which companies step up constructively to try and address challenges like H1N1. But equally, I could say substance is about having the first potential new drug for lupus in 50 years. That's actually making progress in areas that have not so far seen progress and that people are looking for it.

So I agree with you. This is part of an opportunity. But it comes with all the other parts. It comes with greater transparency. It comes with cessation of political donations in the US. We're the only company in the world to have done that, for example. All of those things are part of changing the perception.

What we are seeing in the US is actually the perception of pharmaceutical companies is rising from a low point of maybe two years ago. We are beginning to see the perception of the industry rise. I can't tell you whether it's because of flu or some other thing, but it is definitely rising.

And what you've also seen is that the industry has been able to work with the new administration very constructively in the context of healthcare reform, which is why we've got the deal, if you will, in place with the administration, to how the industry could play a constructive part if and when healthcare reform is passed in the US. Lots of ifs and whens to go through, but nonetheless, the industry is part of that dialogue rather than being on the outside with bricks being thrown at it. And that is a very positive evolution compared to where we were even 12 or 18 months ago, and certainly dramatically better than where we were three or four years ago.

So I think there is a shift, a positive shift in terms of perception of the industry, but we are as good as the last thing we did. And we have to be, as a company and as an industry, we have to be super-rigorous about being consistent in terms of our ethics, our transparency, the delivery of high-quality science, interaction with regulators, all of those things -- responsible pricing. And I think -- I hope what you are seeing from GSK is a lot of the evidence of that.

Okay. I'm afraid we're out of time. The team is here, obviously, for our more detailed questions. But very much appreciate your giving the time to us today. Thank you very much.