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Chairman and CEO summary
We consult our stakeholders in many ways. From shareholders, patients, governments, non-government organisations, payers and employees we hear many different questions. For this year's Annual Review we have focused on five key questions that lie at the heart of our business.
It is natural that our stakeholders want to know how we are facing the challenges of the fast-changing healthcare environment, and how we plan to convert our strategic direction into profitable results, which should return value to our shareholders.
Our 2007 Annual Review aims to answer these questions and demonstrate that our strategic focus on research and development, which is delivering improved pipeline productivity, will enhance returns to shareholders over the long-term. The success of our Consumer Healthcare business and the strong performance of many key pharmaceutical and vaccine products in our current portfolio are also providing strong contributions to growth and helped us to deliver 2007 business performance earnings per share (EPS) growth of 10 per cent at constant exchange rates (CER*); results that were at the high end of our guidance.
We also continue to balance the needs of our shareholders with our commitment to improve healthcare in communities across the world - we feel this is not just the right thing to do; but the only thing to do.
Financial performance and outlook
Total sales were £22.7 billion, up two per cent, and business performance EPS was 99.1p, up 10 per cent from 2006. The Board declared a dividend for the year of 53p, up from 48p for 2006.
Pharmaceutical turnover was level at £19.2 billion, impacted by generic competition in the US and a decrease of 22 per cent in Avandia sales globally. Among other key products, sales of Seretide/Advair for asthma and COPD rose by 10 per cent to £3.5 billion while those for Lamictal, for epilepsy and bipolar disorder, increased by 18 per cent to £1.1 billion. The vaccines business grew by 20 per cent to £2 billion. Consumer Healthcare generated strong sales growth, up 14 per cent to almost £3.5 billion.
2007 also saw the launch of the largest share buy-back programme in our industry; share repurchases of £2.5 billion were made in 2007 under this programme and a further £6 billion are expected in 2008. We expect to repurchase £12 billion of shares under this programme by mid -2009.
In May 2007, an article in the New England Journal of Medicine suggested that there may be cardiovascular risk associated with Avandia, our second largest product. This was followed by intense media coverage and despite our efforts to explain the entirety of the data, which did not confirm this risk, sales of Avandia dropped significantly in the second half of 2007.
The decline in Avandia sales, together with increased generic competition in the US, will adversely impact our earnings in 2008 and we expect a mid-single digit percentage decline in business performance EPS, at CER. Looking ahead we remain confident in GSK's future. Our fast-growing vaccines business, the resurgence of our Consumer Healthcare division and the strong performance of key pharmaceutical products are providing contributions to growth. The momentum of our late-stage pipeline continues to enhance our business and is producing a significant renewal of our product line.
Seeing results from our investment in R&D
Last year, GSK received a record 10 product approvals and filed 10 product applications. New products launched during 2007 were Tykerb, for breast cancer, Veramyst/Avamys, for allergic rhinitis, Altabax/Altargo for the treatment of skin infections and Cervarix our vaccine for the prevention of cervical cancer.
We currently have 13 new product opportunities filed with regulators and commenced nine new phase III clinical development programmes in 2007. There are at present 34 key assets in the phase III or registration stages.
Leading the way
Although the future remains challenging, GSK is determined to remain an industry leader across many fronts; not only through our pipeline progress but also through efficiency initiatives and by fulfilling our responsibilities to communities worldwide.
In October we announced a significant new £1.5 billion Operational Excellence programme to improve operational efficiency and productivity. We expect this to deliver annual pre-tax savings of £700 million by 2010.
During 2007, our global community investment contributions continued to deliver a positive influence on the lives of people worldwide and we are proud to play our part to the full.
* It is the Group’s practice to discuss its results in terms of business performance
and constant exchange rates (CER). See Business operating review.
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