葛蘭素史克 (GSK) 2013 Q4 法說會逐字稿

Good afternoon, ladies and gentlemen.

Welcome to GlaxoSmithKline's investor and analyst call Q4 results.

The format of the call will be some opening remarks from GSK's CEO, Sir Andrew Witty, followed by a short Q&A session.

I will now hand you over the to Sir Andrew Witty to begin the call.

Thank you very much.

Good afternoon everybody and welcome to today's call.

With me, I have Simon Dingemans, our CFO.

I'm very pleased to report that GSK has made significant progress during 2013.

Our presentations, transcripts and our full press release are all available on the website.

As you know, we're not doing a face-to-face presentation with which -- with the presence of the Tube strike today, has, I think, has been a lucky call on all of our behalf.

I recognize obviously that you've not all had the chance to look at the video which is online.

So I'll just make a few comments to make sure that you've heard the highlights, at least from our perspective.

We delivered the most productive period of R&D output in the Company's history, returned GBP5.2 billion of cash to shareholders through dividends and share buybacks and we were the second largest contributor to growth of the FTSE 100 during the year.

Reported turnover grew 1% to GBP26.5 billion and core earnings per share was up 4% to 112.2p.

This was at the upper end of our guidance and was achieved despite some unexpected challenges, including reduced sales in our Chinese business, the performance of which is now starting to stabilize.

For this year, we expect core EPS growth of 4% to 8% at constant exchange rates, on sales growth of around 2%.

This guidance given on ex-divestment basis and from a 2013 EPS base of 108.4p.

I'm particularly delighted with the levels of innovation we're seeing at GSK.

Of the six major new medicines profiled at the start of 2013, five have now been approved and we are expecting a decision on the final asset in this group, the diabetes medicine albiglutide in the first half of 2014.

These new products, which are currently being launched, will strengthen our existing businesses in the respiratory vaccines area and support new growth in HIV and oncology.

I'm pleased with the early indicators for all of our new launches: BREO, TIVICAY, TAFINLAR, and MEKINIST, and of course, our quadrivalent flu vaccine that we launched about a year ago.

We're also preparing for the launch of ANORO in the US in the next few weeks.

Since 2009, GSK has achieved more new molecular entity approvals in the US than any other company.

Importantly, we also continue to improve our financial efficiency and R&D, and today have announced an estimated rate of return on investment of 13%.

This is good progress and we continue to target 14% as our long-run goal.

Our future pipeline opportunity also remains substantial.

We have around 40 NMEs in Phase II/III clinical development and over the next two years alone, we expect Phase III readouts for six of those NMEs and a further 10 Phase III starts for additional new drugs and vaccines.

The transition and expansion of our respiratory portfolio is a critical element of this progress.

With BREO and ANORO and with seven further products in development, we expect to maintain our leadership in the respiratory area well into the next decade.

Alongside our core focus of innovative product development, we also continue to optimize our portfolio.

Last year, we created a new established products portfolio and completed divestments worth GBP2.5 billion of several non-core products to increase focus on our consumer healthcare and pharmaceutical businesses.

At the same time, we invest in key markets, such as India, to increase our economic exposure to the very successful opportunities we already have there.

We also continue to make fundamental changes elsewhere in our business.

These build on the many initiatives we've implemented over the last several years.

For example, to increase access to our medicines and visibility to our clinical trial data.

Over the next two years, we'll be making changes to how we interact with our customers, including implementing our new global sales force compensation system.

For our new launches, we'll be adopting further innovative pricing approaches to help meet the needs of governments and payers and we'll also continue with our agenda to increase access to healthcare in the world's poorest countries.

Together, with the innovation being created at GSK, we believe these changes position the Company competitively for the long-term to deliver improved financial performance and returns to shareholders as well as help meet the wider expectations of society.

With that, I'm going to hand over to Simon to add some further detail to the results and then we'll open up for questions.

Simon?

I'm sorry, it's not there because it's already on the video.

I apologize.

Let me open up the call for questions in that case.

Thank you.

Ladies and gentlemen, your question-and-answer session will now begin.

(Operator Instructions)

James Gordon, JPMorgan.

Please go ahead.

Hello.

Thank you for taking my questions.

I had two respiratory and two financial questions.

On respiratory, one question I had was, there was the LAMA/LABA, ICS that could potentially move into Phase III.

My question there was whether that can work with your existing dual chamber device or whether that would need a new device?

The other respiratory question was about ADVAIR in the US where we've seen an acceleration in the decline in terms of prescription volumes.

Just wondering whether you see that as a continuing trend, as in volumes are down about 14% year to date, whether you see that as a continuing trend this year because of [former] positioning, whether that's something where you think the ADVAIR decline could slow as we go through the year?

And on the financials, one question with the Established Product revenues, I've seen the comments about improving this division's profitability but I can't actually see what the profitability is.

Can you talk about what the profitability is and how the margin would compare with the group?

And then just also a quick last one, which was on CapEx outlook.

There's comments about increased investment in manufacturing.

What CapEx could look like this year?

Okay, James, I'm going to let Simon address your two financial points.

On the first two, respiratory, yes, you're right, one of the programs we expect to move into Phase III over the next year or so is, indeed the, what we would call the closed triple LABA/LAMA, ICS program.

The code name inside the Company is Diamond, so if occasionally you hear us talk about Diamond, that's what we're talking about.

That's not going to be the brand name but it's certainly the name we use, and yes, it will be on the ELLIPTA platform.

That's quite an important point because if you look now, ANORO, BREO and in fact, all of the advanced inhaled programs will all be launched in the ELLIPTA platform.

I think if all goes well, eventually there will be eight products on that platform.

As far as ADVAIR in the US, obviously we've known this disruption from [ASI] was coming.

We knew about it back in, I guess, July and August.

And what we've seen in the first week or two of the January is very much what we've seen with a number of other companies who have had product similarly affected; some share loss in the first week or two with what appears to be a, the beginnings of a stabilization.

In week three or so, I think that's probably right, certainly the patent we're seeing with ADVAIR is identical to the patent we're seeing with other products from other companies.

My guess is that during the year, what we're going to see is a little bit more dynamism around contracting strategy in the US.

You've got some companies who are being a little bit more aggressive in this space for their own reasons, I suppose.

There's going to be some puts and takes and even in the first month of this year, and in this press release today, obviously we've seen the effect of the [ASCI] decision.

But you've also seen a very significant jump-up in our Medicare Part D coverage from 2% at the beginning of the January to 25% as of today.

That's directly as a result of us winning a very major contract.

I think you'll see a lot of this go on during the year.

I don't think the first few weeks of January are at all representative of what we'll see for the rest of the year and not at all unexpected either.

I'll hand over to Simon on the two financial questions.

Thanks, Andrew.

On EPP, James, we're going to give you and everyone else some more detail during the first quarter which we'll include the restatements and full cost allocations for the businesses.

Generally, they are slightly more profitable, as you might expect, given the maturity of those products but we're in the process of still allocating out those costs so further detail to come.

And then on the CapEx side, as I said last year, we were expecting it to tick up a little bit in 2013 which indeed it did, a couple hundred million, to GBP1.7 billion.

That's about the level you should be expecting in 2014.

I'd just make -- thanks, Simon -- I'd make one further comment, just since Established Products has come up.

If you look at 2013, and you can see that the Established Product portfolio had a sales growth rate of minus 9%, so down 9%, I'm sure many of you will already have figured out that, that means the rest of the business is essentially growing on an ex-divestment basis of plus 4%.

You've got about 70% of the business growing at 4%, and I think one of the reasons we've separated this is to give you and everybody else greater clarity on what the fundamental business is doing.

Now obviously, that EPP block of products is going to be an area where we're going to look, as Simon said, to streamline some of the cost base; that's particularly true in terms of SKU complexity.

But it's also where we're going to be looking for divestments, and obviously the divestment we made last year with Fraxi and Arixtra is one.

I would certainly expect us to do some more in that space, and as a result, concentrate the organization on what we regard as the sustainable higher growth parts of the business.

Thanks, James.

Next question.

Graham Parry, Bank of America-Merrill Lynch.

Thanks for taking my questions, just kicking off one on the guidance.

Is it fair to assume that the top end of your guidance assumes that there is no generic LOVAZA launched during the year?

Secondly, on margins into 2014, if we were thinking about these on a constant exchange rate basis, do you expect to get any operating leverage there at all?

But just offset by FX or even on a constant exchange rate basis, do you think we're really looking below the operating profit line for leverage?

Thirdly, on the BREO launch, what's the main barrier that you're finding to your Medicare Part D coverage?

So why the difference between the 66% in commercial and 25% in Medicare Part D and can that change?

So to what extent are you waiting for outcomes data in 2015, for example?

And then finally also on BREO, could you just give us a feel for the level of sampling that you've been doing in the market and the ratio of samples to prescriptions.

So how much are real volumes that you're seeing actually go out of the gate at GSK higher than the prescriptions or the sales that we're seeing?

Thank you.

Graham, on the guidance, clearly we've given you a wider range than we did last year, reflecting that there are a number of different factors driving us between the top end and the bottom end and LOVAZA is a significant one but it's not the only one.

That said, clearly to get to the top end of the range, we'd need LOVAZA to be with us for a good part of the year, let's say.

So I think your direction is right on that one.

On the leverage side, as I've said in the presentation, there's more details on the web and I know you have the transcript of that.

I think in 2014, we're certainly expecting to have to continue to invest behind the new launches and make sure that we're really building the most sustainable position for these new products that we can.

And so we're probably expecting -- sorry, we are expecting that the bottom half of the P&L contributes the more significant part of the leverage that we see.

But in delivering a range of between 4% and 8%, certainly at the top end of that range, we would see a little bit of contribution from the top part of the P&L, consistent with what we said for some time now, that leverage will build as the new pipeline builds material revenues into the system and the top end will certainly reflect that.

Thanks, Simon.

As far as the BREO questions are concerned, Graham, in terms of building the Part D coverage, that's really that, as you probably know, particularly in the primary care marketplace in the US, things have changed quite a bit over the years.

A lot of the Part D coverage now is very -- is -- decisions are made on a six-monthly or 12-monthly cycle and the contracting slots aren't open all of the time.

That's a little different in commercial so if it's a substantial amount of the commercial book of business where you essentially immediately or almost immediately have access, albeit that might be relatively restricted to you so just depends plan by plan.

But you pretty much rapidly get that open access in commercial.

The build on Part D is really just a function of time and of course, successful contract.

So it's -- this is not dependent on data generation.

I would fully expect, if I just look at the last three weeks, Graham, we've essentially gone from 2% to 10% to 25% in the last two-and-a-half weeks.

I would fully expect to see that kind of continued progression during the year for a substantial part of the market.

Ultimately, you probably -- it's unrealistic to expend -- expect 100%, so you'd probably end up at something at the 75%, 80%, and that could take a year to get to that top level.

But the early part of the curve, up to the 50% ought to come relatively quickly.

But it just takes time to go through a cycle so there's no big dependency.

It's important that we contract competitively, obviously.

I think we're in a good position on that, actually, and things have gone as well as I could have expected, actually, in terms of this.

In terms of demand generation, you ask a great question.

And obviously that's the thing that I'm particularly focused on, trying to make sure we properly understand.

All of the signals we're seeing are very, very encouraging.

So if we look at our ability to cover physicians, excellent.

We look at aided recall, excellent.

Relevance of message that we're delivering, excellent.

We really think we've got the message right on this medicine.

Reception to ELLIPTA, excellent; all of those primary areas, very good.

Interest to prescribe from physicians, very, very good.

And then of course, you look at the classic IMS prescriptions and they don't look as good as you would expect.

So what's happening in between ways?

Well, the first thing that's happening is, there is a, clearly, a mismatch between the coverage of the physician population and the insurance coverage.

Remember, the data that's in the public domain essentially has a Part D coverage which is, by the way, where 60% of the patients are for COPD, that has a Part D coverage which has been between 2% and 10% for the first three or four weeks of January.

So you've got a significant number of prescriptions being generated and which are then not being filled at the pharmacy because the insurance is not in place.

We would estimate that anywhere up to 70% of scripts are being rejected at that stage so you immediately can start to see much higher number of scripts.

Now clearly, that is going to start to change quite significantly as that Part D gateway begins to open.

As I've said, the big contracts, which open up to the 25% level, actually kicked in on Monday of this week, so we should start to see that start to flow through in the next few weeks.

You're also right there.

Of course, we're sampling competitively in this marketplace.

And you'll know from other companies' history, this is a very heavy sampling marketplace and very rare for a physician to start somebody on a new inhaled device without a sample.

So yes, significant amount of sampling.

I'd just remind you that our samples are for two-weeks therapy, so it's just worth bearing that in mind.

It's very hard to say at this point in time how many samples are being used but I'm quite impressed by the fact that we are in the situation where there is re-ordering of samples going on already.

So we are issuing more samples after the first wave, if you will; that tells me a lot of consumption of samples has gone on.

So it's obviously a very difficult thing to estimate what the fundamental volume is because that sample number could be in a very wide range.

But it's not at all unrealistic to believe that the combination of the rejected prescriptions due to coverage, which we're fixing, plus the samples, gives you a prescription number several multiples higher than the numbers you're seeing in the NRx environment.

The last thing I'd say is if you look at a slightly newer leading indicator, which we tend to focus on in our product launches, which is NBRx, so this is looking at people who are new to the brand in the last 12 months, not just in the last three months, you can see for BREO, we already have a 2% market share of NBRx.

We think that is also indicative of the good start to the product.

So that's why we're confident, given where we're at.

Clearly, the must-do priority for us this year is continue the great work of January in building the Part D coverage.

But against the backdrop of physician reaction, we're feeling very good about the launch of BREO.

Thanks for the question, Graham.

Next question.

Alexandra Hauber, UBS.

Please go ahead.

Thank you for taking my questions.

To go back to the guidance, apologies for that.

My initial thought when I saw that you gave a point guidance on sales and the wide range on the bottom line, I thought that the delta was probably majorly driven to which extent you should be able to identify restructuring gains that you can book this year.

Now I've just learned LOVAZA is certainly some of it as well, but can you confirm that, that is -- that the restructuring gains are going of to be a key driver of that delta?

Secondly, coming back to US ADVAIR, it's been now for us a number of years that your sales have tended to do a lot better than what we would have thought based on volumes, partly based on price rises, partly due to smart contracting.

So do you think there is a chance actually that we will see ADVAIR growing this year, based on those strategies?

I know you've already taken a 9% price rise in the, in January?

And then a quick question on the supply disruptions you mentioned in the press release, both in consumer and vaccines.

Can you actually give us some color what's happening here?

And how soon you expect those to get fixed?

And you also mentioned some stock write-off in the fourth quarter.

Are those related in any way to those supply disruptions?

Thank you.

Simon, do you want to pick up on the guidance point and the stock and I'll pick up on the supply issues and ADVAIR.

Okay.

So on the guidance, the restructuring gains, we've indicated in the detail in the press release, will be broadly similar in 2014 to what they were in 2013.

So they aren't actually a major driver.

They obviously do create some flexibility in terms of how much leverage we develop during the year.

But it's going to be much more driven by the range around the top end, how long LOVAZA lasts, what the rate of pick-up of new product introductions will be.

So those are the more important factors in that, but clearly, there is some variability as to how much we drop to the bottom line depending on how those top line items develop.

I think in terms of the stock write-offs, that's really reflecting some aging inventory, some of the impact out of China in terms of adjusting our position given the shortfall that we've seen in that business in the second half.

And then also related to the supply disruptions you've just touched on where that's put some of the stock also out of usage zone.

So we've had to write that off and then we'll rebuild as the supply comes back into place.

Thanks, Simon.

As far as the supply disruptions are concerned, they're basically -- I'd say there's no pattern here.

There have been two or three different things in different parts of the supply network, literally consumer-to-vaccines type of situations.

Probably the one that's attracted the most attention has been the vaccine varicella which has disrupted things in the last few weeks.

We have good news on that.

That looks like it's going to be a very short-lived disruption and I don't expect that to have any material impact on the numbers for this year and I think you'll see that resolve itself very quickly.

So I'm not -- we take -- I'll be honest with you, Alexandra, we take a very, very consistent conservative view.

If we have any question marks on batches, we hold everything.

Sometimes, particularly in products, where we have short supply lines and vaccines are a good example where we do have short supply lines.

Then sometimes that hold can reflect you through into the system much more quickly than you might think.

But in this particular case, as I said, I think we have good news for you there.

As far as ADVAIR, you're right, we've seen over the years, a gentle decline in volume but we've seen significant benefit normally in mix, in terms of which part of the strengths grow.

Prescription size, actually has been a driver of things over the years, and also price realization.

And if you look at GSK's contracting position in the US over the last two or three years, it's been extraordinarily disciplined and extraordinarily effective at capturing economic value for the Company.

If you contrast that to one or two of our competitors who have been able to support gross sales growth, but we -- from what we can see, very limited net sales growth, it really contrasts very differently.

So there's no doubt we will continue to apply that kind of mentality.

Obviously, the growth of ADVAIR really depends on how well we do with some of our other products as well, because clearly, we're bringing a new product into this marketplace in the shape of BREO, then ANORO is going to come into the marketplace.

And we have to see how that whole mix starts to play through.

Our overall goal, at global corporate level, is that we expect to continue to be able to lead the respiratory marketplace well into the next decade.

I fully expect ADVAIR to be a very substantial part of that mix, notwithstanding all the new products which we're bringing to the market.

Next question.

Andrew Baum, Citigroup.

Please go ahead, Andrew.

Good afternoon.

Three questions.

So first, Andrew, you talk about managing the business for the long term.

When I look for the demographic trends, I guess I would point to cancer, Alzheimer's and diabetes as being the three targets for society.

Are you happy with your existing pipeline and research competencies in those areas?

Or do you see a need to engage in M&A and [BD] to bolster, particularly in those areas?

That's one.

Second one for Simon on financial.

Perhaps you could give us some background into the tax rate guidance for 2013 and also for the quite significant working capital improvements that you managed this year; what's driving that?

And then finally, I noted that you are taking the PRAME cancer vaccine forward.

Is that in isolation or are you going to pair it with a checkpoint?

To what extent could we read into that your confidence in your therapeutic cancer vaccine platform?

Okay, Simon, do you want to go ahead on the --

So -- thanks, Andrew.

On the tax rate, we've indicated 22% for 2014, another 1 point down on the rate we delivered for 2013, and that's reflecting continued benefits from some of the restructuring of the supply lines that have been driving the more recent reductions.

But also, the beginnings of contributions from new products and, therefore, the benefits from the patent box.

That's certainly starting to make a reasonable difference and delivering the 22% we're targeting.

As I've said before, we're looking to obviously improve that further in the years ahead.

Our working capital, we've made a lot of progress over the last several years, in particularly, tightening our receivables, managing our supply base and tightening up payables.

But we also, last year particularly, given end-to-end ownership of the inventory lines to our manufacturing organizations.

And that's allowed us to start dropping out a lot of the supply buffers and contingency stocks that we've had in the system where the commercial business is protecting itself and making sure that we're much more responsive.

That, in turn, obviously leads to more direct connectivity as Andrew has just described but it doesn't allow us to have much more visibility of what the end demand really is and knock out an amount of inventory.

Even though during 2013, we've also had to put more investment behind new product launches, clearly, and getting ready for those, and also trying overall to improve our service availability in the market so we've had some offsets there.

So the net inventory number has been more about preventing cash going out rather than bringing cash in.

We're expecting a lot more benefit from that in the years ahead, particularly out of the inventory lines so that's where it's coming from.

As far as the R&D portfolio on some of those demographically-driven disease areas, Andrew, cancer, I think we're in a good place as we stand today, so particularly with the MEK BREF, with VOTRIENT, the performance we're seeing there, ARZERRA, we've got, I think a pretty good position and from where we stand in the market.

We're not the world's biggest oncology company, that's for sure, but I -- that's why I describe this as kind of a challenger business.

It's a little bit like HIV in that sense.

We're kind of -- we've got some significant innovation; we're not the leaders.

We'll continue to think hard about how we might really leverage what we have in this particular field but we're in a good position.

Now, as you look forward, there are clearly some areas of oncology innovation where we're not present.

We don't have a PD1 program.

We are partnering with two or three other companies in PD1.

And we think there is going to be a significant potential opportunity either for PD1 combinations with targeted therapies like our own or even sequencing, particularly when you look at melanoma.

We think we have something quite interesting to do there and we have an active strategy there.

But we will certainly continue to think about how we might best utilize and maximize the platform we have, recognizing who we are in the marketplace.

I'm proud to be the leader of respiratory, but I'm also honest about where we are in oncology.

We have to be thoughtful about that.

I think Alzheimer's, I think to be honest, we're all as good as each other in Alzheimer's and I think there is a significant obvious unmet medical need.

We've got a lot of work going on in this field; we have some interesting programs, but this is -- I think this is an open race to go.

Who knows whether or not an attractive target surfaces?

Maybe, maybe, and maybe you see something like a Hep-C type of situation suddenly break loose.

It's not obvious to me that exists today and given the varied substantial degree of late stage failure, it looks like a high-risk strategy.

But we're certainly vested in being there, hopefully at the forefront of research and we'll have to see whether we're the ones who get to it.

Diabetes, we're increasingly confident around albiglutide.

Actually, as we spend more time interrogating the data, we think we have a very nice positioning for the product, assuming it's approved.

We're expecting those regulatory decisions, both in Europe and America, in the next few months.

But I see that more -- rather than being focused on building the diabetes franchise, I'm more and more thoughtful about how we can develop a broader cardiovascular metabolic franchise, looking at areas like Lp-PLA2, looking at the p38 in ACS as well as diabetes.

And so we're a little bit thoughtful about it from that perspective; so not so much minded towards going to a diabetes-only focus.

And then you asked a question about PRAME.

Yes, PRAME is on our list of opportunities to move into Phase III over the next year or two; it's an important program for us.

It does reflect our optimism and confidence around the antigen-specific cancer immunotherapeutics.

This is an area where we believe we could leap into a new technology field and be quite differentiated from many others.

I'd also make the point, obviously, we still have three more sets of pivotal data to come in on the May 3 programs.

We've only had one of the co-primaries; we have three more co-primaries to go.

Essentially, we need one of those to come in for us to be in business, and that's an exciting prospect.

And I would also -- we haven't mentioned it previously, but one of the other programs in Phase II/III is in fact, a third ASCI development program.

I promise you this wasn't named after me, but it's called [WIT-1].

This is another one which we're, which I think just simply adds to the point that we have a very substantial research effort here; much of it has been below the surface.

It's now beginning to move above the surface into very late-stage development and it reflects our belief that we can bring something of value here.

And as we look at different treatment types, we think we will see potentially different results.

Thanks very much for the question.

Next question.

Tim Anderson, Sanford Bernstein.

Please go ahead, Tim.

Hi.

A couple of questions.

On your pipeline of products that are now in Phase III or nearing Phase III, can you just narrow down what you think are maybe the two or three compounds that excite you the most, or that you think folks like myself might be missing?

And then a second question that I know I've asked you about before, but what is your latest thinking on the likelihood and timing of potentially seeing substitutable generic ADVAIR in the US?

And also on Seretide in Europe, can you talk about the sales trajectory likely in 2014 as we start to get value brands launching?

Great.

Thanks, Tim.

As far as the second question is concerned, value brands in Europe are not a new concept.

We've had two or three non-generic but clearly positioning themselves as value brands, which has driven an awful lot of the reference pricing.

It drove some of the negative price dynamics two years ago in Europe, when Seretide took some big hits, particularly in Germany.

And so I don't think that the generics that we're hearing about and we're seeing at the moment really makes a big difference.

We've had generics come in to places like Greece and Poland over the last two or three years; we have not seen them have great strides.

We understand they're in several countries, the putative generics are not going to be substitutable.

Also interesting to know, and I'll just make this comment, we're not seeing any low dose generics.

For those of you who are on top of what's required to register in America, I'll just leave it at that.

So for some -- I don't feel like there's a massive ground shift going on in Europe.

So my expectation is we'll continue to see similar trends that we've seen over the last two or three years in terms of the European Seretide position.

As far as the US is concerned, it boils down to the same conversation that we've been having since 2008 when I first got this job, which is that it's a difficult challenge to get to a substitutable generic in America.

And while, yes, there have been draft guidelines, perhaps that has made things slightly clearer for some people.

They still have to be able to do the work, deliver the reproducible performance, cover the range of information the FDA are asking for and to be able to not just do that in theory but then to have a manufacturing process which ensures that it can be delivered repeatedly.

We know everybody who's worked in the respiratory industry, inhaled industry knows, those are not trivial challenges.

I've been struck even in the last two or three months, some of the varying debates which I hear in the generic industry about just how easy or difficult this is.

My expectation hasn't really changed very much, Tim, which is that we have a period of time, several years in front of us where we have substantial opportunity remaining with ADVAIR.

I can't guarantee you any more than I could in 2008 that, that period will last forever, but I do believe it will last for several years.

I believe that unlike previous times, we have, in the meantime, created a very substantial new pipeline of products.

We have two already approved in the US.

We have seven more respiratory programs in Phase III development or in pre-registration.

That's nine new product launches into the respiratory market potentially possible in the next two to three years.

That all could happen before we get any kind of generic in the States.

And then there's a question mark of will that generic, in fact, after all of this, be substitutable or not?

Who knows?

That's somebody else's job to try and get done.

For me, I think -- I know a lot of people get very fixated on this.

If I contrast to where we are now versus a few years ago, the one thing -- the only thing that's changed is that GSK now has a new respiratory portfolio.

Everything else is, more or less, the same as it's always been with a similar kind of uncertainties.

If I look then at the first question you asked, around the, what would I call out for you individually from the pipeline.

If I think about the potential filings, or the filings which have already gone in, I would just remind you we've already submitted for registration globally our LAMA monotherapy, UMEC or umeclidinium.

Of course, we've already got approval in America for combination of UMEC and the LABA.

But remember, what UMEC monotherapy is, it's essentially a product to go into the Spiriva marketplace.

Now I think in most situations, if I told you we had a product to compete against Spiriva, you'd say, wow, that's pretty interesting.

Now it actually has slipstreamed in behind the combination products but that one, remember, is already filed so just worth mentioning that.

If I think about now some of the Phase IIIs, I just want to pull out one or two of the ones which I'm still very interested and excited about.

I've obviously seen more information about Lp-PLA2 and Darapladib than you have; you will see this at conference in March.

We indicated that we've seen some encouraging signals in there.

I believe that the Lp-PLA2 program is a program where we've identified a whole series of very potentially interesting opportunities.

So I believe that, that is an area which you are going to hear a lot more about.

I remain of the view that we still have three of the four opportunities to win in the MAGE-3 program.

We will see that as we go through the next year or so, so I just would mention those two.

The triple combination in respiratory, really a fantastic chance for us to develop a product to bring together the three different modes of action.

The long-acting integrase inhibitor in HIV, 744, I think is a very -- really a potentially revolutionary product there.

p38, losmapimod in acute coronary syndrome, obviously, potentially very interesting if indeed we can progress with Darapladib, so to start to build up a cardiovascular business for us, as we have a very nice profile there.

If I look at Retosiban, very unusual, very, very interesting product for pre-term labor, now moving forward towards Phase III.

We've already mentioned the other antigen-specific cancer immunotherapeutics PRAME and WIT-1, so there's whole bunch of things there.

I've literally only pulled out four or five of the 10 that are about to start.

I haven't really gone into at all, the 40 other new molecular entities.

I'm take one opportunity to say something here.

When I talk about programs in R&D, I'm talking about unique molecules.

I'm not talking about line extensions; I'm not talking about indication extensions.

So 10 potential Phase III starts means 10 unique new molecules and/or a creation of a new product in the shape of a triple.

And 40 NMEs in Phase II/III means 40 discreetly different molecules rather than one molecule appearing 14 times in the list.

So take what you will from that comment.

But I just want to make sure you understand how we define these numbers.

Next question.

Keyur Parekh, Goldman Sachs.

I have three questions, if I may, please.

First, Andrew, talking just to -- it would be keen to hear your thoughts around on how you think the China situation gets resolved and when we should expect additional clarity on that end?

Secondly, I believe you had previously suggested that in the near term, your margin progression is likely to be much more muted, and yet what we're seeing is 2% top line growth, delivering kind of a 4% to 8% bottom line.

If I put those two things together, should we expect incremental margin expansion post-2014 or do you still see a few tens of basis points as the baseline for 2015 and 2016?

And then lastly, just perhaps a little clarification.

My understanding was that the launch for BREO in the US was delayed for several months to prepare the market and to make sure that when patients went in with the prescriptions, that those weren't rejected.

If you're suggesting that 70% of prescriptions are not being filled, can you just help us understand how that gets resolved and what are the steps you need to do incrementally on that end?

Thank you.

Okay, let me ask Simon, first of all, to comment on the margin.

Thanks, Andrew.

I think as we covered on an earlier question, looking at 2014, specifically, we're expecting the significant part of leverage to be delivered through the bottom half of the P&L.

There will be the opportunity for some contribution from the top half, depending on how the new products begin to contribute during the year.

But as I've said a few times now, what we're really looking for, as we target to improve our operating leverage going forward over the next several years, is for meaningful contributions from the pipeline to help drive that forward and offset the drag we have from the growth in our lower-margin businesses like consumer and emerging markets.

That is going to be a steady progress.

It's going to move the margin forward progressively; we're not going to see big step changes and that mix shift is what's really going to achieve that.

So that's sort of the trajectory that you should expect over the next several years.

But I think the guidance we've given for 2014 is really more about the bottom half of the P&L, and maybe a little bit from the top.

Thanks, Simon.

As far as China's concerned, the timing of how this all gets resolved is really going to be determined by the Chinese authorities.

Not much more I can add to that.

I would just make the point that, A, we're seeing a stabilization in the fourth quarter of the sales performance of the business.

And B, actually if you look back over 2013, our China business was down GBP125 million year on year, obviously that's against the backdrop of the GBP26.5 billion total turnover of the Company.

Obviously, we're not happy about what's the situation in China, what happened last year, but I just want to make that, just overall point around context.

As far as the coverage build for BREO, as I've said already on this call, it's really a question of getting the contracts negotiated, when the contracts come up for negotiation.

Now, unfortunately, for BREO, one or two of the higher-profile decision makers for their own reasons made decisions, either before BREO was even launched or we'd even had a chance to talk to them, or really right at the very, very beginning of that conversation.

Now, not much I can do about that except just I suspect, given what was going on with lots of other companies at the same time, had nothing to do with us.

It had everything to do with what those companies' strategies may have been with regard to the marketplace.

And therefore, the build of the Part D coverage, which is really the key part, is really a function of when these contracts come up for renegotiation.

As I've said already, we've made very substantial progress in the last three weeks.

We can see a lot of opportunity in the next couple of months and so I think we're on the right trajectory to open up this part of the coverage platform.

We already know, as I've said at length today, we're generating substantial interest and prescribing and I think, actually, welcome to the new world.

I think this is what you're going to see more and more in the primary care marketplace.

There haven't been all that many big primary care launches; a lot of what's going on in the US is specialty care, a lot of that has very different coverage dynamics.

I think you're going to see this as the new normal in the US.

Thanks very much.

Next question.

Kerry Holford, Credit Suisse.

Hi, yes, Kerry Holford, Credit Suisse.

Sorry to get back to BREO, Andrew, but just on that, I'm just really keen to understand why you are not able to secure better forming coverage from the beginning of this year, given it was approved back in May last year.

With over six months window to get more of those Medicare Part D formularies signed up, I'm just very surprised it was only 2% at the start of the year.

What's more important is whether this then has a read across to ANORO, whether we should expect a similar delay for ANORO's Medicare Part D access to build?

And are we looking at another six months before that product really gets going?

Then also on respiratory, I wonder if you can talk a little bit more about your marketing strategy?

So as you're launching ANORO in the next few weeks, what proportion of your sales force will be having BREO versus ANORO or indeed ADVAIR as their number one detail?

And then just a quick follow-up on the net working capital.

We talked already about the inflow in 2012 and 2013.

Just be more explicit here, can we expect -- should we expect cash in, in 2014 and 2015?

Or when do you start to [really] start reinvesting in the business and when does that line item reverse?

Thank you.

Simon, do you want to comment on that?

I think for 2014, specifically, you should probably expect a pretty neutral position.

We are obviously having to invest behind some of the launches but taking working capital out of some of the more material bits of the portfolio, net-net, so that's broadly where you should be.

I think going forward, as we continue to drive the days down, what we're looking for is to minimize the cash outflows as we invest behind a growing business, and improve our overall efficiency.

Calling that at this stage is probably a little early, but steady progress is what I'm targeting.

As far as BREO and ANORO timings, what you tend to see is quite a lot of contracts being done the early part of the year, so hopefully, ANORO will come in at a better time of the year than we saw for BREO.

But secondly, you've got to remember nowadays under the new PDUFA regulations, you have a post-approval, you have a basically a two month or so -- minimum two months, in terms of going through the various promotional sign-offs and all of that with the FDA, which you really need to get done before you start engaging and describing the benefits of the product to the customers.

So again, a lot's changed in the US in the last several years; this is no longer 2006, 2007; a very different set of dynamics at play.

Very, very different attitude of payers and a very, very, in some cases, different positioning of competitors.

And I think -- my expectation is that ANORO will build coverage more quickly, but I don't think it will necessarily build coverage as quickly as you might have expected four or five years ago from launches back in those days.

I'm not going to describe to you at all our commercial strategy for ANORO and BREO for obvious reasons.

Next question.

Mark Clark, Deutsche Bank.

Yes, good afternoon.

Just wondered if you could talk us through some of the dynamics that are included in your 2% sales guidance on vaccines and emerging markets outside of China?

So for vaccines, you've had a lot of moving parts in Japan and benefited from Sanofi's production problems.

Sanofi claims they're in the process of returning their pediatric product to full production by sometime in the first quarter.

So I wonder if you could sort of tell us whether you're expecting a material pick-up on the 2% growth in vaccines in 2014 relative to 2013?

Secondly, in emerging markets, even if we strip out China, I think the figure was 5%, which is below sort of historic levels, where have the shortfalls come relative to sort of prior years?

What are your sort of general expectations for 2014 in some of the bigger areas like LATAM and Russia, et cetera?

Thank you.

So just Mark, on your vaccines question, I think we're not expecting a significantly different outcome.

The mix will be different and clearly, as you point out, we are likely to see some drag in the US business, although we shouldn't lose sight of the success of the quadrivalent flu launch that we initiated in 2013 that we would certainly expect to see making a material contribution.

Japan's the other way around where we'll see some of the drags in 2013 wash out.

So I think low single digits is probably the right sort of territory to think about.

And in emerging markets, in addition to China, the drags really came out of India, where as you might recall, there were some quite significant price cuts in, I think April, May of the year.

And then following on from that, a number of big companies suffered a wholesaler boycott.

Wholesalers wanted to be recompensed for the price cuts; and GSK, being one of the biggest in the marketplace, took some of the brunt of that; certainly not the only one, but some of it.

That actually knocked off quite a bit of the growth.

Actually if you look at our Russian business, our Latina business, very strong growth during 2013.

And so as we look forward, I'd expect to see the emerging markets pick up this year as we roll through the whole year.

But also worth saying, I would, just like last year, expect to see some volatility quarter to quarter.

Because we will see, I think, whether it's vaccine tenders in the previous year or in this year, you'll see some of the effects of things like the wholesaler boycott drop in and out of the comparators.

I would guide you to expect some volatility in quarter-to-quarter growth rates and not to get too hung up if one quarter's a bit down and then I wouldn't get too carried away if one quarter's a bit up.

Because we just are bound to see some of that during the year, I think.

Next question.

Jeff Holford, Jefferies.

Please go ahead.

Thanks for taking my questions.

Just quickly around ADVAIR pricing in the US.

It looks like you have taken some positive price on ADVAIR since the launch availability of BREO in the US.

Should we expect a pricing gap to widen between these two products as part of a switching strategy through this year and next year at all?

And then just also, I know it's a bit of an awkward question, but just as you weigh options around Theravance, just as you did very cautiously around human genome sciences, can you maybe just talk about some of the pluses or minuses that you think about when considering potentially buying in your interest from this company?

Thank you.

Thanks, Jeff.

As a general rule, and I kind of implicitly made reference to that in various things I've said today, either in the letter or in the opening comments today.

We are generally, not exclusively, but generally, we are bringing new products to the marketplace at or even a bit below the price of the kind of embedded products.

You saw that particularly with the MEK inhibitor, the BRAF inhibitor, BREO has come in, in a very competitively priced position.

We think that's the right thing -- we think that's absolutely the right place to be.

Now you could argue in the short run, we could command higher prices.

We think actually the US marketplace, but all marketplaces around the world are increasingly price sensitive.

You should expect to see price be used more by GSK more than perhaps we've seen in this marketplace historically.

The -- as far as Theravance is concerned, we have a great partnership with Theravance.

We've obviously developed together a very substantial number of products.

I would just remind you, and I think a lot of people often forget this, we already own 26% -- 27% of Theravance, and so essentially we own almost a third of the economic interest that flows to them.

Now we book it in a different part of the P&L in the balance sheet, but nonetheless, it's there.

I would -- I think a lot of times, people just think about GSK has a payaway to Theravance.

Yes, we do; but we then own close to a third of that economic share.

So I would just make that point.

Beyond that, we have a very healthy relationship with Theravance and it's been a successful partnership thus far.

Next question.

Danny [Sollof] from Barclays.

Please go ahead, Danny.

Yes, two questions, if I may.

One in particular as it relates to albiglutide.

You hinted at a cardio metabolic franchise in the description, but just trying to understand how you plan to promote that product.

You've previously indicated you've been looking at alternative strategies, other than marketing it yourself, perhaps.

And then just secondly, for Simon, in relation to SG&A, we saw so-called one-off value opportunities in 2013.

I wonder whether there was any assumption of a repeat of that within your 2014 guidance?

Thanks for the question.

As far as albiglutide is concerned, we've spent a lot of time looking at the various options.

We've decided -- we feel like we've got a very compelling positioning strategy for the brand.

And we've decided -- although we will expand some of our resource to support it, we've decided to -- we think we can commercialize it on our own, partly because of the positioning that we feel good about, partly also because of the opportunity for it to be the first of a number of products in the cardiovascular metabolic franchise.

So whereas we may have -- when we looked at this a year or two ago, or 18 months ago, I suppose, it was -- we were looking at it very much as a standalone product.

I think we no longer look at it as a standalone product.

We look at it more as the first in what could be an emerging therapeutic area for us and therefore, made more sense to do that in an unencumbered way, albeit we will have to build some extra resource probably through our contract partner, at least initially.

Simon?

On the structural benefits, just a quick point.

They don't all fall in SG&A.

They did largely in 2013 but they do contribute to cost of goods and R&D in all parts of the business, where our headcount sits is how those benefits fall out.

I think for 2014, as we flagged before, we continue to look for these sorts of opportunities.

And we have a couple that we're working on, one which could potentially build in around GBP200 million of upfront benefits.

And we have factored that into our guidance and that is planned for the fourth quarter of 2014.

Thanks very much, Simon.

I think we have time just for one last question, please.

Steve Scala, Cowen.

I have a couple questions.

Are there relevant ADVAIR patents in the US beyond the 2016 patent so that when a generic files, Glaxo may sue and be reasonably confident in up to an additional 30 months of exclusivity, similar to what we're seeing unfolding with [Lantus]?

Of course, if the generic filings were a ways off, that exclusivity could exist well beyond 2016.

Secondly, what has FDA said about your rebuttal to the draft guidelines?

And then thirdly, this is a bit of a follow-up, but in comparison to BREO and all things considered including and beyond contracting, would you help us create an expectation for ANORO, say, over the next one to two years.

Would you accept -- expect a similar level of success, significantly greater success given the unmet need, or significantly less success given the novel concept?

Thank you.

Steve, I'm going to be disappointing for you and not give you any help at all on the first question, probably for obvious reasons.

On the second question, first of all, I think it's way -- I know everybody thinks they can determine product launch success in the first six weeks.

I think in today's world, that's potentially not the case.

We'll see; I may be proven wrong.

So I don't think we really see what the success of BREO is.

Certainly from the reaction of the customers which is, for me, the leading indicator, it feels very encouraging.

Having said that, I think ANORO as a first-in-class, when we know that bronchodilator benefit is so important to patients, I think -- I've always believed, I think if you talk to people inside of the Company, you'll hear that I've always believed that ANORO is -- it's new, it's different, it speaks very directly to the, one of the primary needs of the patient population.

I've always had very substantial hopes and expectations for that program.

I would, though, say and I'm -- I make no apologies for saying something I was saying in 2008.

And I remember Graham Parry asking me this question at our year-end results in 2008 or 2009.

I'm going to reiterate what I said then.

Our strategy has never, repeat never, been to replace ADVAIR one for one.

Our strategy has been to succeed ADVAIR with a portfolio of respiratory products.

And I've described today we now have two already approved.

We have a total of potentially nine, so seven more in the wings.

Of those seven, the six which are respiratory, most of the molecules are now already approved in one form or another and the device they're coming in is already approved.

So the risk discharge on the inhaled portion of the next wave of respiratory products is significantly reduced.

That portfolio is what will build the continued leadership of GSK in respiratory.

We have never had a goal and a dependency to create one product to replace ADVAIR.

You're much better at the math than me.

If you have nine products, what each of them has to do to, in fact, cumulatively be remarkably successful, you can see immediately why this strategy has great appeal to me; it diversifies our risk profile.

It gives us many opportunities.

Now, imagine if, within that, two or three or four of them turn out to be substantial products; that's why we're so excited about the respiratory business.

So I think time will show that the BREO proposition is appealing and as we build coverage, we will demonstrate that through performance.

ANORO is the first of the truly new types of products and hopefully as we go through the next two or three years, you'll see those two supplemented by up to seven more.

It's that portfolio, in addition to the continued VENTOLIN performance, which is still selling hundreds of millions of dollars almost 50 years after it was launched, plus FLOVENT, plus ADVAIR.

That's going to be the respiratory business of the Company going forward and that's why we're confident about it.

With that, thank you very much for your attention today.

Very much appreciated.

I know some of you will have more questions.

Please feel free to call into the IR team here at GSK, and thank you very much for your attention.

Thank you.

Ladies and gentlemen, that concludes your call for today.

Thank you for joining.

You may now disconnect.