At its inaugural meeting for analysts and investors, GlaxoSmithKline plc (GSK) today outlined its R&D and business strategies for the new company.

Dr Jean-Pierre Garnier, Chief Executive Officer, said: "Today we have provided compelling evidence that the promise of the merger will be fulfilled. GSK is well positioned to successfully address the key challenges confronting pharmaceutical companies. We are determined to enhance R&D productivity, build a rich pipeline and reduce our costs. We believe GSK has what it takes to achieve financial growth and become an even stronger force in the industry."

Dr Tachi Yamada, Chairman, Research and Development, added: "In GSK we have brought together two complementary R&D portfolios to create one of the most exciting and innovative early stage pipelines in our industry. GSK has the skills and resources to harness the potential of the human genome, building on our previous investments in integrated technology platforms. In addition, we are announcing today a radical restructuring of our R&D organisation, which will take advantage of scale, while promoting focus and entrepreneurialism.

While improving pharmaceuticals sales growth is a key driver of GSK’s current strong business performance, the company will also benefit from the delivery of at least £1.6 billion in cost savings by 2003 as a result of both the merger and the manufacturing plans already in place prior to the merger.

These benefits of the merger and the performance of the business have led the company to forecast EPS growth (excluding merger and restructuring costs and the effects of currency) for 2001 of around 13%, despite the adverse effect of product divestments and reduced dependency on profits from disposals of investments. Importantly, the divestments required by regulatory bodies in order to complete the merger have had the effect of reducing the company’s EPS expectation for the year by 6%. Additionally John Coombe, Chief Financial Officer, indicated he expects a trading margin improvement of up to 2% in 2001 as well as an improvement in the tax rate of 0.5%.

In 2002, the company expects EPS growth to accelerate to the mid-teens, reflecting strong business performance, boosted by cost savings. For the second year in a row, one-time gains are expected to decline.

John Coombe said: "While we continue to focus on delivering a successful merger, the company has negligible net debt relative to its market capitalisation, and its financial strength positions it to take advantage of any opportunities that might arise to build the business."

Dr Garnier indicated that GlaxoSmithKline's strategy for growth is based on fully supporting new and existing products, strengthening the product pipeline, boosting the company’s output of new products and achieving cost savings from the merger.

Rolling Out Key New Products

Dr James Palmer, Senior Vice President, New Product Development, told analysts: "GSK will sustain and enhance its growth by delivering innovative products, maximising product life cycles through line extensions and new indications, and being a favoured partner for in-licensing of promising new medicines."

GSK is set to benefit from the recent launch of two potential blockbuster drugs, a unique source of strength for the company. Avandia, GSK's treatment for Type 2 diabetes, has done well with total sales of £462 million in 2000. Avandia offers significant opportunities for growth as it continues to be launched in Europe and the rest of the world during 2001. Moreover, the company is pursuing an extensive clinical programme to attempt to demonstrate Avandia’s ability to prevent disease progression and reduce complications associated with Type 2 diabetes. In February 2001 the company received an approvable letter from the FDA for the use of Avandia in combination with insulin.

The company's other potential blockbuster, Seretide - the combination of a corticosteroid and a long-acting bronchodilator for the treatment of asthma - is planned for launch in the US under the name Advair in April this year, giving it access to the world's largest market where the benefits of inhaled steroid treatment are increasingly being recognised. In the US, Advair will have a broad label, allowing usage in asthma patients of all types. New data from 11 key studies will help to sustain Seretide/Advair as the gold standard therapy for asthma treatment worldwide.

Additional studies with Seretide/Advair have provided clear evidence of its benefits in the treatment of COPD (chronic obstructive pulmonary disease). The company's strategy for unlocking the COPD market includes gaining COPD indications for Seretide/Advair, and securing regulatory approval for Ariflo, an oral anti-inflammatory treatment for COPD. Regulatory submissions for Seretide/Advair in the treatment of COPD are expected to be filed in the US in March, and September in Europe.

With sales of £2.8 billion in 2000, up 15%, GlaxoSmithKline remains the clear leader of the respiratory market.

GlaxoSmithKline's newest HIV/AIDS treatment, Trizivir, combines the two established HIV/AIDS medicines Epivir + Retrovir (Combivir), with the potent reverse transcriptase inhibitor Ziagen to offer the power of a triple combination regimen in a single tablet. Trizivir reduces the pill burden to 1 pill twice a day, increasing patient convenience. As a triple regimen that does not contain a protease inhibitor, Trizivir may also preserve future treatment options containing those drugs.

Expanding Key Therapeutic Franchises

The antibiotic Augmentin has always been associated with superior efficacy, and current treatment guidelines include it as one of only a short list of antibiotics recommended for acute otitis media and sinusitis. In a continuing programme to increase its competitive advantage, the company is planning to launch extra-strength formulations of the product for both the paediatric (Augmentin ES) and adult (Augmentin SR) markets to meet the challenge of emerging bacterial resistance. This strategic move is intended to enhance Augmentin’s position as the drug of choice in treating PRSP (penicillin resistant S. pneumoniae). Recently the company received an approvable letter from the FDA for the use of Augmentin ES to treat middle ear infection in children. The file for Augmentin SR was submitted to the FDA in December 2000.

In the CNS (Central Nervous System) category, GSK will pursue a dual strategy to continue growing the Seroxat/Paxil business. With its immediate release (IR) formulation, the company will expand into new markets and will offer a complete spectrum of treatment for depression and anxiety disorders. This will include launches in 2001 for GAD (General Anxiety Disorder), and PTSD (Post-Traumatic Stress Disorder). A controlled release formulation of Paxil, Paxil CR, already approved in the US for depression, has recently received an approvable letter from the US FDA for panic disorder. Paxil is also in full clinical development for PMDD (Pre-menstrual Dysphoric Disorder). In 2000, Seroxat/Paxil became the leading SSRI (selective seretonin reuptake inhibitor) in the US in terms of new retail prescriptions, and achieved sales of £1.55 billion worldwide.

Coreg (carvedilol) is the first beta-blocking agent to be indicated for the treatment of mild or moderate heart failure. It is also the only beta-blocking agent to show a mortality benefit in the treatment of severe heart failure, and a filing for this indication is expected to be made with the US FDA later this year.

In-Licensing Partner of Choice

Even in the midst of merger planning, a record nine significant compounds have been licensed in to GSK in the past twelve months. These are:

"We’re committing our considerable development capabilities towards bringing these promising in-licensed compounds to patients," Dr Palmer said. "All of these products have the potential to contribute significantly to GSK’s future growth, benefiting from the sales and marketing strength of the new organisation."

Delivering Current Pipeline NCEs and Vaccines to the Marketplace

GlaxoSmithKline's investment in R&D has yielded 161 New Chemical Entities, vaccines and line extensions in development. Of this total, 117 are currently in clinical development (ie. Phase I onwards).

Dr Allan Baxter, Senior Vice President, Drug Discovery, said: "Far-sighted and imaginative investment in new technologies by both Glaxo Wellcome and SmithKline Beecham has yielded a full and innovative early stage pipeline. This pipeline has the potential both to reinforce our existing areas of therapeutic leadership and to allow us to expand further into other areas with major commercial promise, including obesity, cancer, and cardiovascular disease."

Among the exciting Phase I/II compounds highlighted by Dr Baxter are:

In the later stages of the development pipeline (Phase III), Dr Palmer highlighted the progress of several compounds nearing completion of registration:-

GW433908 is an improved formulation to deliver Agenerase, an HIV protease inhibitor with proven safety and efficacy. Preliminary evidence from Phase II comparative studies show that '908 has a better GI side effect profile than Agenerase, and will allow a significant reduction of the pill burden from 16 to 6 per day. Regulatory filings are expected in Europe and the US in 2002.

GI198745 is a dual 5-alpha reductase inhibitor for the treatment of BPH (benign prostatic hyperplasia) and hair loss. The NDA submission for BPH was filed in December 2000. Clinical trials for hair loss have shown encouraging results for hair restoration after 6 months of treatment.

>G1262570 is the first in a new class of non-glitazone PPAR agonists that is being developed for the treatment of Type 2 diabetes. '570 is currently in a large Phase III programme, data from which will further specify the profile of this product. Two additional GSK compounds in this class are currently in Phase I.

Factive, a broad-spectrum quinolone antibiotic, has the potential to become the most potent product in its class for the treatment of adult respiratory infections caused by S. pneumoniae, a common pathogen that is becoming increasingly resistant to currently marketed antibiotics. The company is in discussions with the FDA with the aim of resolving outstanding issues and gaining approval of its NDA.

Ariflo, a PDE4 receptor inhibitor for COPD, is in Phase III clinical trials with an NDA planned for the second half of 2002.

Tranilast, being developed for restenosis, is also in Phase III clinical studies. Regulatory filings are planned for fourth quarter 2001.

Bexxar a novel therapy for non-Hodgkin’s lymphoma, was submitted and accepted in late 2000, and is under priority review by the US FDA.

GSK's Vaccines business is also contributing to both the short and long term prospects of the company through a strong pipeline of new products. In the short-term, growth will be boosted by the launch this year of Infanrix PeNta in the US, as well as Twinrix for adults, the first and only vaccine that protects against hepatitis A and B. GSK has a wealth of late stage development products: for example, a paediatric combination vaccine against meningitis A and C, set to be launched into a market with a $500 million potential; as well as a second generation vaccine against S. pneumoniae and a vaccine against rotavirus, each directed at a $1 billion market. Exciting long-term opportunities include the search for vaccines for global challenges such as HIV and malaria, and the creation of a new generation of therapeutic vaccines.

Jean Stephenne, President and General Manager, GlaxoSmithKline Biologicals, said: "I am particularly excited about our extremely full pipeline that includes 23 vaccines, five of which will be introduced this year: Twinrix adult, Infanrix PeNta and HeXa, Tritanrix HB Hib, and Boostrix."

The three key elements in increasing the efficiency and output of GSK’s R&D activities are the re-design of its organisational structure, continuing investment in harnessing the potential of the human genome and leveraging our abilities to demonstrate the value of our products.

R&D Restructuring

"We have created six Centres of Excellence for Drug Discovery (CEDDs) designed to act as small business units within the larger R&D organisation," Dr Yamada said: "The new structure will maintain the momentum to deliver the existing pipeline, capture the advantages of scale and promote agility and entrepreneurial spirit. At the same time it will create an environment to stimulate the best and the brightest scientists and provide the flexibility to accommodate future change."

The CEDDs can select the best assets from either internal discovery or in-licensing to move rapidly from the identification of promising compounds to the proof of concept stage. The CEDDs are structured to encompass both discovery and early clinical development. Each CEDD is autonomous, accountable, and entrepreneurial along the lines of a biotech company.

Harnessing the Potential of the Human Genome and Demonstrating Value

In addition to the agility of the CEDDs, the new structure retains the benefit of scale and size in drug discovery and development. In particular, the company is benefiting from its previous investment in technologies in genetics and discovery research such as high throughput gene-sequencing, chemistry and screening. Integrating these technologies further with high throughput biology will be the key to unlocking the value of genomics through a better understanding of gene function.

One exciting opportunity arising from GSK’s genomics effort, described by Dr Yamada, involves the inhibition of an enzyme, Lp-PLA₂, which has been identified as a major new risk factor in cardiovascular disease. A lead compound, 435495, has demonstrated its ability to reduce significantly the level of Lp-PLA₂ in man.

GSK has advanced capabilities to demonstrate the economic as well as medical benefits of the company’s products. These include programmes in pharmacogenetics, advanced experimental medicinal technologies, and preferential access to large medical databases.

GlaxoSmithKline - one of the world's leading research-based pharmaceutical and healthcare companies - is committed to improving the quality of human life by enabling people to do more, feel better and live longer.

Under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995, GSK cautions investors that any forward-looking statements or projections made by GSK, including those made in this Announcement, are subject to risks and uncertainties that may cause actual results to differ materially from those projected. Factors that may affect GSK's operations are discussed in Annex I to this Announcement.

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