葛蘭素史克 (GSK) 2014 Q3 法說會逐字稿

Good afternoon, ladies and gentlemen, and welcome to GSK's Q3's investor analyst call.

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

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

Thank you very much.

Thank you for joining us for this afternoon's call.

I'm here with Simon Dingemans, who will pick up on the detail of the quarter in just a few minutes.

Let me make a few introductory comments.

You'll have see from the quarter release that in the third quarter turnover was down 3%, earnings per share up 5%, bringing year-to-date earnings per share to minus 2% at constant exchange rates.

Clearly, the quarter helped by target expense reductions.

We are on track for full-year EPS to be broadly similar to last year at CER excluding divestments.

During the quarter, strong emerging markets, Japan and ViiV, HIV growth offset to some degree by the continued trend in the US.

Turning to the US, the trend we are seeing driven by the impact on price in Advair and access limitations becoming more common and delaying product uptake in primary care.

Pricing, the pricing effect has been a bit greater than we expected earlier in the year driven by market changes and competitive dynamics.

It does feel like a new reality in US primary care, and as we look across other product launches in other categories, Breo and Anoro launches benchmark well, but all launches appear to be, in primary care, much slower.

Obviously, this has had an impact for us in 2014, but we've adjusted quickly to the situation, both in terms of how we are contracting and also in management of our SG&A line.

We know have very good visibility for 2015 as we have signed the majority of contracts and one substantial access for Advair, Breo and Anoro, with the substantial majority of top plans already secured.

In some cases, with exclusive positions for some of our products, i.e.

we're the beneficiary of class lockout contracts where at June 2014 we'd been the victim of class lockout contracts.

During 2015 we'd expect to see the price effect flow through from 2014.

We expect a continued decline of Advair as a result, but we also expect an acceleration of Breo and Anoro as access increases and heavy free trial offers begin to come to an end.

We also expect to see Advair volumes increase as the product regains coverage on key formularies.

Globally, we expect total respiratory to return to growth in 2016 and remain confident in our long-term market leadership ambition.

The Novartis transaction is the other major event of 2014 and is on track for completion in the first half of next year.

I remind you that the deal will realize $16 billion proceeds as we sell the oncology business.

I remind you also that seven years ago we essentially had almost zero sales in oncology, the whole business built from the pipeline that we've delivered during that period.

The $16 billion will fund the GBP 4 billion B-share scheme during 2015 for our shareholders.

The deal also fundamentally reshapes the Company, as immediately the largest sales base will be around 40% exposed to high annuity businesses of vaccine and consumer and will benefit from the higher term of growth rates you'd expect from those two businesses.

It provides new opportunities for sustainable sales and earnings flows.

The deal will ensure market leadership and true global scale for both vaccine and consumer and will allow us, for the first time, to appropriately report on these businesses alongside the RX business.

We are taking this moment to change Executive Management structure of the Group to ensure focus in senior leadership of the three commercial businesses going forward.

With Moncef Slaoui moving to take overall leadership of our vaccine business, obviously a highly accomplished vaccine expert, and will work with our current management team there to integrate the Novartis business, a highly complex piece of work and the right person to lead it.

Abbas Hussain, whose been running our international pharmaceutical business will now take up a new role as Head of Global Pharmaceuticals and will take the US into his portfolio, working with Deirdre.

Emma Walmsley, who joined us a few years ago from L'Oreal, will lead the consumer health care joint venture.

As result of Moncef's focus, Patrick Vallance will become head of pharma R&D.

These changes put some of the industries most experienced leaders in our enterprise leadership positions and will be responsible for implementing the transaction in vaccine and consumer and delivering the portfolio transformation in pharma.

Turning to pharma specifically, after the unprecedented number of new drugs and vaccines approved over the last few years, we have three points of focus and opportunity going forward.

Firstly, the continued rollout and launch of the respiratory, HIV, diabetes and until the close of the transaction, oncology new medicine.

In fact, in 2015 alone, we expect around 250 discrete pipeline product launches around the world, so each camp being one new pipeline product in one new market.

Second, we intend to bring forward the next wave of products with around 40 new molecular entities in late development and a very exciting portfolio now emerging from our DPUs, with mostly first-in-class potential therapies in areas such as cancer, heart failure, respiratory, inflammatory and autoimmune disease.

Third, to focus and scale our RX operations for the changing price in dynamics we see and for the movement of oncology to Novartis and to ensure that research and development has the right level of flexible resource to further deliver the next waves of innovation.

We are announcing today, therefore, a new restructuring program in addition to the announced Novartis related program, which will reshape our pharma business and release GBP1 billion of annual cost savings and ensure we have moved resources to our current and next waves of new products.

In line with my long-term belief in passing value into the hands of shareholders, we have over the last six years repeatedly identified and created opportunities to build and crystallize value.

Through dividends, special dividends, share buybacks or the plan B scheme, we have sought to return this value to our shareholders and are focused on organic drivers of growth rather than engage in high premium acquisition.

Since I became CEO, we have returned GBP33 billion to shareholders through dividends and share buybacks.

Clearly, our ongoing, established product portfolio process, which we aim to bring to conclusion around the turn of the year, and the oncology value creation are clear and current examples of this approach.

Five years ago, I created a JV in our HIV therapy area at a time when GSK was suffering substantial competitive and generic pressure and risk.

ViiV has been extraordinary success story and is now establishing itself as an innovative and fast-growing specialty business.

Our new dolutegravir of base medicines have also ready sold over GBP170 million this year.

With significant further pipeline opportunities already advancing, we have a very high belief in ViiV's prospect.

In line with our commitment to identifying ways to realize shareholder value, we have announced today that we are beginning the process to explore a possible IPO of a minority stake in this business.

On dividend, for the quarter we have maintain a dividend of 19p, and we expect full-year 2014 the dividend to grow 3% to 80p.

We've also provided guidance today for shareholders that for 2015 we expect to maintain the dividend at the same level as 2014.

This will provide us with flexibility as we restructure and integrate the Novartis businesses next year.

Despite the challenges that the US respiratory market has brought during 2014, the Novartis transaction, the reshape of the pharma business, and the substantial R&D progress mark major steps forward in our long-term strategy.

The potential to IPO our minority stake in ViiV further signal, alongside our oncology transaction, a patient but enduring commitment to explore avenues to create shareholder value while delivering our global mission to improve lives around the world.

To the point our mission, I would be remiss not to acknowledge the many GSK employees who are working tirelessly on our candidate Ebola vaccine.

Given the apparently health emergency, we are leaving no stone unturned in this project.

If all goes well, I fully expect GSK to be the first company in a position to make a vaccine available to health agencies and government, hopefully toward the end of 2014.

This in the same year that GSK filed for approval for the world's first vaccine against malaria.

With that, I close my comments and ask Simon to give you a more detailed review of the quarter.

Thanks, Andrew.

The Group's performance in the quarter reflected many of the same factors we saw at the half year, and in particular the transition of our respiratory portfolio continued to impact respiratory revenues, down 8% overall in the quarter.

Driven primarily by the continuing shift in contracting terms for Advair in the US.

Significant further price reductions have been required to renew or regain a number of key contracts for Advair.

While most of these contracts do not deliver improved access until the beginning of 2015, they've generally started to impact price immediately, driving the increased pricing pressure we've seen in the quarter.

[The quarter] also saw continued competition for Lovaza and the ongoing impact of supply on our consumer business despite the significant progress we've made in remediating these issues.

On the positive side, we also saw in the quarter more of the strong progress in many other parts of the business that we saw earlier in the year, reinforcing the broad base of growth drivers with building across the Group.

In particular, emerging markets, Japan, ViiV all reported significant growth in Q3.

New products are also contributing and we continue to invest behind our multiple new launches as we extend their approval and access globally.

Even though it still early days for many of these, sales from new products year to date were over GBP900 million.

In ViiV, Tivicay's launch has been exceptional.

Now, Triumeq, approved in August, is already off to a good start.

In oncology, Mekinist and Tafinlar are also performing very strongly.

In respiratory, Breo and Anoro are both, clearly, on a slower trajectory, but coverage and access is steadily improving with Breo Part D coverage now over 70%.

And Anoro also building, with Part D coverage expected to be over 50% through October.

Transitioning the respiratory business and growing our other new products to critical mass will take time.

The additional flexibility we built into our cost base in recent years means we can respond much more effectively and quickly to extract cost savings that can help in mitigating the pressure from lower sales in the US in the short term while also protecting our investments behind the new launches.

Demonstrating this, SG&A in the quarter was down 6%, which along with ongoing financial efficiencies contributed to EPS up 5% on a 3% decline in revenue.

Given the new pricing dynamic we're experiencing, particularly in the US, we've announced today a new initiative that will further strengthen the flexibility and profitability of our pharmaceutical business predominantly through a restructuring of commercial operations, R&D and support functions.

The restructuring will also scale the pharma business to an appropriate size post the transaction with Novartis.

We expect to deliver savings from this new program of approximately GBP1 billion pretax annually by 2017 with around half delivered in 2016.

Initial savings from this new restructuring in 2015 will be relatively smaller but will help us offset some of the earnings impact of declining sales of Advair as our respiratory business continues its portfolio shift.

To be clear, these savings will be incremental to the GBP1 billion of annual cost savings we are delivering from the Major Change programme that we announced in February 2013.

We're well on track here, and consistent with our earlier OE program, we're ahead of our plans on delivery of benefits.

The new savings are also on top of and separate to the GBP1 billion of annual cost synergies we expect to realize from the proposed Novartis transaction.

We are making excellent progress towards completing that transaction and we still expect to close it in the first half of 2015.

Turning to the quarter in a bit more detail, as usual my comments are on a CER and ex divestment basis.

In the US, pharma and vaccines were down 10% in the quarter.

This particularly reflects the 25% reduction in Advair sales.

Total Advair volume was down 10% with price down 15%, reflecting the new contracting conditions I mentioned earlier.

Price pressure was a bit harder than we had expected, but it has helped us secure a number of important contract wins for 2015, not only for Advair but also for our new products.

You should expect a similar dynamic in Q4, but remember also that Q4 last year saw quite strong inventory build in respiratory.

Despite the improvements of formulary for Advair for next year, you should still expect to have their revenues in US to continue to decline in line with recent trends as the full-year effect of contracts and pricing agreed during 2014 rolls through into 2015.

But also as we continue the shift to our new portfolio that we expect will allow us to grow total global respiratory sales again in 2016.

Elsewhere in the US, oncology sales continue to contribute very strongly, up 44% in the quarter.

Good growth across that portfolio, but particular contributions from Votrient and the recently launched Tafinlar and Mekinist products.

Benlysta also continued to contribute with reported growth of 10%, but 19% on an underlying basis.

Vaccines were down 3% in the quarter, reflecting the impact of a broader return to the market of vaccines that compete with our pediatric vaccines, and Boostrix and hepatitis sales also saw some supply constraints.

As we mentioned last quarter, flu supplies have been delayed somewhat and we are expecting a greater proportion of deliveries in Q4 than usual.

In Europe, pharma and vaccine sales down 2%, growth from oncology and Avodart in particular helped mitigate lower respiratory sales.

Seretide was down 5% mainly on price, with volumes relatively steady, reflecting the continuing benefit of our recent refocusing of the European business.

We are also making encouraging progress in obtaining access in a number of key markets in Europe for our new products while the pricing remains challenging.

Nonetheless, we are now much better placed to manage the transition to our portfolio over the next few years in Europe as competition to Seretide increases.

In emerging markets, [takela] sales in pharma and vaccines grew 12% with strong growth in virtually every therapy area boosted by the improved growth in the China business as the impact of the government investigation annualized.

Vaccines grew 13% with a number of products benefiting from the phasing of tenders, particularly Synflorix and Boostrix.

For the fourth quarter, vaccine sales have a tough comparator and phasing of tenders has also been somewhat earlier in the year during 2014 than previous years.

Both factors will impact vaccines in emerging market sales in the fourth quarter.

In Japan, despite some softening of the market, sales were up 6%, helped by restocking of Avodart and the strong performance in vaccines.

Respiratory sales growth mainly reflected seasonal products.

All together, Adoair and Relvar sales were broadly flat, with Relvar sales still limited by the two-week Ryotan limitation for new products until the end of November.

ViiV grew 18% to GBP373 million in Q3 on the back of the very successful launch of Tivicay, but also continuing strong sales of Epzicom, which benefited from combination sales ahead of Triumeq, which is in launch during the quarter in Europe and the US.

Tivicay sales were GBP78 million in the quarter.

Turning to consumer, the business was down 3% in Q3 as sales continued to be impacted by supply disruptions.

We're making progress with the remediation of those issues and even though we do not expect the business to be back in full supply before the end of this year, we continue to expect consumer to be broadly flat at the top line for 2014 as a whole.

On operating costs excluding currency, the operating margin improved 0.6 percentage points, in particular SG&A costs were down 6% on a very targeted response to the top-line performance.

In the quarter, we also had an expected credit of just over GBP200 million from simplifying our entity structure and trading arrangements.

Remember, this broadly matches the structural benefit to SG&A we reported in Q3 last year, so is not a factor in the year-on-year decline.

R&D was down 1% despite the headwind of around GBP50 million of structural benefits included in R&D in Q3 last year and the reduction really reflecting the completion of a number of trials and ongoing cost management.

Cost of goods remains under some upward pressure given the pricing environment and the launch investments, but we continue to target savings here to mitigate that trend.

The Major Change programme under way is already contributing significantly to reduced manufacturing costs.

On the financial side, we delivered further efficiencies in the bottom half of the P&L, with interest down from GBP178 million last year to GBP161 million in Q3 2014, reflecting the improved funding position.

Our effective tax rate was also down 3.5 percentage points from Q3 last year to this quarter, delivering a 21.2% overall year to date.

We now expect the full-year core tax rate will be somewhat less than the 22% we originally indicated.

The ultimate rate will depend on the final mix of trading for the fourth quarter.

Net cash flow from operations in the third quarter was GBP1.6 billion, excluding legal payments down GBP300 million from last year.

Cash flows continue to be significantly impacted by FX with approximately GBP100 million of the decline due to negative currency and divestment impact, the balance mainly do to the operating performance.

Working capital has also taken cash investments, particularly inventory.

Inventory days are likely to remain higher this year than last as we put inventory behind new launches and ensure the full recovery of consumer supply.

Net debt at the end of the quarter was GBP14.8 billion, GBP300 million lower than a year ago, but GBP2.2 billion higher than year-end 2013, with the increase due to a number of factors including the GBP0.6 billion spent on increasing our shareholders in our Indian pharmaceutical company, the fine paid to China and the small amount of share buybacks we completed earlier in the year.

The balance is mainly due to reduced cash from operations and the impact of divestments and a significant negative headwind from currency over the nine months of around GBP560 million.

Given the significant currency swings we are dealing with, it's important that we protect the dividend, which we continue to prioritize as central to our strategy of delivering returns to shareholders.

As Andrew said, as a result we've decided to maintain the dividend for the next two quarters to target a total dividend for this year of 80p, an increase of 3% over last year.

We've also announced today that we intend to hold the 2015 dividend at the same 80p level to improve our financial flexibility in the support for the dividend while we go through the Novartis integration, which will also deliver a return of GBP4 billion to shareholders after closing, which, as I said before, is expected sometime in the first half of 2015.

Looking ahead, finally, to full year.

Consistent with the guidance we gave it the half year, we continue to expect full-year core EPS to be broadly similar to 2013 on a CER basis ex divestments.

With that, I'll turn it back to Andrew.

Thanks, Simon.

Perhaps the operator can now open the call for questions.

Thank you.

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

(Operator Instructions)

First question is from the line of Graham Parry, Bank of America Merrill Lynch.

Your line is open.

Thank you for taking the questions.

Start of with one on margins, and obviously an impressive looking margin in the quarter with a much lower SG&A than the Street was looking for.

Could you talk the sustainability of that level of margin, and particularly how much of that was coming from FX versus savings?

Related question, looking into 2015, if you can just talk through what you see the moving margin parts into next year and the outlook for margins into the year into 2015?

Secondly, do you have any line of sight on structural benefits into next year versus the GBP200 million that you put through this year?

Then, on the ViiV IPO, could you give any sense of timing and how much a minority stake would be?

Do you need any consent from Pfizer and Shionogi?

Finally, on Anoro, again numbers looking quite low here.

Could you just give us a sense, again, of how much of your prescriptions are getting rejected at the pharmacy level and also the level of free sampling that's happening in the market here?

So, aside from the GBP1 million that you reported, how much do think it would be underlying if we stripped out wholesaler effects and promotional effects?

Thank you.

Graham, I'll touch on the ViiV and the Anoro question and then Simon will pick up the three or four margin questions that you covered.

As far as ViiV is concerned, we haven't -- we are not publicly declaring what we think the quantum of the flow could be.

Obviously, we made it clear it's a minority.

As you know, we own almost 80% of the business, so we have a reasonably large amount of room for maneuver, which would leave a substantial quantum still under GSK.

We'll work on that over the next -- I would think this process is a year.

I would have thought.

I'd be surprised -- I think for your modeling perspective, I would assume to keep ViiV as is within GSK for 2015.

I think is more likely a 2016 and subject to market conditions.

It's more likely a 2016 event than a 2015 event because of all the work that needs to happen.

We'll, obviously, work with our partners on this.

They may or may not choose to participate in that; we will see.

As far as Anoro is concerned, so about one-third to 40% of scripts are still being rejected.

Anoro access in Part D has just moved up significantly, so at the end of this week we'll be at 50%.

But up until this week, we'll still be in that, the 30% territory.

Again, we are building the access reasonably quickly by any benchmark, but it's only just coming up to those sorts of levels.

Reasonably, a punchy number is still being rejected or reversed, the first thing to say.

About between one-third and 40% of scripts are being filled with free-trial offers, and I think that's one of the characteristics we seeing in the US.

I saw one of our competitor companies, in a completely different category, are offering 12-month free-trial TV adverts for one of their new products in a different category.

There's no question the free-trial offer is more and more common.

Between one-third and 40% of Anoro scripts are being filled with free trials.

Part of the reason why you see zero sales, because we've made adjustments to our essentially discounted assumption as we see what that trend look like.

Then, just to also give you a little sense, I think during the quarter we delivered 220,000 samples of Anoro, which is obviously a very substantial quantum.

We see shares looking very encouraging.

If we look at new-to-brand prescription share, which in our view is the best leading indicator, we are in double-digit territory of pulmonologists, which again, you'd expect to be the first adopters.

We are starting to see good pick up in terms of shares.

You would expect to see that translate here into NRXs and ultimately TRXs as you go into 2015.

Obviously, as we get more access and more coverage, which particularly looks very positive from January onwards, then you'd expect to see the free-trial offer start to drop off.

I think the underlying pick up looks okay.

It's not as fast as we would have liked, but when we bench marked Anoro and Breo -- Breo we've got more data, so let me talk about Breo.

When we bench marked Breo to other primary care dominant launches from the last two years, it actually looks very good compared to other primary care launches.

We are seeing the whole primary care marketplace slower, slower access, slower takeoff initially, but certainly the leading shares for both Breo and Anoro look quite encouraging.

I'll pass over to Simon on the margin question.

Thanks, Graham.

On the margin, currency was clearly a factor in the quarterly performance.

Of the 1.6 percentage point increase in margin, around 1% around that is due to currency.

Clearly, we'll have to see how that plays out in the fourth quarter, but it benefited all three of the major cost lines.

I think in terms of the underlying performance, as I commented earlier, SG&A, we have very deliberately targeted in the quarter.

You would expect some of those programs to continue to roll into Q4 and are really the precursors of some of the beginnings of the benefits of the restructuring program we've announced today that we will flow into 2015 and beyond.

As to the margin position in 2015, I think until we get to close the Novartis transaction and we have a full view of the combined Group, I think it's a bit early to give guidance.

Specifically in that territory, other than to comment again that you should expect a significant recess of the margin as we change the mix of the Group so substantially on the closing of that transaction.

On structural benefits, we continue to look for similar opportunities.

We haven't identified any particularly that I would call out for 2015 or beyond, but we do keep searching for value opportunities like that.

Thank you and next question.

Next question is from the line of Alexandra Hauber, from UBS.

Good afternoon, thank you.

Firstly, when you guiding to 2016 return to growth for the respiratory franchise, now that, of course, depends on your 2015 decline.

So, I was wondering whether you can comment on what you see 2016 respiratory relative 2014?

Is it up or down or roughly flat, or is just still too early to say because you don't know yourself how the trough is next year?

Secondly, just coming back to SG&A this quarter and your cost-cutting program, can you, Simon, maybe tells a little bit more how on the one side you of such a flexible cost structure you can switch on and switch off costs quite flexibly and on the other side needing be to spend GBP1.5 billion for further, in cash, to get the extra savings?

Basically, essentially I'm trying to look where the flexibly this quarter was particularly coming from?

Third question, the changes on the management, can we therefore assume that the new core is going to report according to a divisional structure?

If so, whether what you showing currently as unallocated costs will be the corporate costs?

Also, whether the materials which you will distribute ahead of the ETM will give us the first indication of the divisional structure?

Thank you.

Thanks, Alexandra.

Simon will pick up on the divisional points.

As far as respiratory in 2016, we expect to be back to growth.

Obviously, exactly how 2015 plays out, is going to be the put and take of how quickly we can recover volume.

I'll give you an idea.

So far we've won 7 of the top 10 contracts in the US.

Some of those we've got class lockouts in place.

That should help us drive volume, but exactly what the pace of that vis-a-vis the price is of course not completely clear.

As a general point, we feel very confident as we move through 2015 into 2016, 2017 you're balance of what's driving the growth in the business becomes much more important and that's why we've made the point we made.

As far as SG&A is concerned, I think in the short run we clearly have a lot of discretionary spend decisions around non-people driven cost in the business.

We can flex those in different parts of the organization.

Obviously, as soon as we started the see, in the middle of the year, late Q2, when we started to see things -- the price impact being greater than we anticipated, that gave us a chance to start to manage that.

When you look forward and you say, okay, now we need to adjust our cost base on a, let's call it, a more permanent basis to a newer reality in terms of price from the US, then you want to look at more structural things.

That requires financing to release those opportunities, some markets more than others, of course.

We also want to take the opportunity not just to shrink the cost base but to make sure we are taking the cost from parts of the organization where we believe we can at the same time create greater focus on where there is opportunity for growth and greater opportunity to simplify and take complexity out of the business.

Again, unraveling all that is often times somewhat more expensive.

In the short run, yes, we've got a reasonable degree of cost flexibility, which we've taken advantage of.

But because we want to make sure we have a cost base which is in the long run, over next year, the year after, and the year after that, appropriate for where we think the price points have come to, then we need to do things a bit more significant.

Simon?

On the costs of the restructuring, the costs that we've indicated today are very much in line with the costs of previous restructurings on a costs-to-benefit ratio.

There will be some element of the costs, we've indicated they're probably non cash.

Exactly how much, we still have to work through in terms of the detail and the implementation.

I think the ratio is pretty consistent.

Going forward, when we close the transaction, which I think is really the right point to make a shift, we will begin to report much more distinctly vaccines, pharma and consumer.

So that you can clearly see the different profiles of those businesses, their different characteristics and look at them on a much more end-to-end basis.

We won't do that before we get there and that seems like the right point.

We see, Alexandra, an opportunity, I think, as we now have three -- post Novartis transaction, we'll have three businesses with real scale.

It really gives us a chance to rethink and put pressure on our corporate costs and overhead costs and to really use those three businesses to [expose] and leave only the absolute minimum of non-allocated costs.

Clearly, if a business can't be allocated to cost, what's left should be, at a minimum -- it's much harder to do that when you've got an unbalanced group of businesses.

What we are going to have here is three very, very clear global businesses.

First order of business, beyond making them competitive in the marketplace, will be to use that structure to really shine a very acute spotlight on the costs which currently sit in the middle, if I can call it that.

I would expect that to be quite a story for us over the next two or three years, as we use this shift to really ensure that we've got that level of costs really driven down.

Actually, those costs are often times some of the most tricky to get at, and this transaction is a very, very good opportunity to do it.

Next question.

Next question is from the line of Andrew Baum, from Citigroup.

Thank you.

Three questions, please.

Firstly, Andrew, you've said that, historically, the pipeline is the best since you've been at the Company.

Now obviously, there's been some approvals and some failures since then, but are you happy to make that same comment today?

Second, and following off the first question, should we expect an intensification of assets to bolster your mid-stage pipeline in your remaining core therapeutic areas?

Finally, can you remind us when the corporate integrity agreements in the US expires, and whether you would use that opportunity to review your US field force compensation structure relative to your peers?

Thanks, Andrew.

On the last, the CIA was a five-year CIA.

As of today, the short answer to your question is no.

In terms of pipeline, I do stick to the view that this is the most impressive pipeline we've had.

In terms of, as you say, a few approvals, we've had 11 approvals over the last four years.

The next best company in the world achieved 9. I think since I've taken over we've had 17 approvals, so we've had a substantial amount of product flow.

The majority of our current oncology business has been approved in that timeframe and taken a business, which had almost zero sales or value to one that we've just sold for GBP16 billion, so I think that speaks for itself.

The ViiV assets, particularly dolutegravir assets, are underpinning, clearly, the current growth of that business and lead us to conclude that it's appropriate to think about an IPO for that business, which again is a very direct consequence.

I think it's entirely, as a general comment, entirely consistent with what I laid out back in 2008, which is that we would deliver a wide variety of products, none of which necessarily would individually carry the Company but together as a portfolio would, over time, allow us to move forward the pharma business.

I think we're still absolutely in that position.

In addition to the six major projects we had approved over the last 12 months, all of which were approved on first-cycle review by the FDA and have now been approved in a variety of other countries.

We have another 14 new molecular entities in Phase II and Phase III.

That's a very substantial quantum of product.

As I indicated in the release today, we have then the beginnings, now, of products beginning to emerge from the DPUs.

I think end of 2014 and 2015 is going to be very interesting period as a whole wave of new products start to surface.

If you look within that, you see products in autoimmune disease, inflammatory disease, heart failure, respiratory, cancer and others.

As I look for forward into the next four to five years, it's highly likely that 100% of GSK discovery and development pipeline will be first-in-class products.

I think that's testament to the creativity that we've designed and built into the DPUs.

Just as we are not really tempted to go off and spend high premiums to buy growth in the market, we are increasingly of the view that we don't want to get drawn into that in late-stage development either.

All of the analysis we look at, we think the best place to partner is early, not late.

We feel we have a very full pipeline.

We feel we have a lot of assets in that pipeline.

Of course, with the acquisition of the Novartis consumer and vaccine businesses, that in itself takes some pressure off the pharma business in terms of creating a greater balance inside the Company.

Combination of all of that gives us a high degree of confidence that we are able to see the move to sustainable sales and earnings for the long run.

We will have a business which is not dependent on one drug but on many different medicines and vaccines.

We'll have a business which has a very high exposure to consumer and vaccine opportunities, which have high terminal growth rates.

Therefore, will allow us to tolerate some of the pharma ups and downs that you typically see.

Next question.

Next question is from the line of Tim Anderson, Sanford Bernstein.

Your line is open.

Thank you.

A very high-level question, Andrew.

Can you talk about how you view Glaxo's future over say the next five years?

The consensus here has been pretty bearish on multiple fronts given what's happened in 2014.

I guess what I'm trying to get at here is, what else might change radically going forward, if anything?

You've announced new cost cuts.

You've talked about the partial IPO of ViiV.

That comes on top of the recent deal with Novartis.

I'm wondering if, perhaps, you now view Glaxo as being at a new steady state that looks good and sustainable from here without the need for many additional changes?

Second question is on ViiV, just a quick question.

You reported operating margins of 66%, but I think that excludes certain costs like R&D.

Can you give us what the fully-loaded operating margin would be for ViiV?

Thanks, Tim.

I'll just say a couple of comments on your first general question.

If we went back a-year-and-change, then actually GSK was trading its highest share price since the formation of the Company back in 2001.

What's changed over that interim period is we've seen a reset of pricing in the US on respiratory, and we've seen a little slower launch of the two respiratory products.

Actually, the launch of the other products, the HIV products, the oncology products, the vaccine products have all gone very well with slightly slower launch of the two respiratory products.

That, clearly, has affected the way people think about that Company.

That price reset now is in the system.

The products are launching or launched, not just in the US but around the world.

As I said earlier on the call, what really counts, which is the leading-edged market shares, is starting to look pretty good, actually.

I remain of the view, and so does my organization, that we are going to deliver what we said we would, which is a broad portfolio of new respiratory medicines which are capable, in addition to whatever the legacy business of Advair and Flovent have been, been bigger than it ever was, just as Advair.

The [impendent] file of mepolizumab will simply be another addition to that.

For me, 2014 has been disappointing in terms of the impact of the US pricing, but it's not been strategically -- it hasn't, in my view, changed the strategic future of the Company at all.

First thing to say.

Second thing to say, that as a consequence, the decisions and the moves we've made during this year are absolutely in line with the strategy that I've outlined back in 2008 and I think we've stuck to very, very diligently, a strategy which is not dependent on M&A, not dependent on premium driven M&A.

It's a strategy which is focused on long-term R&D organic performance.

I think all the evidence says that, that is delivering, both in terms of quantum, innovation and ability to far register and launch the product.

That piece of it continues to be a major focus for us.

Secondly, we've always made it clear we wanted to be strong in the consumer vaccine and pharma business.

Novartis transaction creates the opportunity.

Thirdly, I've been very clear and probably maybe different to some other companies.

I've been very clear that we will always be very pragmatic about how we create and return value to shareholders.

Now, I recognize that in the sector that TSR is often measured through share price appreciation and share price appreciation doesn't always reflect dividend payouts and the like.

But if you look at the dividend quantum and the share buyback quantum that's been given to shareholders, GBP33 billion in the last six years.

Driven, in part, by very thoughtful and objective decisions around which businesses we wanted to own or not on, I think you can see a very clear track record here.

You can look at whether it's [retail] businesses, whether it's the drinks consumer business, whether it's the oncology business, right now, or whether it's ViiV in the future; we are taking, and we take, I believe, a very objective view around, at what moment, if ever, does a business have the potential to create more value in a different structure or with a different ownership in the current structure?

I don't see us changing that mindset.

Now, as I look forward I think that the synergies and the logic of the three businesses that we are building toward, post Novartis, is very compelling, but we will always be asking ourselves that question.

Are there ways, are there parts of those businesses or even bits or whole bits those businesses that would create more value in a different approach?

Now, what's key, obviously, is we need to get that transaction closed.

We are on track to do that in the first half.

There is tremendous synergy opportunity to then be extracted.

Then, we move forward and we will see what the situation is at that point.

Strategically, for me 2014 has been a difficult year.

It's a challenging year for the reasons I've outlined, but it has not been a strategically destabilizing year at all.

I'm confident in the strategy of the Group.

I recognize it different to others and I recognize that different people can have different views of it.

From where I sit, I think this is the right way to deliver super long-term shareholder value, by having a very productive R&D operation supplemented by businesses with high terminal growth rates.

I think that's the right approach and it's one we've stuck to and will continue to stick to.

Simon?

On ViiV, in terms of the margin, there is some R&D to be allocated.

Clearly, if you were to think about this as a totally separate company, even though it is pretty separate within GSK today, there are probably some additional overheads and costs that you have to allocate.

Probably from a working assumption point of view, I'd assume a margin of 60%-odd of the operating level.

The other factor to remember is that there are clearly also a number of preferred elements in the returns of the different shareholders get from the different products in the portfolio.

That structure would probably have to be simplified as part of this process.

Exactly how that falls out?

Too early to say, but I think if you model it out on a 60% margin, you'd probably be in broadly the right place.

Thanks, Simon and Tim.

Next question.

Vincent Meunier, from Morgan Stanley.

Hello, gentlemen.

Thank you for taking my questions.

The first one is on the deval scare [follow ups].

Have you considered the pros and cons of selling the participation or maybe partnering ViiV with other companies, instead of just making a partial IPO?

Also, can you already say what you will do with the cash from the IPO?

Regarding the savings program, can you elaborate on the measures put in place in order to avoid the commercial disruption particularly in the context of the SG&A cut in Q3?

Regarding the Chinese situation, can you give an update on the DOJ investigation?

What should we expect now in terms of the remaining steps?

Thank you.

Thanks, Vincent.

As far as the last question, nothing to say on that, so I've got no update for you there at all.

As far as SG&A, and avoiding disruption, I think across GSK, we've got a pretty good experience of how to manage this.

We are going to be very keen to protect those parts of the organization, which are very much on the front line, if I could put it that way, of commercializing our products, and of course, those in R&D who are really touching the key assets as they come though the system.

As we've laid out, this is going to take place over the next two to three years.

It's not going to be a super-dramatic, big-bang phenomena, because we want to absolutely target these changes at the right moment to affect the business in the right way with minimum disruption.

I think, actually, we've got reasonable amount of experience with that.

We've been through lots of changes over the years, and I think I've got a high degree of confidence.

I think our Senior Management, so the level underneath the Executive Management of the Group, see this as a great opportunity to reshape the business in their bits of the Group in a way which they wanted to be for the future.

Because we know marketplace is changing all the time, customers are changing all the time, and our portfolios have changed.

We need to, therefore, change accordingly.

What I'm very encouraged by is the reaction of our Senior Management, a very embracing of this as an opportunity.

That's always the first key thing.

If the Management see this as an opportunity rather than a task, then it will get done in a much more constructive positive way.

I'm very optimistic about that.

As far as ViiV is concerned, listen, I'm sure we will be inundated with investment bank ideas of what we should or could do.

We think a partial IPO or an IPO of a minority stake is a sensible vehicle for us to assess, gives the opportunity to create and crystallize value for shareholders.

It gives an opportunity for valuation to be done properly, and it also gives the opportunity for GSK resident shareholders to remain a significant shareholder in that going forward for as long as GSK holds a residual stake.

We think that serves a number purposes.

Obviously, if there were a significantly more value creating scenarios that we are obviously going to look at them, but we think that's the right place to start.

As far as how we might spend any proceeds we'll cross the bridge will we get to it.

Next question.

Next question Dani Saurymper, from Barclays.

Good afternoon.

I'll ask three questions, if I may.

Firstly, on the new restructuring program that you've announced of GBP1 billion by 2017 timeframe, is that a net number or do you expect to reinvest some of those savings back into the business?

Secondly, just wanted to confirm this and comments on the tape regarding the established products portfolio and your expectation that more likely than not the products would be divested?

Just in relation to that, I just wanted to understand if the cost savings program you have announced, whether there would be any incremental savings you could anticipate from sale of some of those EPP products?

You alluded to in the past that there are significant scope for savings should you choose to go down that road.

Then just lastly, on respiratory, I was curious to understand with regard to your 2016 return to growth comment, if you had any expectation within that of a generic category launch?

Very lastly, as regards to Anoro and your commentary around slow uptake, can you perhaps comment A, on whether you're seeing, in the [LABA] class in US, a discounting by [Boehringer Ingelheim] on Spiriva for either response to your launch?

We've heard that.

Secondly, your experience thus far in Germany, as you go up against Ultibro and how the launch is faring so far in Germany?

Thanks, very much.

As far as the GBP1 billion cost savings, that will drop to the bottom line over the next three years, so that's the net number.

As far the established product portfolio, what I said on the previous call was that it's more likely than not that we will sell some element of the established product portfolio, but I'd guided it's unlikely we would sell the whole thing.

So I think that the chances that some element of that portfolio attracts sufficiently high valuation to compensate the shareholder properly, I think it's, based on what I'm seeing, has a reasonable prospect.

Now, I can't guarantee it, so I'm not telling you we're actually going to do that, but some element, I think it's reasonable to expect, may end up going.

There will be some savings associated, but they tend to be quite long-tail savings, because they're associated with manufacture and often times these transactions bring with them a contract manufacture period.

The savings may well come in after three years as you go through a typical transition period, so I would guide you to get excited about that.

In the short run, it's more of a medium-term opportunity.

As far as return to growth in 2016, we do not anticipate a generic Advair before the end of 2016, so that probably answers your question.

Again, we remain of the view we've always had, which is this is not a trivial proposition for anybody.

We don't know when or if it might ever come or what status it might ever have, but we certainly don't anticipate it in that timeframe.

As far as Anoro is concern, yes, aggressive contracting from all of our competitors.

I think we've also been aggressive in contracting this year.

We have been very focused on making sure that we are not disadvantaged both on Advair, but also on the entry of new products.

That's taken a bit of time.

It's cost of some price points, clearly, but we've been successful in securing very substantial access.

At least a part of that has been other companies trying to close out the marketplace on the way through.

That's really what's driven the dynamic of 2014, if I'm honest.

As far as Anoro in Germany, we're just literally starting, so nothing to report yet, so literally just beginning.

Next question.

Next question is from the line of Keyur Parekh, Goldman Sachs.

Good afternoon.

Two questions if I may, please.

First, Andrew, just on the dividend, if you can confirm that 2015 dividend at EPP would still be the case even if you were to go ahead and divest a part, however small or big, of the established products portfolio?

Secondly, that in the context of your long-term progressive dividend policy, 2015 is an exception, i.e.

post 2016 if the progress of divest policy still holds?

Secondly, on the cost savings of GBP1 billion, if you just help us think about some details around that, whether it comes from in sense of SG&A, what is R&D, what is manufacturing over the next three years?

As to your earlier comments on trying to take a final look at the central costs post the transaction, if you would care to give us a more color around the apportion there?

Thank you.

Thanks.

In the first point, yes, I wouldn't anticipate any decision on EPP effect and the commitment we've made on the dividend for 2015.

We do have a long-term commitment to increasing dividends for shareholders.

Obviously, we'll update you on 2016 and beyond when we get there.

We've very clearly restated our long-term commitment to increase the dividend.

We are not going into detail today on the cost savings, but suffice to say it will be blended across the different parts of the organization.

As always, you should expect SG&A savings and to some degree R&D savings to come at the front end and manufacturing savings to come in the back end.

In terms of phase-in, you might see them in a slightly different way but, they'll be blended across the piece.

Central costs will certainly be a focus for us, particularly as we go through the transaction.

As I've said already, I'm seeing the transaction gives us a very new lens to go after that over the next couple of years.

Next question.

Thank you.

Next question is from the line of James Gordon, JPMorgan.

Hello, thanks for taking my question.

Two questions, please.

First question was about the Novartis transaction and the 2015 outlook.

My question was should we still anticipate accretion to 2015 EPS in the transaction despite the margin dilution?

Is there any prospect for EPS growth in 2015, which consensus currently models or should we take a flat dividend in 2015 as a reflection of where earnings might be for 2015?

The second question was in terms of IPOs, if this makes sense as a way to monetize ViiV, could it also make sense to IPO part of the consumer you're going to have as presumably [you are to define] the value at the current level?

Thanks so much, James.

The exact impact of Novartis on -- as you remember, when we announced Novartis at the end of the first full year, it would be marginally accretive.

Of course, the real question is, when is the first full year?

When exactly do we close?

That's important because it determines how much of the oncology business we have for how long in the year, how much of the vaccine consumer business we have for how long in the year.

Also, it determines when the B shares scheme gets executed, which of course has an effect on the EPS accretion in the short run.

If you remember, when introduced this transaction to you all, the initial accretion was helped a lot by the B share scheme.

It's then helped by the synergies.

Then in the long term, the deal becomes hyper-accretive because you're essentially contrasting a retained vaccine in consumer terminal value against what would in years 7, 8, 9, 10 be a declining oncology business.

So, you've got these three phases of synergies.

That first phase in the first 12 months, even with the margin dilution that Simon talked about, as we described to you at the time we launched, it would be marginally accretive.

The exact effect on 2015 depends on exactly when it closes.

Today, I'm only able to give guidance that we are on track for the first half.

Obviously, if it closed on December 31, then the marginally accretive statement would stand.

If it closed later, it might be different and we'd give you guidance at that point.

In terms of -- we are not giving guidance today for next year.

I think, though, it's pretty clear from what we've said that we expect the headwind of the respiratory pricing to continue to flow through into 2015.

That, clearly, is a significant headwind for us to deal with.

We're putting in place a number of measures, not least the restructuring program, to begin to offset some of that on more permanent basis than the measures we've been able to take during the end of this year.

I think that indicates to you that we see 2015 being another tough year for us, as we adjust to that new reality in the US, but the good news is we've got a lot of products beginning now to pick up the slack.

We get the transaction closed in the first half, which starts to give us opportunities to grow and to build up the vaccine and consumer business and access those synergies.

Therefore, as we progress through 2015 and into 2016, we start to see, if you will, movements through this phase that we've had to deal with.

We see, then, 2016 returned to growth on respiratory.

We see, obviously, full-year benefits then starting to kick in from the transaction.

We see longer-term contribution from new products, et cetera, et cetera.

That's the way we see next year really playing out.

Next question.

Next question is from the line of James Weston, Credit Suisse.

Thank you.

It's Matthew Weston at Credit Suisse.

Three questions, if I can?

If we just contrast the first two quarters of Anoro in the US, they seem to be tracking the experience of Breo very closely with some pipeline filling and then some incremental discounts impacting the second quarter.

As we work through the next few quarters of Anoro, are you confident that the revenue will exceed the performance of Breo in terms of following the same launch trajectory?

If not, how comfortable are you with the GBP250 million consensus expectations for Anoro for next year?

Secondly, on China, now that the legal issues, certainly in the domestic market, are behind you, can you just give us an update of your experience in terms of physician reaction to GSK and what you're doing in that market to regroup and refocus growth?

Andrew, you were very clear to point out how much you've implemented the strategies you set it out when you took over the role of CEO, as I recall strong emerging markets growth was a key element of that.

Finally, just on the difference between non-core and core earnings.

Historically, GSK, core versus non core, represented about 70%, or there was a 30% difference between those two metrics.

For this quarter there's now a 70% difference between those two metrics, and even if we exclude the China fine, one is still half of the other.

Can you just walk us through some of the key elements that have been excluded from core in Q3, particularly in that acquisition and accounting column, which is by far and away the single largest adjustment which you're put into the P&L?

Thank you.

Thanks, Matthew, and thanks in particular for the last question because I think that's a really good thing for people to hear and understand and Simon's going to touch on it.

In China, obviously, we've just gone through the end of the case.

As you would expect, we are making sure we learn the lessons from that.

We're very focused on ensuring that we do indeed learn those lessons.

We have a new Management team in place in China, but it's very early days and I'm not going to go into more detail.

Suffice to say you've seen the annualization of the effects, so China no longer has the same negative drag that we've seen on the business.

As far as my commitment to emerging markets, I think that's reflected, actually, in the very strong performance in the quarter, double-digit growth rates from the emerging markets.

We continue to be very robust about that.

When you look at where EMs are now, more or less the same size as Europe, whereas five or six years ago they were around one-third of the size of Europe, you can see the change.

Now of course, that brings with it -- nothing is easy in this world, Matthew, so that brings with it currency volatility, which you see some of this year.

It also means you're operating in very difficult markets and those markets can throw curve balls from time to time.

But I reiterate the fundamental reason why we are focused on emerging markets.

Of the 6 billion people who live in the world today, only about 600 million live in Western Europe and America.

We have to be focused on building the business for the long term, but we also need to be eyes open.

There are going to be challenges and is not a one-way street in terms of just good news flowing from those markets.

It would be, though, a big mistake to be put off every time the weather changed in those environments.

We are very committed to that and remain very focused on it.

As far as Anoro is concerned, so actually Anoro market shares, NBRX share of Anoro for pulmonologists also just in to double digits.

It looks like a very similar kind of pickup.

Again, I think we are increasingly looking at a scenario in the US were primary care drugs are being adopted on a slower pace but they will be adopted.

We've now got excellent data out there with our sales force in terms of competitiveness of Anoro.

I think we will continue see those products build up.

I'm not going to endorse, or otherwise, anybody else's numbers.

I will absolutely restate what I've said hundreds of times before to you all, which is the that over time the combination of all of our various respiratory products will -- plus the legacy of what's left from Advair, Flovent, and Ventolin, generate a respiratory business which is larger in size than the business we had before this all started.

That has always been our goal.

I'm as confident on that as I ever was, and we will continue to drive down that road.

I think that, that is very much game on, as far as we are concerned.

Simon, to talk about the famous core to non core.

Thanks for the question on that.

The first point is just to remember that a lot of these charges are non cash and in particular, obviously, the amortization and impairment charges and quite a lot of the charges that you often see in the acquisition column are non cash and that indeed is the case this quarter.

In particular, we have two significant adjustments going through.

The first is GBP350 million, which is a revaluation of the contingent consideration we owe to Shionogi on dolutegravir containing products, which is a revaluation given the out performance that we've seen of Tivicay in the last couple of quarters.

So, we reassessed that this quarter.

That takes the total provision there up to GBP1.3 billion.

Then the other is a change in the treatment dictated by the IRS in relation to the US industry pharma fee, which led to a forward-looking treatment rather than a backward looking treatment.

We've adjusted our current year for the IRS' required treatment and in that adjustment column in non core, you'll see the previous adjustment, which again, is non cash, doesn't affect how we actually pay for the fee going forward and just really correcting the treatment for the latest guidance that we've been given.

That's obviously creating the main distortions that you've seen.

There are also a number of other Novartis costs in anticipation of closing the transaction, including some hedging that we have in place to protect the cash returns that we are going to get out of that transaction.

That will fund the GBP4 billion, which we obviously need to make sure that we still get GBP4 billion at the end of the transaction.

Those are the main drivers and why it's jumped up this quarter but, that's the principal reason.

Thanks, Simon, and thanks, Matthew, for asking the question because I do think it's important people do understand what's between those two numbers.

It's particularly ironic that you end up having bad news in the cash to non cash-- I'm sorry -- the core to non core because we've increased our forecast for Tivicay and as a result we have to take a bigger provision.

Make of that what you will, but I'm sure that's triggered up all sorts of calculations about what our real forecast is for Tivicay in there for what the imputed value of the ViiV business really is.

That should keep everybody up all night, I would have thought.

(laughter)

We have time for one last question, please.

Last question is from the line of Gary Holdsworth, Exane.

Please, go ahead.

Hi.

Thank you.

Two questions, please.

I wonder if you could talk a little more, firstly, about the targeted expense reductions that you mentioned in SG&A and R&D?

I'm interested to know whether there's been any change in the size of the respiratory sales force, in particular?

Just trying to sound what those reductions might mean for Anoro and Breo, given their still in a very critical stage of the their rollouts?

Secondly, I be interested in your view as to why US primary care drug launches are becoming so much more difficult?

Do think this is a reflection of the quality or the lack of differentiation of some of the new products being launched or is it pure price pressure and access?

Do you actually need to be having formulary positioning discussions of payers in the US much earlier than you have been in order to secure that access that you now continual have from 2015?

Does that mean you just need to have those conversations much earlier or is it simply that you are now willing to be more flexible in the rebates you can offer on some of your existing products?

Thank you.

Thanks very much, Gary.

As far as the expense reductions, I can absolutely reassure you no change at the size of the respiratory sales forces.

In fact, no change to the size of any sales forces during this period.

So I don't think you need to worry about that.

We've identified things we believe are not going to affect the performance of the products and that's the cost opportunities we've taken.

As far as the US market's concerned, again we've looked at the last -- so primary care dominated launches 2012, 2013, 2014 and we see Breo, which is the one where we have the most data, of course, performs very much in the upper quartile of those launches.

These are products from all categories, so obviously you're looking at different markets.

Whether you're in diabetes, in respiratory, cardiovascular, wherever you are, at a very -- some of you should maybe -- it might be even instructive just to look at [launch] chart.

If you look at NRX performance for Breo versus Brilinta versus the JAK inhibitor from Pfizer.

I pick those because you've got three products which are priority products for the three big companies.

Two of the three companies use the traditional selling model, one uses the GSK selling model.

When you look at the performance of those three, you'll see straightaway how Breo stands out from those other two product launches, in a very positive way.

I don't see anything from that which really says there's something very special going on just vis-a-vie GSK.

So what might be going on in the market?

I think the first thing you've got to focus on is if you look at the US market now, the top-10 commercial plans control 86% of the marketplace.

The top-10 Part D accounts control 88% of the marketplace, so you've got a very consolidated purchase of marketplace, who are all reacting to the Affordable Care Act.

They are all reacting to continued integration and acquisition of both at a lateral and vertical level.

That's creating a lot more visibility on contracting strategies.

There's a lot more information visible to payers.

Secondly, you've got a scenario where in many categories, diabetes, respiratory and many others, you've got enough competitors who are prepared to start bidding on price.

Now, as I mentioned, and not in one of our categories and not a relative competitor to GSK, but I've seen this week one of the major companies advertising to new patients on a brand-new drug, 12-months free vouchers.

That's a pretty significant give, if you well, in terms of price.

I think what that reflects is probably their intention to try and get people to start the product in advance of the plans covering the product, which is a little bit what we've seen in the respiratory market.

It takes a while for these things to start.

So I think you've got a general shift in power toward the purchaser.

It's not completely obvious to me that in primary care degrees of differentiation make a huge difference, which is a little bit of a interesting conclusion.

It's not totally obvious that, that's the case.

I think we just have to take a perspective that things take a little bit longer.

You have to patient, and the results in the first 12 months may not be indicative of where you ultimately land.

And that's clearly different to the specialty field, but I think that is the reality in the US marketplace.

Now, having said all of that, I think the US remains a very attractive marketplace.

It still has relatively higher prices than other parts of the world.

I think in the medium to long run these products will find their place and be adopted well, but it's not the 1990s anymore.

We have to have the right model to do that.

It's one of the reasons, much as I know not everybody on this call agrees with us, it's one reasons why we think are selling model is absolutely the right way to go.

We feel very good about it.

With that, I want to thank -- I know we've run a little late.

I'm really sorry, but we wanted to give as many people as possible the chance to ask questions.

Thanks so much for your attention today.

Obviously, the IR team is available if you want to have any follow up.

Thank you.

Ladies and gentlemen, that concludes your call for today.

Thank you for joining.

You may now disconnect.