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GSK delivers good 2007 performance

Pharmaceuticals
GSK's Pharmaceutical turnover in 2007 was in line with 2006 as high value growth products were offset by lower Avandia sales and US generic competition to Coreg IR, Flonase, Wellbutrin XL and Zofran. High-value growth products included Seretide/Advair, vaccines, Lamictal, Valtrex, Requip, Avodart and Boniva.

GSK continues to be a global leader in respiratory pharmaceuticals with sales of its three key products, Seretide/Advair, Flixotide/Flovent and Serevent amounting to £ 4.4 billion, up 8%. Total sales of Seretide/Advair, for asthma and COPD, rose 10% to £3.5 billion. Sales in the USA grew 9% to £1.9 billion, in Europe, grew 9% to £1.2 billion and in International markets, grew 23% to £372 million, enhanced by its launch in Japan in June.

Seretide/Advair market share by value in the anti-asthma and COPD therapy class was 29% in Europe and 31% in the USA.

Central nervous system sales decreased 2% to £3.3 billion. Sales decreased in the USA and Europe, reflecting generic competition for Seroxat/Paxil. Total Wellbutrin sales declined 37% to £529 million, owing to US generic competition. Sales of Lamictal, for the treatment of epilepsy and bipolar disorder, grew 18% to £1.1 billion, driven by sales in the USA which increased 26% to £892 million.

Sales of Requip, for Parkinson's disease and Restless Legs Syndrome grew 36% to £346 million. Requip XL, a new once-daily formulation for Parkinson's disease, has now been approved in 13 European countries and launched in seven markets.

Within Antivirals, sales of HIV products were £1.4 billion, down 1%. Competition to older products, Combivir and Epivir, was largely offset by strong sales growth of new products, Epzicom/Kivexa, which grew 39% to £324 million and Lexiva/Agenerase up 13% to £141 million. Sales of Valtrex, for herpes, rose 18% to £934 million, with the USA up 20% to £668 million, Europe up 9% to £120 million and International up 13% to £146 million. Sales of Relenza, an antiviral treatment for flu, were £262 million (2006 - £91 million), driven primarily by one-off government orders for stockpiling against a possible flu pandemic.

Sales of the Avandia product group, for type 2 diabetes, declined 22% to £1.2 billion. In the USA sales fell 29% to £780 million, following publication of an article in the New England Journal of Medicine, which suggested that there may be cardiovascular risk associated with Avandia. Despite GSK's efforts, doctors became reluctant to start new patients on Avandia without further guidance from the FDA. Following clarification from the FDA in October, there is now a new approved label for Avandia. In 2007 sales in Europe grew 4% to £227 million, but declined 7% to £212 million in International markets.

GSK recorded a £161 million share of co-promotion income for Boniva/Bonviva, a once-monthly oral treatment of postmenopausal osteoporosis.

Vaccine sales increased 20% to £2.0 billion, with good performances in all regions: Sales of hepatitis vaccines grew 14% to £529 million, driven by US growth of 33%. Infanrix/Pediarix grew 9% to £543 million, again driven by US growth of 23%. Sales of the new two-dose vaccine, Rotarix, to prevent rotavirus gastroenteritis, doubled to £91 million, with strong growth in both Europe and International. Sales of Cervarix, GSK's vaccine to prevent cervical cancer, were £10 million. It has been approved in over 50 countries and licensing applications have been submitted in 28 countries including Japan, GSK's prepandemic influenza vaccine achieved sales of £146 million. Discussions regarding further orders continue with a number of governments.

In Cardiovascular and urogenital, sales of Coreg, for heart disease, fell 18% to £587 million, following the introduction of US generic competition. Sales of Coreg CR, which was launched in March 2007, were £88 million. Avodart for enlarged prostate, continued to perform strongly with sales up 38% to £285 million.

Anti-bacterial sales declined 1% to £1,330 million reflecting generic competition in all regions. In Oncology and emesis Tykerb achieved sales of £51 million in its first year; £36 million in the USA following its launch in March. Sales of Zofran declined 77% to £196 million, reflecting generic competition.

Competition
The pharmaceutical industry is highly competitive. GSK's principal competitors range from small to large pharmaceutical companies, often with substantial resources. Pharmaceuticals may be subject to competition from other products during the period of patent protection and, once off patent, from generic versions. Following the loss of patent protection, generic products rapidly capture a large share of the market. For further details, please see 'Products and Competition' on pages 32 to 35 in the Annual Report 2007.

Pharmaceutical turnover by therapeutic area:
	2007 £m		2006 £m		Growth CER%
Respiratory	5,032		4,995		5
Central nervous system	3,348		3,642		(2)
Antivirals	3,028		2,827		13
Metabolic	1,514		1,875		(15)
Vaccines	1,993		1,692		20
Cardiovascular and urogenital	1,554		1,636		-
Antibacterials	1,330		1,369		(1)
Oncology and emesis	477		1,069		(54)
Other	957		973		1
	19,233		20,078		-

Presentation
Management reports business performance, a non-IFRS measure which excludes costs relating to the new Operational Excellence programme, which commenced in October 2007, as it believes this provides a more useful indication of the performance of the Group.

In order to illustrate underlying performance, it is the Group's practice to discuss its results in terms of constant exchange rate (CER) growth. This represents growth calculated as if the exchange rates used to determine the results of overseas companies in sterling had remained unchanged from those used in the previous year. All commentaries are presented in terms of CER unless otherwise stated.

Consumer Healthcare sales
Consumer Healthcare sales recorded growth of 14% to £3,483 million. Over-the-counter sales grew 20% to £1.7 billion, with Panadol up 14% to £262 million and alli, GSK's weight management product, achieving sales of £150 million, since its -US launch in June. Oral care sales increased 8% to over £1 billion, helped by the success of the new Aquafresh White Trays and Sensodyne Pronamel. Nutritional healthcare sales grew 9% to £716 million with Lucozade growing 16% to £347 million and Horlicks 12% to £174 million. Ribena sales were down 7% to £156 million.

Operational Excellence
GSK announced in October 2007 a significant new £1.5 billion Operational Excellence programme to improve the effectiveness and productivity of its operations. This new programme is expected to deliver annual pre-tax savings of £700 million by 2010. GSK has introduced a 3-column approach to the income statement. In order to illustrate underlying business performance, a supplemental non-IFRS measure which is the primary performance measure used by management, restructuring costs relating to the new Operational Excellence programme and significant acquisitions are identified separately and are excluded from business performance. Management believes that exclusion of these items provides a more useful indication of the performance of the Group

Operating profit - business performance
Business performance operating profit of £7,931 million increased by 8% in CER terms compared with 2006 and was above turnover growth of 2% in CER terms, reflecting lower SG&A and R&D costs and higher other operating income.

Operating profit - total
Total operating profit, including restructuring costs of £338 million, was £7,593 million and total EPS was 94.4 pence.

Taxation
The charge for taxation on total profit amounting to £2,142 million represents an effective tax rate of 28.7% (2006 - 29.5%). The charge for taxation on business performance profit, amounting to £2,219 million, represents an effective tax rate of 28.5% (2006 - 29.5%).

The Group's main open tax issues are in the UK, USA, Canada and Japan. See Note 14 to the financial statements, 'Taxation', in the Annual Report 2007 for further details.

Earnings per share
Total results including restructuring costs related to the new Operational Excellence programme produced a basic EPS of 94.4p compared with 95.5p in 2006. This was a 5% increase in CER terms compared with 2006, but a 1% decline in sterling terms. Business performance earnings per share were 99.1p, up 10%.

Dividend
The Board has declared a fourth interim dividend of 16 pence per share, resulting in a dividend for the year of 53 pence per share, a 5 pence increase over the dividend of 48 pence for 2006.

Share buy-back programme
In July 2007, GSK announced an increased share buy-back programme to £12 billion, a £7.7 billion increase compared with continuation of the existing programme. The new programme is expected to be completed over a two year period. In 2007, £3,537 million of the shares were repurchased and held as Treasury shares and a further £213 million were purchased for cancellation.

Cash flow
The net cash inflow from operating activities after taxation paid was £6,161 million, an increase of £1,804 million over 2006. Free cash flow was £3,857 million, an increase of 47% over 2006, principally reflecting the impact of the US tax settlement in 2006, partly offset by higher levels of capital expenditure.

From July 2007 onwards, GSK tightened its criteria for holding cash equivalents and liquid investments in response to the credit crisis. GSK has suffered no loss of principal as a result of this crisis.

2008 outlook
Sales growth of existing products and launches of new products are key drivers of GSK's business. The sales growth from key products such as Seretide/Advair, vaccines, Valtrex and the high potential products, Avodart, Arixtra and Boniva is expected to continue in 2008. Sales growth is also expected from newer products Lovaza, Cervarix, Tykerb/Tyverb, Rotarix, Veramyst/Avamys and Altabax/Altargo. Sales growth of Avandia, GSK's product for diabetes, has been adversely impacted following publication in May 2007 of a meta-analysis. GSK expects a sustained flow of new products in the next two years. Thirteen new product opportunities are currently filed with regulators; these include Promacta (USA), Rotarix (USA), Treximet (USA) and Synflorix (EU and International). GSK currently has 34 key assets in phase III development/registration.

In its published earnings guidance for 2008 GSK expects that the impact of lower Avandia sales, together with increased generic competition, will lead to a mid-single digit percentage decline in business performance EPS, at constant exchange rates.

Legal proceedings
The Group is involved in significant legal and administrative proceedings, principally product liability, intellectual property, tax, antitrust and governmental investigations and related private litigation. See Note 44 to the financial statements, 'Legal proceedings', in the Annual Report 2007 for a discussion of proceedings and investigations in which the Group is involved.

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