10th Feb 2005 12:00
GlaxoSmithKline PLC10 February 2005 Issued: 10th February 2005, London Preliminary Announcement of Results for the year ended 31st December 2004 GSK delivers 2004 EPS in line with guidance and confirms return to growth in 2005 GlaxoSmithKline plc (GSK) today announces its results for the year ended 31st December 2004. The full UK GAAP resultsare presented under 'Profit and loss account' on pages 8 and 9 and are summarised below. UK GAAP FINANCIAL RESULTS* 2004 Growth Q4 2004 Growth £m CER % £% £m CER % £%Turnover 20,359 1 (5) 5,333 3 (1)Business performance* Trading profit 6,150 (1) (11) 1,282 (7) (13) Profit before tax 6,119 2 (9) 1,390 17 8 Earnings per share 75.0p 2 (9) 16.8p 15 6Statutory results Trading profit 6,150 5 (6) 1,282 5 (2) Profit before tax 6,119 8 (3) 1,390 34 24 Earnings per share 75.0p 8 (3) 16.8p 31 22 Following a European Union Regulation issued in 2002, GSK will move to reporting its financial results in accordancewith International Financial Reporting Standards (IFRS) from 1st January 2005. For information purposes the 2004 fullyear results, restated onto an IFRS basis, are presented on page 24. More detailed restatement information ispublished separately today and is available on www.gsk.com. SUMMARY*• Financial guidance delivered: - Global pharmaceutical sales growth of 1% in 2004, despite the significant impact of generic competition to Paxil and Wellbutrin. Excluding sales of these products, turnover grew 10% in the USA and 7% globally. - EPS growth of 2% in 2004, with growth in Q4 of 15%. - 2004 dividend increased 1p to 42p per share. - Weak US dollar adversely impacted performance during the year in sterling terms. • Strong performance of key products: - Seretide/Advair for asthma up 19% to £2.5 billion - Avandia/Avandamet for diabetes up 32% to £1.1 billion - Lamictal for epilepsy/bipolar disorder up 32% to £678 million - Valtrex for herpes up 24% to £571 million - Coreg for heart disease up 34% to £432 million - Vaccines up 11% to £1.2 billion - In all, 12 GSK products each had sales of over £500 million in 2004. • Pipeline momentum building: - Major phase III assets making good progress: Cervarix for cervical cancer, Rotarix for rotavirus, lapatinib for cancer and Allermist for rhinitis. - 45 NCEs in phase II, with data on at least 15 of these expected in 2005. - Vaccines R&D seminar to be held on 30th June 2005. • Earnings guidance: - On an IFRS basis, 2005 EPS percentage CER growth is expected to be in the low double-digit range (which equates to high single digit growth in UK GAAP terms). * The Group's practice is to discuss its results in terms of constant exchange rate (CER) growth. For 2004, the Group is reporting results on a statutory basis only. Growth rates are presented comparing 2004 results both with 2003 business performance results (see page 22) and 2003 statutory results. All commentaries compare 2004 results with 2003 business performance results in CER terms unless otherwise stated. Results in 2003 have been restated following the implementation of UITF 17 (revised) and UITF 38. See 'Accounting for own shares' on page 6 and 'Accounting Presentation and Policies' on page 22 for fuller explanations of these matters. Commenting on the performance for the year and GSK's outlook, JP Garnier, Chief Executive Officer, said: "Theseresults confirm the success with which GSK has navigated a difficult year, absorbing over £1.5 billion of lost sales togenerics and still managing to grow the business. The continuing success of our key products means we can now lookforward to a good performance in 2005. 2005 will also be an important year in terms of R&D pipeline progress. We expect to generate significant new data onour major phase III assets as well as making good progress with our large portfolio of phase II NCEs -- new data areexpected on at least 15 of these in 2005. We look forward to talking more about the pipeline at regular therapy areaseminars, the first of which, on 30th June 2005, will profile our vaccines portfolio." STRONG 2004 GROWTH IN KEY PRODUCTS • Sales of GSK's biggest selling product, Seretide/Advair for asthma and COPD, were up 19% to £2.5 billion. Seretide/Advair is the 6th largest pharmaceutical product globally and the 2nd largest in Europe. In the USA, Advair sales grew 20% to £1.3 billion. Growth in Europe was also strong (+18% to £902 million), although reported growth in the fourth quarter was adversely impacted by a one-off rebate adjustment in Germany and wholesaler de-stocking in Italy. GSK believes that new clinical data to be published next month will reinforce the position of Seretide as the market leading asthma treatment. The CONCEPT Study is the first long-term (52 week), double-blinded, head-to-head study of Seretide stable dosing versus Symbicort adjustable maintenance dosing. The conclusion of the study shows that patients receiving Seretide had significantly more symptom-free days, and a rate of asthma attacks almost half that of Symbicort. • GSK's diabetes treatments Avandia/Avandamet continue to perform very strongly, with overall sales of £1.1 billion (+32%). Sales in the United States grew 26% to £852 million. Encouragingly, Avandia/Avandamet are also growing very strongly in Europe and International markets with sales up 49% and 62% respectively. Strong performance in these markets is being driven by the growing acceptance among opinion leaders and physicians of the benefits of these new products in improving control for diabetic patients. • The strong growth of GSK's epilepsy and bi-polar disorder treatment Lamictal continues, with sales up 32% to £678 million. Ongoing US growth (+49% to £414 million) is being driven by the indication for the maintenance treatment of bi-polar disorder received last year. • GSK's vaccines business had a strong year, with sales up 11% to £1.2 billion. Several key products are driving growth - Pediarix (+12% to £357 million), Priorix (+14% to £95 million) and Fluarix (+38% to £79 million). • Coreg (for heart disease) sales grew 34% to £432 million. Coreg continues to benefit from its wide range of indications. Additionally, results from a new landmark study of diabetic patients with hypertension (GEMINI) published in JAMA in November, showed Coreg improved cardiovascular risk factors and stabilised glycemic control relative to the beta blocker metoprolol. • Sales of herpes treatment Valtrex exceeded the £500 million barrier for the first time in 2004 (+24% to £571 million). Performance is being driven by the USA (+30% to £369 million) where the product is the clear market leader in treatments for genital herpes. • Global HIV product sales rose 4% to £1.5 billion and sales in the USA increased 4% to £747 million. GSK continues to grow its HIV franchise, despite the launch of several new products by competitors. GSK's HIV performance was enhanced by the launch of Epzicom, a new combination product (Epivir/Ziagen) in the USA in August 2004 and in the EU (under the name Kivexa) in January 2005. LINE EXTENSIONS CONTINUE TO MITIGATE GENERIC COMPETITION • Total sales of Wellbutrin products fell 12% to £751 million. Wellbutrin IR and SR sales fell 64% to £284 million as a result of generic competition. This impact was partially offset, however, by the exceptionally strong performance of Wellbutrin XL, the new once-daily product, which achieved sales of £467 million in its first full year on the market. • Total sales of the Paxil franchise were down 39% to £1.1 billion as a result of generic competition to Paxil IR (sales of which declined 53% to £667 million). Mitigating this decline was the continued strong performance of the product in Japan (+25% to £171 million) and the performance of Paxil CR which generated sales of £396 million (+14%). PIPELINE UPDATE • GSK has one of the largest and most promising pipelines in the industry with 148 projects in clinical development - 90 NCEs, 37 PLEs and 21 vaccines. The number of NCEs in the pipeline has increased by 80% since the merger. • 45 NCEs are now in Phase II trials and data on at least 15 of these are expected during 2005, including compounds to treat HIV, diabetes, blood disorders and multiple sclerosis. 2005 new product launches • Vesicare for the treatment of overactive bladder which GSK will co-promote with Yamanouchi Pharma America, was launched in the USA in January 2005. • Rotarix, the only 2 dose oral vaccine for the prevention of rotavirus gastroenteritis in infants, was launched in its first market - Mexico - on 10th January 2005. The vaccine, which has already been filed in over 30 International markets, was also submitted to the EU for approval in December 2004. Rotavirus causes nearly 500,000 deaths per year, mainly in the developing world. In the USA the cost burden of rotavirus disease is estimated to be over £1 billion per year. • Approval of Boniva, a potent oral bisphosphonate for the treatment of osteoporosis - the first with a convenient once-monthly dosing regimen - is expected in the USA in March 2005 and in Europe later in the year. A quarterly i.v. dosing regimen was filed in December 2004. Boniva is being co-developed by GSK and Roche. The global bisphosphonate market is currently worth nearly £3 billion and grew over 20% in 2004. • An FDA approvable letter was received for diabetes product Avandaryl, a once daily combination of Avandia + Aventis' Amaryl during Q3 2004. GSK continues to work with the FDA to bring about a resolution of outstanding issues and is aiming for the product to be approved before the end of 2005. • A decision from the FDA is expected in February 2005 on the approval of Requip for the treatment of restless leg syndrome, an area of significant unmet medical need. • Entereg, the first product expected to be approved for the management of post-operative ileus is under review by the FDA and a decision on approval is expected in Q3 2005. GSK and Adolor are collaborating on the worldwide development and commercialisation of Entereg. Near-term opportunities (filing 2005-06) • Phase II and III trials in a variety of solid tumours are progressing for lapatinib ('016). Results from a number of studies are due to be received during 2005. • Trexima, a unique dual-acting product to treat migraine, is scheduled to be filed in the second half of 2005. • Other products expected to be filed in 2005 include nelarabine for childhood T-cell leukaemia and '833 for the treatment of bacterial skin infections. • Allermist ('698) entered phase III studies for rhinitis during Q3 2004 and filing is expected in 2006. • Cervarix, GSK's new HPV vaccine for the prevention of cervical cancer, is expected to be filed in the EU and international markets in 2006 and has 'fast track' review status in the USA, although an FDA filing date has yet to be scheduled. In initial studies, Cervarix has already demonstrated 100% efficacy against persistent infections caused by the two main viral sub-types which cause cervical cancer (HPV 16 and 18) and is expected to make a major contribution to improved healthcare globally. • In 2006, GSK also expects to file for US approval of '115, potentially the first oral product for the treatment of thrombocytopenia. • GSK expects to file an NK1 antagonist for emesis ('599 (vestipitant) or '769) during 2006. • Improved once-daily formulations are planned to be filed in 2005 for Avandamet XR, Requip CR and Coreg CR and in 2006 for Lamictal XR and Wellbutrin XL (in the EU). Other pipeline news • The Phase III clinical development plan and expected filing date for GSK's COX-2 inhibitor '381 will be finalised after the FDA's Advisory Committee meeting on the COX-2 class on 16-18th February 2005. • Phase II data, received in Q4 2004, on GSK's DPP-IV product for diabetes showed significant efficacy in reducing plasma glucose levels which were sustained over a 24 hour period, offering the potential for once-a-day dosing. The product is expected to enter phase III trials in 2006. • '771, GSK's CCK-A agonist for obesity did not demonstrate sufficient efficacy to ensure a competitive profile and further clinical development has been discontinued. CONSUMER HEALTHCARE 2004 PERFORMANCE • Over-the-counter medicine sales were £1.5 billion, up 2%. Sales growth from smoking control products in the USA (+12%) and Europe (+24%) helped to offset the decline in Dermatological products (-14%) due to generic competition to Cutivate in the USA. Expansion of the Panadol brand in International markets helped Analgesics grow 7%. • Oral Care sales were £1.1 billion, up 4%. Strong growth in International (+9%) was led by the Sensodyne, Polident and Poligrip brands. • Sales of Nutritional healthcare products grew 5% to £0.6 billion. Lucozade grew 7% to £268 million. • In July, GSK obtained the over-the-counter marketing rights in the USA for orlistat, an FDA-approved prescription product for obesity management marketed by Roche as Xenical. Following discussions with the FDA, GSK anticipates submitting an application to the FDA in 2005 to sell orlistat (60mg) over-the-counter. Orlistat has the opportunity to be the first FDA approved over-the-counter weight loss product. FINANCIAL REVIEW Trading profit and earnings per share - full year Trading profit was £6,150 million, a 1% decrease in CER terms (11% decline in sterling terms) compared with 2003business performance. The trading margin declined 2.0 percentage points compared with 2003. Net of currency movementsthe margin declined 0.7 percentage points, reflecting higher R&D expenditure, a higher cost of goods due to a lessfavourable product mix, and higher provisions for legal matters, partially offset by cost savings initiatives in generaland administration and lower charges related to programmes to deliver future cost savings. The higher provisions for legal matters included a charge in S,G&A of £141 million in Q4 2004 related to the use of anIBNR (incurred but not reported) actuarial technique to determine a reasonable estimate of the Group's exposure forunasserted claims in relation to a number of products. Other operating expense was £60 million compared with £133 million in 2003. The charge in 2004 reflects provisionsrelated to anti-trust and other legal matters, partly offset by minor product divestments, sales of equity investmentsand other income. The net charge from legal provisions and gain on sales of equity investments was lower in 2004compared with last year. Disposal of associates principally reflects the disposal of an interest in Quest Diagnostics, Inc. shares, whichresulted in a profit of £139 million. Total legal provisions and charges relating to programmes to deliver future cost savings, when offset by asset disposalprofits, were in CER terms, £122 million lower in 2004 than in 2003. EPS of 75 pence increased 2% in CER terms(declined 9% in sterling terms) compared with 2003 business performance EPS. The adverse currency impact on EPS of 11percentage points reflected the significant weakening of the US dollar relative to last year. Compared with 2003 statutory results, which included merger and manufacturing restructuring costs and disposals ofbusinesses, EPS increased 8% in CER terms (declined 3% in sterling terms). Trading profit and earnings per share - Q4 2004 In the quarter, trading profit was £1,282 million, down 7%. The trading margin declined 3.3 percentage points comparedwith Q4 2003 business performance. Net of currency the margin declined 2.5 percentage points, reflecting higherprovisions for legal matters only partially offset by lower charges relating to programmes to deliver future costsavings, higher R&D expenditure and higher cost of goods due to a less favourable product mix, including genericcompetition in the USA. Net other operating income was £40 million in the quarter compared with a £167 million expense in Q4 2003. The 2004income included some minor product disposals partly offset by some provisions for anti-trust and other legal matters.The charge in 2003 included higher legal costs, principally relating to Relafen anti-trust settlements. Disposal ofassociates reflects the disposal of an interest in Quest Diagnostics, Inc. shares, which resulted in a profit of £97million. Total legal provisions and charges relating to programmes to deliver future cost savings, when offset by asset disposalprofits, were in CER terms, £232 million lower in Q4 2004 than in Q4 2003. EPS of 16.8 pence increased 15% in CER termsand 6% in sterling terms. Currencies The 2004 results are based on average exchange rates, principally £1/$1.83, £1/Euro 1.47 and £1/Yen 197. The period-endexchange rates were £1/$1.92, £1/Euro 1.41 and £1/Yen 197 and at 31st January 2005 the exchange rates were £1/$1.89, £1/Euro 1.45 and £1/Yen 195. If exchange rates were to hold at these latter levels for the remainder of 2005 the negativecurrency impact on earnings per share growth would be approximately 2-3% for the full year. Dividend The Board has declared a fourth interim dividend of 12 pence per share making a total for the year of 42 pence pershare. This compares with a dividend of 41 pence per share for 2003. The equivalent dividend receivable by ADR holdersis 44.438 cents per ADS based on an exchange rate of £1/$1.8516. The dividend will have an ex-dividend date of 16thFebruary 2005 and will be paid on 7th April 2005 to shareholders and ADR holders of record on 18th February 2005. Earnings guidance On an IFRS basis, 2005 EPS percentage CER growth is expected to be in the low double-digit range (which equates to highsingle digit growth in UK GAAP terms). Share buy-back programme In October 2002, GSK commenced a new £4 billion share buy-back programme. Of this new programme, £219 million wasaccounted for in 2002, £980 million in 2003 and £1,000 million in 2004. The exact amount and timing of futurepurchases, and the extent to which repurchased shares will be held as Treasury shares rather than being cancelled, willbe determined by the company and is dependent on market conditions and other factors. Accounting for own shares In 2004, the Group has adopted UITF 17 (revised) and UITF 38 - see 'Accounting Presentation and Policies' on page 23.As a result of the reclassification of own shares to equity shareholders' funds, net assets at 31st December 2003decreased by £2,661 million. The full year 2003 effect is that trading profit and profit before taxation have beenreduced by £16 million and earnings have been reduced by £6 million. Legal and other disputes The GSK accounting policy for legal and other disputes is set out on page 96 of the Annual Report 2003. The policystates that a provision is made for the anticipated settlement costs and legal and other expenses associated with claimsreceived and legal and other disputes against the Group where a reasonable estimate can be made of the outcome of thedispute. In the past, no provision was made for unasserted claims or where obligations existed under a dispute but itwas not possible to make a reasonable estimate. GSK has undertaken a review of its product liability claims and assessed that a number of products now have a history ofclaims made and settlements which makes it possible to use an IBNR (incurred but not reported) actuarial technique todetermine a reasonable estimate of the Group's exposure for unasserted claims in relation to those products. Aprovision of £141 million was created on this basis in Q4 2004. The IBNR basis is currently used by a number of other pharmaceutical companies to estimate product liability provisions. International Financial Reporting Standards (IFRS) The impact of the conversion to IFRS on the 2004 UK GAAP results is to reduce earnings by £394 million and EPS by 6.9pence. The principal adjustments to UK GAAP are for share based payments (5.5 pence), and a higher tax charge (1.9pence), principally related to intercompany items on which a deferred tax credit is available under UK GAAP, but notunder IFRS. This particular difference in taxation treatment is not expected to recur. GlaxoSmithKline - one of the world's leading research-based pharmaceutical and healthcare companies - is committed toimproving the quality of human life by enabling people to do more, feel better and live longer. For companyinformation including a copy of this announcement and details of the company's updated product development pipeline,visit GSK at www.gsk.com. Enquiries: UK Media Philip Thomson (020) 8047 5502 David Mawdsley (020) 8047 5502 Chris Hunter-Ward (020) 8047 5502 US Media Nancy Pekarek (215) 751 7709 Mary Anne Rhyne (919) 483 2839 Patricia Seif (215) 751 7709 European Analyst / Investor Duncan Learmouth (020) 8047 5540 Anita Kidgell (020) 8047 5542 US Analyst / Investor Frank Murdolo (215) 751 7002 Tom Curry (215) 751 5419 Brand names appearing in italics throughout this document are trade marks of GSK or associated companies with theexception of Levitra, a trade mark of Bayer, Vesicare, a trade mark of Yamanouchi Pharmaceutical, Entereg, a trade markof Adolor and Boniva, a trade mark of Roche, which are used under licence by the Group. Cautionary statement regarding forward-looking statements Under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995, the company cautionsinvestors that any forward-looking statements or projections made by the company, including those made in thisAnnouncement, are subject to risks and uncertainties that may cause actual results to differ materially from thoseprojected. Factors that may affect the Group's operations are described under the section 'Cautionary statementregarding forward-looking statements' on page 21. PROFIT AND LOSS ACCOUNT Year ended 31st December 2004 2003 Merger, Business restructuring 2004 Growth Performance and disposal of Statutory Statutory /(decline) (restated) (restated) * businesses £m CER% £m £m £m --- --- --- --- ---Turnover:Pharmaceuticals 17,146 1 18,181 - 18,181Consumer Healthcare 3,213 3 3,260 - 3,260 --- --- --- ---TURNOVER 20,359 1 21,441 - 21,441 Cost of sales (4,309) 7 (4,188) (356) (4,544) --- --- --- ---Gross profit 16,050 - 17,253 (356) 16,897 Selling, general and administration (7,061) (2) (7,579) (18) (7,597)Research and development (2,839) 8 (2,770) (21) (2,791) --- --- --- ---Trading profit:Pharmaceuticals 5,530 (2) 6,302 (369) 5,933Consumer Healthcare 620 9 602 (26) 576 --- --- --- ---TRADING PROFIT 6,150 (1) 6,904 (395) 6,509 Other operating income/(expense) (60) (133) - (133) --- --- --- ---Operating profit 6,090 - 6,771 (395) 6,376Profit on disposal of interests in associates 138 - - -Business disposals (1) - 5 5Profits of associates 95 93 - 93 --- --- --- ---Profit before interest 6,322 6,864 (390) 6,474Net interest payable (203) (161) - (161) --- --- --- --- PROFIT BEFORE TAXATION 6,119 2 6,703 (390) 6,313 Taxation (1,701) (1,838) 109 (1,729) --- --- --- ---Profit after taxation 4,418 1 4,865 (281) 4,584Minority interests (114) (94) - (94)Preference share dividends (2) (12) - (12) --- --- --- ---EARNINGS 4,302 1 4,759 (281) 4,478 --- --- --- --- EARNINGS PER SHARE 75.0p 2 82.0p 77.1p --- --- --- Diluted earnings per share 74.8p 76.9p --- ---Weighted average number of 5,736 5,806 5,806shares (millions) --- --- --- * Growth rates are calculated comparing 2004 statutory results with 2003 business performance results. Results in 2003have been restated following the implementation of UITF 17 (revised) and UITF 38 - see 'Accounting Presentation andPolicies' on page 22. Appropriations of profit attributable to shareholders are set out under 'Appropriations' on page 15. PROFIT AND LOSS ACCOUNT Three months ended 31st December 2004 Q4 2003 Merger, Business restructuring Q4 2004 Growth Performance and disposal of Statutory Statutory /(decline) (restated) (restated) * businesses £m CER% £m £m £m --- --- --- --- ---Turnover:Pharmaceuticals 4,487 3 4,515 - 4,515Consumer Healthcare 846 1 863 - 863 --- --- --- ---TURNOVER 5,333 3 5,378 - 5,378 Cost of sales (1,158) 7 (1,116) (123) (1,239) --- --- --- ---Gross profit 4,175 2 4,262 (123) 4,139 Selling, general and administration (2,047) 6 (1,977) (37) (2,014)Research and development (846) 8 (815) (7) (822) --- --- --- ---Trading profit:Pharmaceuticals 1,110 (8) 1,299 (160) 1,139Consumer Healthcare 172 3 171 (7) 164 --- --- --- ---TRADING PROFIT 1,282 (7) 1,470 (167) 1,303 Other operating income/(expense) 40 (167) - (167) --- --- --- ---Operating profit 1,322 8 1,303 (167) 1,136Profit on disposal of interests in associates 97 - - -Business disposals (1) - 2 2Profits of associates 23 23 - 23 --- --- --- ---Profit before interest 1,441 1,326 (165) 1,161Net interest payable (51) (43) - (43) --- --- --- --- PROFIT BEFORE TAXATION 1,390 17 1,283 (165) 1,118 Taxation (401) (350) 49 (301) --- --- --- ---Profit after taxation 989 14 933 (116) 817Minority interests (28) (23) - (23)Preference share dividends - (1) - (1) --- --- --- ---EARNINGS 961 14 909 (116) 793 --- --- --- --- EARNINGS PER SHARE 16.8p 15 15.8p 13.8p --- --- --- Diluted earnings per share 16.8p 13.7p --- --- * Growth rates are calculated comparing Q4 2004 statutory results with Q4 2003 business performance results. Resultsin 2003 have been restated following the implementation of UITF 17 (revised) and UITF 38 - see 'Accounting Presentationand Policies' on page 22. Appropriations of profit attributable to shareholders are set out under 'Appropriations' on page 15. PHARMACEUTICAL TURNOVER Year ended 31st December 2004 Total USA Europe International -------------- -------------- ------------ ------------ £m CER% £m CER% £m CER% £m CER% ----- ----- ----- ----- ----- ----- ---- -----RESPIRATORY 4,415 7 2,183 9 1,538 5 694 4Seretide/Advair, 3,428 9 1,710 9 1,253 8 465 11Flixotide/Flovent, SereventSeretide/Advair 2,461 19 1,330 20 902 18 229 15Flixotide/Flovent 618 (7) 251 (12) 189 (7) 178 2Serevent 349 (15) 129 (26) 162 (13) 58 24Flixonase/Flonase 578 7 450 9 59 7 69 (5) CENTRAL NERVOUS SYSTEM 3,463 (16) 2,271 (19) 748 (11) 444 (7)Seroxat/Paxil 1,063 (39) 519 (51) 251 (31) 293 (8) Paxil IR 667 (53) 131 (82) 251 (31) 285 (10) Paxil CR 396 14 388 13 - - 8 >100Wellbutrin 751 (12) 735 (12) 1 >100 15 (37) Wellbutrin IR, SR 284 (64) 270 (65) 1 >100 13 (44) Wellbutrin XL 467 >100 465 >100 - - 2 >100Imigran/Imitrex 682 (2) 492 (2) 142 (2) 48 (6)Lamictal 678 32 414 49 219 10 45 12Requip 116 25 53 26 56 22 7 35 ANTI-VIRALS 2,360 8 1,165 12 725 1 470 7 HIV 1,463 4 747 4 559 2 157 8Combivir 571 4 280 4 226 5 65 (1)Trizivir 322 (8) 177 (10) 130 (8) 15 13Epivir 294 7 139 4 115 10 40 14Ziagen 155 - 73 (5) 60 (1) 22 25Retrovir 43 2 17 - 16 4 10 3Agenerase, Lexiva 63 80 46 >100 12 21 5 29 Herpes 718 15 380 31 138 (5) 200 6Valtrex 571 24 369 30 90 6 112 19Zovirax 147 (10) 11 38 48 (21) 88 (8)Zeffix 130 7 11 18 22 27 97 3 ANTI-BACTERIALS 1,561 (9) 356 (24) 701 (6) 504 1Augmentin 708 (9) 223 (21) 298 (9) 187 9 Augmentin IR 533 (5) 59 (15) 293 (10) 181 8 Augmentin ES 74 (39) 69 (42) - - 5 >100 Augmentin XR 101 6 95 1 5 >100 1 >100Zinnat/Ceftin 218 (7) 9 (52) 133 - 76 (8) METABOLIC 1,253 27 852 26 135 19 266 35Avandia, Avandamet 1,116 32 852 26 103 49 161 62 VACCINES 1,196 11 268 6 523 7 405 21Hepatitis 406 3 134 (5) 201 7 71 9Infanrix, Pediarix 357 12 129 16 162 11 66 8 ONCOLOGY & EMESIS 934 2 679 2 170 6 85 (5)Zofran 763 8 565 10 130 5 68 (2)Hycamtin 99 (3) 64 (7) 29 13 6 (19) CARDIOVASCULAR & UROGENITAL 933 31 563 27 262 51 108 15Coreg 432 34 425 37 - - 7 (43)Levitra 49 41 20 - 21 87 8 >100Avodart 64 >100 34 >100 27 >100 3 >100 OTHER 1,031 (7) 88 (1) 326 (5) 617 (8)Zantac 273 (12) 70 1 72 (22) 131 (13) -------------- -------------- ------------- -------------TOTAL PHARMACEUTICALS 17,146 1 8,425 - 5,128 2 3,593 3 -------------- -------------- ------------- ------------- Pharmaceutical turnover includes co-promotion income. PHARMACEUTICAL TURNOVER Three months ended 31st December 2004 Total USA Europe International -------------- -------------- ------------ ------------ £m CER% £m CER% £m CER% £m CER% ----- ----- ----- ----- ----- ----- ---- -----RESPIRATORY 1,173 4 568 7 403 (2) 202 8Seretide/Advair, 920 5 458 8 328 (1) 134 13 Flixotide/Flovent, SereventSeretide/Advair 668 13 367 16 238 7 63 21Flixotide/Flovent 167 (8) 64 (11) 50 (13) 53 3Serevent 85 (17) 27 (25) 40 (22) 18 22Flixonase/Flonase 143 5 105 2 14 5 24 23 CENTRAL NERVOUS SYSTEM 837 (9) 536 (6) 183 (19) 118 (10)Seroxat/Paxil 242 (23) 108 (20) 55 (38) 79 (13) Paxil IR 144 (34) 13 (69) 55 (38) 76 (16) Paxil CR 98 1 95 (1) - - 3 >100Wellbutrin 164 (24) 159 (24) 1 >100 4 (29) Wellbutrin IR, SR 30 (85) 25 (87) 1 >100 4 (34) Wellbutrin XL 134 >100 134 >100 - - - -Imigran/Imitrex 177 - 130 5 35 (15) 12 (2)Lamictal 182 31 113 58 58 (2) 11 14Requip 32 23 15 40 15 8 2 23 ANTI-VIRALS 606 8 291 12 189 3 126 7 HIV 375 6 186 7 146 2 43 13Combivir 147 4 70 3 60 6 17 3Trizivir 75 (12) 38 (12) 32 (15) 5 12Epivir 73 8 32 - 30 10 11 31Ziagen 38 1 17 (6) 16 4 5 18Retrovir 11 8 4 (3) 4 14 3 16Agenerase, Lexiva 21 66 15 76 4 65 2 (10) Herpes 183 14 95 24 35 2 53 5Valtrex 146 20 92 23 23 12 31 18Zovirax 37 (6) 3 93 12 (13) 22 (9)Zeffix 34 - 3 6 6 13 25 (4) ANTI-BACTERIALS 396 (20) 85 (45) 184 (11) 127 (3)Augmentin 170 (30) 50 (55) 78 (12) 42 (6) Augmentin IR 135 (17) 19 (41) 76 (13) 40 (5) Augmentin ES 5 (93) 3 (95) - - 2 (12) Augmentin XR 30 (12) 28 (15) 2 >100 - -Zinnat/Ceftin 58 (15) 2 (43) 36 (17) 20 (3) METABOLIC 324 18 218 17 37 13 69 23Avandia, Avandamet 287 21 218 17 29 32 40 40 VACCINES 350 23 79 30 156 20 115 24Hepatitis 109 10 34 (6) 56 19 19 21Infanrix, Pediarix 100 35 40 63 48 23 12 14 ONCOLOGY & EMESIS 229 5 165 6 42 2 22 2Zofran 190 7 140 10 32 - 18 1Hycamtin 24 (7) 15 (14) 8 15 1 (9) CARDIOVASCULAR & UROGENITAL 280 50 151 36 96 100 33 22Coreg 115 29 114 33 - - 1 (52)Levitra 12 78 5 >100 6 47 1 40Avodart 23 >100 11 >100 10 >100 2 >100 OTHER 292 8 21 33 107 20 164 -Zantac 69 (6) 16 23 17 (22) 36 (8) -------------- -------------- ------------- -------------TOTAL PHARMACEUTICALS 4,487 3 2,114 4 1,397 2 976 5 -------------- -------------- ------------- ------------- Pharmaceutical turnover includes co-promotion income. CONSUMER HEALTHCARE TURNOVER Year ended 31st December 2004 Growth /(decline) £m CER% --------- --------Over-the-counter medicines 1,489 2Analgesics 349 7Dermatological 193 (14)Gastrointestinal 256 (1)Respiratory tract 152 4Smoking control 341 14Natural wellness support 156 (1) Oral care 1,088 4Nutritional healthcare 636 5 --------- --------Total 3,213 3 --------- -------- CONSUMER HEALTHCARE TURNOVER Three months ended 31st December 2004 Growth /(decline) £m CER% --------- --------Over-the-counter medicines 415 -Analgesics 88 1Dermatological 48 (12)Gastrointestinal 67 (3)Respiratory tract 52 -Smoking control 107 10Natural wellness support 43 1 Oral care 283 1Nutritional healthcare 148 1 --------- --------Total 846 1 --------- -------- FINANCIAL REVIEW - PROFIT AND LOSS ACCOUNT Trading profit 2003 ------------------ Business 2004 performance Statutory % of (restated) % of Growth/(decline) £m turnover £m turnover CER% £% ------ ------ ------ ------ ----- ----Turnover 20,359 100.0 21,441 100.0 1 (5) Cost of sales (4,309) (21.2) (4,188) (19.5) 7 3Selling, general and (7,061) (34.7) (7,579) (35.4) (2) (7)administrationResearch and development (2,839) (13.9) (2,770) (12.9) 8 2 ------ ------ ------ ------ ----- ----Trading profit 6,150 30.2 6,904 32.2 (1) (11) ------ ------ ------ ------ ----- ---- Overall the trading margin declined 2.0 percentage points as sterling trading profit declined 11% on a sterlingturnover decline of 5%. At constant exchange rates trading profit declined 1% and the margin declined 0.7 percentagepoints, reflecting a 7% increase in cost of sales and an 8% increase in research and development (R&D) expenditure,partly offset by a 2% decline in selling, general and administration (S,G&A), while turnover grew 1%. Cost of sales increased as a percentage of turnover by 1.7 percentage points. At constant exchange rates the increasewas 1.1 percentage points, reflecting the loss of higher margin Paxil IR and Wellbutrin SR sales and adverse productand regional mixes. S,G&A as a percentage of turnover declined 0.7 percentage points. At constant exchange rates the decline was 1.2percentage points. The principal reasons for the decline relative to 2003 were lower charges relating to programmes todeliver future cost savings, reduced asset write-downs and other general savings, partly offset by higher provisionsfor legal matters. R&D expenditure as a percentage of turnover increased by 1 percentage point, of which 0.2 percentage points were due tocurrency. The remaining 0.8 percentage point rise principally reflected increased clinical trial activity.Pharmaceuticals R&D expenditure represented 15.9% of pharmaceutical turnover. Other operating income/(expense) Other operating income/(expense) includes litigation costs and provisions relating to legal claims on withdrawnproducts, product withdrawals and anti-trust matters and sales, marketing and pricing matters, equity investmentcarrying value adjustments arising from stock market price changes, royalty income, product disposals and equityinvestment sales. Net other operating expense was £60 million compared with £133 million in 2003. The net charge in 2004 reflects lowerlegal provisions and lower sales of equity investments compared with 2003. Taxation 2003 Business performance Statutory 2004 (restated) (restated) £m £m £m ---- ---- ----UK Corporation tax at 30% 273 370 383 Overseas taxation 1,394 1,624 1,578Deferred taxation (6) (196) (272)Share of associates tax 40 40 40 ---- ---- ----Taxation 1,701 1,838 1,729 ---- ---- ---- The charge for taxation on profit amounting to £1,701 million represents an effective tax rate of 27.8% (2003 - 27.4%)which represents an increase of 0.4 percentage points, primarily attributable to the higher effective tax rate on thedisposal of Quest shares during 2004. The integrated nature of the Group's worldwide operations, involving significant investment in research and strategicmanufacture at a limited number of locations, with consequential cross-border supply routes into numerous end-markets,gives rise to complexity and delay in negotiations with revenue authorities as to the profits on which individual Groupcompanies are liable to tax. Disagreements with, and between, revenue authorities as to intra-Group transactions, inparticular the price at which goods should be transferred between Group companies in different tax jurisdictions, canproduce conflicting claims from revenue authorities as to the profits to be taxed in individual territories.Resolution of such issues is a continuing fact of life for GlaxoSmithKline. The Group has open issues with the revenueauthorities in the USA, UK, Japan and Canada. By far the largest relates to Glaxo heritage products, in respect ofwhich the US Internal Revenue Service (IRS) and UK Inland Revenue have made competing and contradictory claims. GlaxoSmithKline has attempted to settle the US dispute, first through direct discussion with the IRS and subsequentlythrough discussions between the US and UK authorities under the terms of the double tax convention between the twocountries and discussions were terminated in July 2003. On 6th January 2004, the IRS issued a Notice of Deficiency forthe years 1989-1996 claiming additional taxes of $2.7 billion. On 2nd April 2004 the Group filed a petition in the USTax Court disputing the IRS claim and seeking a refund of $1 billion in taxes. On 25th January 2005 the IRS issued afurther Notice of Deficiency for the years 1997-2000 claiming additional taxes of $1.9 billion. If the IRS claims forthe years 1989-2000 were upheld, the Group would additionally be liable for interest on late payment, estimated toamount to $3.0 billion at 31st December 2004, giving a total of $7.6 billion for the years 1989-2000. The Groupexpects to file a petition against the claims for 1997-2000 in April 2005, including a further claim for refund oftaxes, and will ask the Tax Court to consolidate the IRS claims for all the years 1989-2000 into a single trial. ARelated Shares:
Glaxosmithkline