GlaxoSmithKline PLC
22 October 2003
Issued: 22nd October 2003, London
Results Announcement for the Third Quarter 2003
GSK DELIVERS STRONG QUARTERLY PERFORMANCE
Q3 BUSINESS PERFORMANCE* EPS GROWTH OF 21% CER, 24% REPORTED
GlaxoSmithKline plc (GSK) today announces its results for the third quarter ended 30th September 2003. The full UK
GAAP results (statutory results) are presented under 'Profit and loss account' on pages 6 and 7. The business
performance and statutory results are summarised below and the commentary that follows is on a business performance
basis unless otherwise stated.
FINANCIAL RESULTS
Q3 2003 Increase 9 months 2003 Increase
£m CER % £% £m CER % £%
Turnover 5,466 9 9 16,063 7 3
Business performance*
Trading profit 1,752 13 13 5,450 14 9
Profit before tax 1,693 20 22 5,436 18 13
Earnings per share 20.7p 21 24 66.4p 20 15
Statutory results
Trading profit 1,719 35 35 5,222 26 20
Profit before tax 1,660 47 50 5,211 31 25
Earnings per share 20.2p 48 51 63.5p 32 26
Q3 2003 HIGHLIGHTS*
• Pharmaceutical turnover grew strongly, up 10% to £4.6 billion in the quarter, driven by US turnover
growth of 14%.
• GSK successfully launched two key products into the US market:
- Levitra, for erectile dysfunction, has captured over 12% of new prescriptions in its 6th week on
the market;
- Wellbutrin XL, for depression, already represents 19% of new Wellbutrin prescriptions in its 5th
week on the market.
• Seretide/Advair, the world's leading treatment for asthma and GSK's largest product, continues to
perform exceptionally well, with sales up 40% to £552 million in the quarter.
• Generic competition to Paxil in the USA began on 8th September. This had a limited impact on the
reported quarterly sales figures, but will adversely affect Q4 2003.
• GSK's strong financial position is underlined by free cash flow of £1.8 billion in the quarter.
* Business performance, which is the primary performance measure used by management, is presented after excluding
merger items, integration and restructuring costs and disposals of businesses. Management believes that exclusion of
these items provides a better comparison of business performance for the periods presented. Statutory results include
these items.
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 on
a business performance basis and in terms of CER unless otherwise stated.
THIRD QUARTER PERFORMANCE 2003
Commenting on the performance for the quarter, JP Garnier, Chief Executive Officer, said:
'We had an extremely good performance this quarter. Of course, the launch of generic Paxil late in the quarter will
have an adverse impact on future sales. However, the continued strong growth of our key products, such as Advair and
Avandia, and the successful US launches of Wellbutrin XL and Levitra, clearly demonstrate the commercial strength of
our business. We are now looking forward to our R&D Day in December, where we will provide an update on the progress
we are making with our promising pipeline.'
STRONG PHARMACEUTICAL SALES GROWTH
• Turnover in the United States grew 14% to £2.5 billion. Excluding the effects of the initial stocking of
newly launched products, and other trade related factors, underlying growth is estimated to be high single
digits.
• European sales grew by 3% to £1.2 billion in the quarter. Performance in the region continues to be
negatively impacted by government reforms on healthcare spending.
• Sales in International markets increased by 9% to £0.9 billion in the quarter, with good growth in Japan
(+11%) and continued improvement in trading conditions in Mexico (+25%).
BROAD PORTFOLIO OF FAST-GROWING PRODUCTS DRIVES GROWTH
A broad portfolio of fast-growing, high-value products is driving pharmaceutical sales growth:
• GSK's number one product, asthma treatment Seretide/Advair, continues to grow very strongly with sales of
£552 million in the quarter (+40%) and £1.6 billion in the year to date (+39%). In the USA, quarterly
Advair sales were up 57%, breaking £300 million for the first time. Performance was also strong in Europe,
with Seretide continuing to grow market share giving sales of over £180 million, up 15%. The respiratory
products Flixotide (sales of £166 million, down 8%) and Serevent (sales of £101 million, down 15%)
continued to be impacted by the success of Seretide. Taken together, the three products grew 18% in the
quarter.
• Avandia and Avandamet, GSK's oral anti-diabetes products, continue to perform very well. Reported US sales
growth of 60% to £197 million in the quarter benefited from a favourable comparison with the quarter last
year that was impacted by wholesaler stocking patterns. The estimated underlying growth of Avandia was
21%.
International sales of Avandia grew by 66% in the quarter. European sales grew 78% and should further
benefit from EU approval for Avandamet, which is expected in Q4 2003.
• Sales of Seroxat/Paxil, GSK's anti-depressant product, increased by 10% in the quarter to £542 million. In
the USA, sales were 12% higher at £370m (including £110 million of Paxil CR, £225 million of Paxil IR and
£35 million relating to GSK's supply agreement with Par/Pentech).
Generic competition to Paxil in the USA began on 8th September. Although this had a limited impact on the
reported quarterly sales figures, latest data (week-ending 10th October) indicates that generics have taken
a 72% share of US Paxil IR prescriptions. Encouragingly, Paxil CR has maintained its share of total
prescriptions in the US anti-depressant market since the generic launch and has just received FDA approval
for Social Anxiety Disorder.
Seroxat/Paxil performed well in International markets with sales growth of 26% in the quarter, driven by
continued strong growth in Japan (+50%).
• Total Wellbutrin sales increased 22% to £280m in the quarter. The uptake and conversion of new formulation
Wellbutrin XL has been very rapid: XL has captured 19% of new Wellbutrin prescriptions in its 5th week on
the market. Given its unique profile as the only once-daily anti-depressant with low incidences of sexual
dysfunction and weight gain, the prospects for the further growth of Wellbutrin XL sales are extremely
promising.
• Levitra, GSK and Bayer's potent new treatment for erectile dysfunction, was approved and launched in the
USA during the quarter. Levitra has made a strong start, already capturing more than 12% of new
prescriptions in its 6th week on the market. During October, GSK and Bayer released important new data
from the PROVEN study which demonstrated that men who were unresponsive to Viagra were three times more
likely to complete sexual intercourse successfully on Levitra than on placebo.
Levitra continues to make good progress in Europe, with steady gains in market share across the region.
Several other key products contributed to the strong quarterly growth:
• GSK's epilepsy treatment Lamictal performed very strongly with sales up 36% to £145 million. US sales rose
by 44%, helped by FDA approval at the end of the second quarter for the use of Lamictal in the long term
maintenance treatment of bi-polar disorder.
• Valtrex sales for Herpes rose 26% to £128 million in the quarter. US sales were up 30% to £81 million. On
29th August, Valtrex received FDA approval to reduce the risk of transmission of genital herpes.
• Estimated underlying sales of Coreg, GSK's alpha/beta blocker for the treatment of heart failure, grew 28%
in the quarter. Reported sales, up 8% to £97 million, were adversely impacted by wholesaler stocking
patterns. Overall, Coreg sales continue to benefit from data published in the recent COMET trial that
showed a highly significant statistical difference in survival between Coreg and metoprolol in patients
with heart failure.
Other items:
• GSK's HIV portfolio grew 4% to £375 million, with US HIV sales adversely impacted by wholesaler stocking
patterns in the quarter. Trizivir continues to perform strongly with global sales up 19% to £92 million.
Lexiva (the brand name for '908') was approved by the FDA on 20th October. Earlier this month, GSK filed
its new fixed dose combination of Epivir+Ziagen - this will be the first one pill, once daily dual HIV
therapy on the US market.
• Sales of Augmentin declined 12% to £177 million in the quarter due to continued generic competition. Total
anti-bacterials sales of £420 million were down 5%.
• Sales of the emesis treatment Zofran rose 19% to £199 million.
• Vaccine sales (£284 million, down 8%) were partly impacted by comparison to a strong quarter last year.
GSK's paediatric vaccines Infanrix/Pediarix performed very strongly with global sales up 21% to £83 million
(US sales up 71% to £31 million).
• During the quarter GSK announced an agreement with Yamanouchi Pharmaceutical Co., Ltd. to co-promote
Vesicare, for the treatment of urinary incontinence, in the USA. The FDA issued an approvable letter for
Vesicare on 20th October.
CONSUMER HEALTHCARE SALES OF £832 MILLION UP 4%
Sales grew 5% in Europe, 5% in International and 1% in North America.
Sales of Over-the-counter medicines were £380 million, the same level as last year. Sales of smoking control and
gastro-intestinal products declined 10% and 8% respectively, primarily as a result of private label competition in the
USA. Sales of dermatological products acquired earlier this year helped to offset these declines.
Oral care sales were up 5% to £278 million, boosted by the launch of Aquafresh Extreme Clean in the USA. Sales of
Nutritional healthcare products grew 11% to £174 million, led by sales of Lucozade which grew 22%.
FINANCIAL REVIEW
Trading profit and earnings per share
Business performance trading profit grew 13% to £1,752 million on turnover growth of 9%. The trading margin improved
1.1 percentage points to 32.1% compared with 31.0% in Q3 2002. This improvement came from cost of sales, partly offset
by higher SG&A costs. Cost of sales reduced by 1.3 percentage points on sales, this benefit principally coming from
continued merger, manufacturing restructuring, favourable mix and other cost savings. SG&A expenditure grew 12%,
reflecting increased selling costs to support new product launches, asset write downs and provisions for legal claims
against the Group.
Operating profit growth of 20% for the quarter was higher than trading profit growth of 13% due to lower other
operating expenses than in the same quarter last year.
Business performance EPS of 20.7 pence in the quarter increased 21% in CER terms and 24% in sterling terms. The
adverse impact of the weakening US dollar was offset by a strengthening of the Euro.
Statutory results, which include merger and manufacturing restructuring costs, delivered a trading profit of £1,719
million on turnover of £5,466 million. Taken together with other expenses, taxation and product divestments this
resulted in EPS of 20.2 pence compared with 13.4 pence in the third quarter of 2002. Merger and manufacturing
restructuring costs were lower in the quarter than in Q3 2002, reflecting movement towards the completion of these
programmes. The sterling based growth in EPS of 51% was higher than the CER based growth in business performance EPS
as a result of lower merger and restructuring costs and a marginal benefit from currencies.
Currencies
The third quarter 2003 results are based on average exchange rates of £1/$1.61 and £1/Euro 1.43 which compare with
average rates for the third quarter of 2002 of £1/$1.54 and £1/Euro 1.58. Exchange rates at 30th September were £1/
$1.66 and £1/Euro 1.43. If exchange rates were to hold at these levels the adverse impact on reported EPS growth for
2003 would be 4-5%.
Dividend
The Board has declared a third interim dividend of 9 pence per share. This compares with a dividend of 9 pence per
share for Q3 2002. The equivalent dividend receivable by ADR holders is 30.018 cents per ADS based on an exchange rate
of £1/$1.66766. The dividend will have an ex-dividend date of 29th October 2003 and will be paid on 6th January 2004
to shareholders and to ADR holders of record on 31st October 2003.
Earnings guidance for 2003
GSK's earnings guidance for 2003 is high single digit or better percentage growth in business performance earnings per
share at constant exchange rates.
Share buy-back programme
In October 2002 GSK commenced a new £4 billion share buy-back programme. Of this new programme,
£219 million was accounted for in 2002, £262 million in the first quarter of 2003, £275 million in the second quarter
and £299 million in the third quarter. The exact amount and timing of future purchases will be determined by the
company and is dependent on market conditions and other factors.
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. For company
information 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 Martin Sutton (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
Philip Thomson (020) 8047 5543
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 the
exception of Levitra, a trade mark of Bayer AG and Vesicare, a trade mark of Yamanouchi Pharmaceutical Co., Ltd.
Cautionary statement regarding forward-looking statements
Under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995, the company cautions
investors that any forward-looking statements or projections made by the company, 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 the Group's operations are described under 'Risk Factors' in the Operating and
Financial Review and Prospects in the company's Annual Report on Form 20-F for 2002.
PROFIT AND LOSS ACCOUNT
Three months ended 30th September 2003
Merger, restructuring
and disposal of
businesses
Business performance Statutory
-------------------- -------------- -------------
Q3 2003 Q3 2002 Growth Q3 2003 Q3 2002 Q3 2003 Q3 2002
£m £m CER% £m £m £m £m
--- --- --- --- --- --- ---
Turnover:
Pharmaceuticals 4,634 4,222 10 - - 4,634 4,222
Consumer Healthcare 832 797 4 - - 832 797
--- --- --- --- --- ---
TURNOVER 5,466 5,019 9 - - 5,466 5,019
Cost of sales (1,063) (1,041) - (67) (88) (1,130) (1,129)
--- --- --- --- --- ---
Gross profit 4,403 3,978 11 (67) (88) 4,336 3,890
Selling, general and administration (1,970) (1,782) 12 34 (131) (1,936) (1,913)
Research and development (681) (641) 6 - (65) (681) (706)
--- --- --- --- --- ---
Trading profit:
Pharmaceuticals 1,578 1,410 11 (27) (267) 1,551 1,143
Consumer Healthcare 174 145 26 (6) (17) 168 128
--- --- --- --- --- ---
TRADING PROFIT 1,752 1,555 13 (33) (284) 1,719 1,271
Other operating income/(expense) (33) (145) - - (33) (145)
--- --- --- --- --- ---
Operating profit 1,719 1,410 20 (33) (284) 1,686 1,126
Business disposals - - - 6 - 6
Profits of associates 20 20 - - 20 20
--- --- --- --- --- ---
Profit before interest 1,739 1,430 (33) (278) 1,706 1,152
Net interest payable (46) (42) - - (46) (42)
--- --- --- --- --- ---
PROFIT BEFORE TAXATION 1,693 1,388 20 (33) (278) 1,660 1,110
Taxation (466) (375) 9 86 (457) (289)
--- --- --- --- --- ---
Profit after taxation 1,227 1,013 19 (24) (192) 1,203 821
Minority interests (30) (31) - - (30) (31)
Preference share dividends (3) (5) - - (3) (5)
--- --- --- --- --- ---
EARNINGS 1,194 977 20 (24) (192) 1,170 785
--- --- --- --- --- ---
EARNINGS PER SHARE 20.7p 16.7p 21 20.2p 13.4p
--- --- --- ---
Diluted earnings per share 20.1p 13.4p
--- ---
To illustrate 'Business performance', which is the primary measure used by management, merger items, integration and
restructuring costs and disposals of businesses have been excluded and an adjusted EPS presented. Statutory results
include these items. Appropriations of profit attributable to shareholders are set out under 'Appropriations' on page
13.
PROFIT AND LOSS ACCOUNT
Nine months ended 30th September 2003
Merger, restructuring
and disposal of
businesses
Business performance Statutory
-------------------- -------------- -------------
9 months 9 months 9 months 9 months 9 months 9 months
2003 2002 Growth 2003 2002 2003 2002
£m £m CER% £m £m £m £m
--- --- --- --- --- --- ---
Turnover:
Pharmaceuticals 13,666 13,196 7 - - 13,666 13,196
Consumer Healthcare 2,397 2,348 4 - - 2,397 2,348
--- --- --- --- --- ---
TURNOVER 16,063 15,544 7 - - 16,063 15,544
Cost of sales (3,072) (3,168) (3) (233) (188) (3,305) (3,356)
--- --- --- --- --- ---
Gross profit 12,991 12,376 9 (233) (188) 12,758 12,188
Selling, general and administration (5,586) (5,502) 5 19 (355) (5,567) (5,857)
Research and development (1,955) (1,885) 6 (14) (110) (1,969) (1,995)
--- --- --- --- --- ---
Trading profit:
Pharmaceuticals 5,018 4,628 14 (209) (617) 4,809 4,011
Consumer Healthcare 432 361 24 (19) (36) 413 325
--- --- --- --- --- ---
TRADING PROFIT 5,450 4,989 14 (228) (653) 5,222 4,336
Other operating income/(expense) 34 (134) - - 34 (134)
--- --- --- --- --- ---
Operating profit 5,484 4,855 18 (228) (653) 5,256 4,202
Business disposals - - 3 6 3 6
Product divestments - - - 12 - 12
Profits of associates 70 58 - - 70 58
--- --- --- --- --- ---
Profit before interest 5,554 4,913 (225) (635) 5,329 4,278
Net interest payable (118) (105) - - (118) (105)
--- --- --- --- --- ---
PROFIT BEFORE TAXATION 5,436 4,808 18 (225) (635) 5,211 4,173
Taxation (1,495) (1,298) 60 199 (1,435) (1,099)
--- --- --- --- --- ---
Profit after taxation 3,941 3,510 17 (165) (436) 3,776 3,074
Minority interests (71) (79) - - (71) (79)
Preference share dividends (11) (15) - - (11) (15)
--- --- --- --- --- ---
EARNINGS 3,859 3,416 18 (165) (436) 3,694 2,980
--- --- --- --- --- ---
EARNINGS PER SHARE 66.4p 57.6p 20 63.5p 50.2p
--- --- --- ---
Diluted earnings per share 63.3p 50.0p
--- ---
Weighted average number of shares 5,816 5,933 5,816 5,933
(millions) --- --- --- ---
To illustrate 'Business performance', which is the primary measure used by management, merger items, integration and
restructuring costs and disposals of businesses have been excluded and an adjusted EPS presented. Statutory results
include these items. Appropriations of profit attributable to shareholders are set out under 'Appropriations' on page
13.
PHARMACEUTICAL TURNOVER
Three months ended 30th September 2003
Total USA Europe International
------------- ------------- ------------ ------------
£m CER% £m CER% £m CER% £m CER%
----- ----- ----- ----- ----- ----- ---- -----
CENTRAL NERVOUS SYSTEM 1,243 13 910 14 206 5 127 15
Depression 822 14 643 16 89 (6) 90 26
Seroxat/Paxil 542 10 370 12 89 (6) 83 26
Wellbutrin 280 22 273 22 - - 7 24
Migraine 221 4 162 4 44 5 15 3
Imigran/Imitrex 199 3 150 3 36 3 13 2
Naramig/Amerge 22 10 12 8 8 14 2 8
Lamictal 145 36 84 44 50 29 11 6
Requip 26 20 13 20 12 18 1 37
Zyban 18 (25) 7 (39) 7 7 4 (31)
RESPIRATORY 1,056 14 546 20 343 3 167 16
Seretide/Advair,
Flixotide/Flovent, Serevent 819 18 437 25 273 7 109 23
Seretide/Advair 552 40 316 57 182 15 54 39
Flixotide/Flovent 166 (8) 77 (11) 47 (10) 42 1
Serevent 101 (15) 44 (30) 44 (4) 13 56
Flixonase/Flonase 127 4 103 3 12 9 12 4
Ventolin 66 7 1 > 100 32 (3) 33 10
Becotide 25 (17) - - 22 (17) 3 (18)
ANTI-VIRALS 586 4 290 1 177 8 119 8
HIV 375 4 197 (4) 137 17 41 13
Combivir 146 2 74 (7) 53 14 19 17
Trizivir 92 19 54 12 35 32 3 31
Epivir 75 4 38 (3) 27 15 10 12
Retrovir 11 12 5 (20) 4 > 100 2 -
Ziagen 43 (12) 22 (18) 15 (8) 6 8
Agenerase 8 (32) 4 (38) 3 (4) 1 (42)
Herpes 170 9 85 23 36 (7) 49 -
Valtrex 128 26 81 30 22 8 25 31
Zovirax 42 (24) 4 (48) 14 (23) 24 (19)
Zeffix 32 7 2 (12) 4 (13) 26 13
ANTI-BACTERIALS 420 (5) 107 (28) 172 8 141 7
Augmentin 177 (12) 54 (37) 76 8 47 9
Zinnat/Ceftin 57 11 4 (24) 26 7 27 21
Fortum 46 (3) 7 (25) 23 (1) 16 7
Amoxil 27 (10) 5 (34) 8 (25) 14 16
VACCINES 284 (8) 70 (1) 132 (11) 82 (10)
Hepatitis 102 (18) 39 (23) 45 (22) 18 15
Infanrix/Pediarix 83 21 31 71 38 18 14 (26)
ONCOLOGY AND EMESIS 249 9 182 10 40 - 27 23
Zofran 199 19 148 23 32 - 19 22
Hycamtin 29 53 21 82 6 - 2 18
METABOLIC 283 54 197 60 33 67 53 30
Avandia, Avandamet 241 61 197 60 19 78 25 66
CARDIOVASCULAR AND UROGENITAL
226 36 156 43 44 15 26 39
Coreg 97 8 92 7 - - 5 49
Levitra 25 - 20 - 3 - 2 -
Avodart 8 - 6 - 2 - - -
OTHER 287 (4) 26 1 80 (18) 181 2
Zantac 80 (2) 18 7 22 (18) 40 3
------------- -------------- ------------- ------------
4,634 10 2,484 14 1,227 3 923 9
------------- -------------- ------------- ------------
Pharmaceutical turnover includes co-promotion income.
PHARMACEUTICAL TURNOVER
Nine months ended 30th September 2003
Total USA Europe International
------------- ------------- ------------ ------------
£m CER% £m CER% £m CER% £m CER%
----- ----- ----- ----- ----- ----- ---- -----
CENTRAL NERVOUS SYSTEM 3,490 12 2,505 13 623 3 362 17
Depression 2,278 14 1,742 15 282 (4) 254 28
Seroxat/Paxil 1,552 9 1,035 10 282 (4) 235 28
Wellbutrin 726 24 707 24 - - 19 31
Migraine 638 2 464 2 129 - 45 11
Imigran/Imitrex 572 3 427 3 106 - 39 11
Naramig/Amerge 66 (1) 37 (3) 23 1 6 9
Lamictal 410 33 234 41 144 26 32 9
Requip 72 14 36 18 33 7 3 41
Zyban 55 (28) 22 (33) 22 - 11 (47)
RESPIRATORY 3,246 14 1,673 22 1,072 2 501 14
Seretide/Advair,
Flixotide/Flovent, Serevent 2,446 17 1,294 24 841 6 311 20
Seretide/Advair 1,597 39 894 55 552 16 151 42
Flixotide/Flovent 519 (7) 242 (8) 151 (11) 126 -
Serevent 330 (13) 158 (22) 138 (7) 34 26
Flixonase/Flonase 450 17 352 19 43 - 55 11
Ventolin 196 2 4 (17) 99 (4) 93 8
Becotide 82 (17) - - 69 (15) 13 (26)
ANTI-VIRALS 1,767 8 880 8 543 8 344 9
HIV 1,140 9 612 6 413 14 115 14
Combivir 442 4 228 (1) 161 10 53 17
Trizivir 288 31 172 27 106 37 10 42
Epivir 223 6 115 5 80 6 28 10
Retrovir 34 (7) 15 (9) 12 (12) 7 3
Ziagen 128 4 67 - 46 8 15 11
Agenerase 25 (22) 15 (26) 8 (4) 2 (23)
Herpes 499 8 242 18 114 (1) 143 (2)
Valtrex 370 27 235 30 66 11 69 31
Zovirax 129 (26) 7 (72) 48 (14) 74 (20)
Zeffix 95 11 7 (6) 12 (7) 76 16
ANTI-BACTERIALS 1,306 (19) 358 (48) 549 1 399 9
Augmentin 574 (35) 197 (60) 244 (1) 133 10
Zinnat/Ceftin 176 (1) 16 (30) 92 4 68 4
Fortum 139 (7) 21 (17) 71 (8) 47 -
Amoxil 88 (2) 18 (15) 26 (29) 44 31
VACCINES 833 2 216 5 366 - 251 3
Hepatitis 315 (12) 118 (18) 144 (12) 53 5
Infanrix/Pediarix 260 30 98 56 110 20 52 8
ONCOLOGY AND EMESIS 770 15 576 18 122 1 72 15
Zofran 587 22 439 29 94 - 54 14
Hycamtin 84 23 58 32 19 1 7 15
METABOLIC 788 24 555 23 83 32 150 21
Avandia, Avandamet 679 27 555 23 48 47 76 53
CARDIOVASCULAR AND UROGENITAL
576 25 376 28 128 8 72 33
Coreg 265 25 254 24 - - 11 39
Levitra 30 - 20 - 7 - 3 -
Avodart 12 - 9 - 3 - - -
OTHER 890 (9) 83 (19) 265 (17) 542 (2)
Zantac 252 (10) 63 9 71 (25) 118 (9)
------------- ------------- ------------- -------------
13,666 7 7,222 9 3,751 2 2,693 9
------------- ------------- ------------- -------------
Pharmaceutical turnover includes co-promotion income.
Pharmaceutical turnover in the period increased by 10% compared with the third quarter of 2002, which in CER terms
represented additional turnover of £421 million. An analysis of turnover between new products (those launched in a
major market within the last five years), franchise products (established products), and other products (now less
actively promoted) is set out below:
Q3 2003
--------------------------------------------
£m % total CER% CER £m
--------- --------- --------- ---------
New 1,172 25 36 312
Franchise 2,575 56 7 168
Other 887 19 (6) (59)
--------- --------- --------- ---------
4,634 100 10 421
--------- --------- --------- ---------
The growth of the new products, notably Seretide/Advair, Infanrix, Pediarix and Trizivir, and the franchise products,
Wellbutrin, Zofran, and Valtrex, more than offset the decline of older products such as Augmentin, Zovirax and Zantac.
New products accounted for 25% of total pharmaceutical turnover.
GSK records co-promotion income within turnover, and the nature of co-promotion activities are such that no cost of
sales is recorded. Co-marketing sales are recorded within turnover as sales of GSK products and cost of sales reflects
the purchase cost of the products sold. Co-promotion income amounted to £24 million in the quarter.
CONSUMER HEALTHCARE TURNOVER
Three months ended
30th September 2003
----------------------
£m CER%
--------- ---------
Over-the-counter medicines 380 -
Analgesics 88 4
Dermatological 58 27
Gastro-intestinal 70 (8)
Respiratory tract 33 (2)
Smoking control 74 (10)
Natural wellness support 42 2
Oral care 278 5
Nutritional healthcare 174 11
--------- ---------
Total 832 4
--------- ---------
Nine months ended
30th September 2003
----------------------
£m CER%
--------- ---------
Over-the-counter medicines 1,126 4
Analgesics 252 4
Dermatological 181 35
Gastro-intestinal 210 (1)
Respiratory tract 98 9
Smoking control 222 (5)
Natural wellness support 122 5
Oral care 799 2
Nutritional healthcare 472 9
--------- ---------
Total 2,397 4
--------- ---------
FINANCIAL REVIEW - PROFIT AND LOSS ACCOUNT
Trading profit - business performance
Q3 2003 Q3 2002 2002
------------------ ----------------- Growth ------
£m % of turnover £m % of turnover CER% £m
------ ------ ------ ------ ------ ------
Turnover 5,466 100 5,019 100 9 21,212
Cost of sales (1,063) (19.4) (1,041) (20.7) - (4,243)
Selling, general and administration
(1,970) (36.0) (1,782) (35.5) 12 (7,543)
Research and development (681) (12.5) (641) (12.8) 6 (2,732)
------ ------ ------ ------ ------ ------
Trading profit - business
performance 1,752 32.1 1,555 31.0 13 6,694
------ ------ ------ ------ ------ ------
Overall the trading margin improved 1.1 percentage points compared with the same quarter last year, and trading profit
grew 13%. The improvement in margin came from cost of sales partly offset by higher SG&A expenses.
Cost of sales reduced as a percentage of turnover as a result of benefits arising from merger, manufacturing
restructuring, favourable mix and other savings. A small pricing benefit was largely offset by the exchange impact.
Selling, general and administration costs grew 12% reflecting increased selling costs to support new product launches,
asset write downs and provisions for legal claims against the Group.
Research and development (R&D) increased by 6% reflecting increased activity. Pharmaceuticals R&D expenditure
represented 14.2% of pharmaceutical turnover in the period.
Profit before tax - business performance
Q3 2003 Q3 2002 2002
£m £m £m
---- ---- ----
Trading profit 1,752 1,555 6,694
Other operating income/(expense) (33) (145) (111)
Profits of associates 20 20 75
Net interest payable (46) (42) (141)
---- ---- ----
Profit before tax - business performance 1,693 1,388 6,517
---- ---- ----
Other operating income/(expense) includes litigation costs and provisions relating to legal claims on withdrawn
products, product withdrawals and anti-trust matters, equity investment carrying value adjustments arising from stock
market price changes, royalty income, product disposals and equity investment sales.
Merger items, integration and restructuring costs and disposal of subsidiaries
Q3 2003 Q3 2002 2002
£m £m £m
---- ---- ----
Merger integration costs (34) (228) (851)
Manufacturing and other restructuring 7 (39) (121)
Block Drug integration costs (6) (17) (60)
---- ---- ----
Effect on operating profit (33) (284) (1,032)
Product divestments - - 11
Business disposal - 6 10
---- ---- ----
Effect on profit before tax (33) (278) (1,011)
---- ---- ----
Merger integration costs are declining as the programme nears its completion in the third year post merger.
Manufacturing and other restructuring charges principally relate to production plant closures.
Taxation - total
Q3 2003 Q3 2002 2002
£m £m £m
---- ---- ----
Business performance (466) (375) (1,760)
Merger items, integration and restructuring costs
9 86 299
and disposal of subsidiaries
---- ---- ----
Taxation - total (457) (289) (1,461)
---- ---- ----
The charge for taxation on business performance profit for the nine months represents an effective tax rate of 27.5%
which is the expected rate for the year. This represents an increase compared with the effective rate of 27.0% in 2002
due to changes in the geographic mix of profits.
The credit for taxation on merger, restructuring and business disposals reflects the estimated actual tax rate
applicable to the transactions in the territories in which they arise.
Transfer pricing issues are described in the 'Taxation' note to the Financial Statements included in the Annual Report
for 2002. Developments since the date of that report are as follows. With respect to the claims of the Internal
Revenue Service (IRS) for all years since 1989, which are described in the note, the US and UK tax authorities have
concluded discussions under the mutual agreement provisions of the double taxation convention between the two countries
without reaching agreement. As stated in previous updates, there continues to be a wide difference of views between
the company and the IRS.
The company is in discussions with the Appeals Division of the IRS, now regarding years 1997-2000, but the dispute in
respect of 1989-1996 will now proceed to the US Tax Court. The company is awaiting statutory notices from the IRS.
GlaxoSmithKline uses the best advice in determining its transfer pricing methodology and in seeking to manage transfer
pricing issues to a satisfactory conclusion and, on the basis of external professional advice, continues to believe
that it has made adequate provision for the liabilities likely to arise from open assessments.
Earnings
Q3 2003 Q3 2002 2002
£m £m £m
Net profit attributable to shareholders ---- ---- ----
Earnings 1,170 785 3,915
Adjustment for merger items, integration and restructuring costs and
disposal of businesses 24 192 712
---- ---- ----
Adjusted earnings 1,194 977 4,627
---- ---- ----
pence pence pence
Earnings per share ---- ---- ----
Basic earnings per share 20.2 13.4 66.2
Adjustment for merger items, integration and restructuring costs and
disposal of businesses 0.5 3.3 12.1
---- ---- ----
Adjusted earnings per share 20.7 16.7 78.3
---- ---- ----
In order to illustrate business performance, which is the primary performance measure used by management, adjusted
earnings and adjusted earnings per share are presented after excluding merger items, integration and restructuring
costs and disposal of businesses.
Q3 2003 Q3 2002 2002
£m £m
£m
Appropriations ---- ---- ----
Net profit attributable to shareholders 1,170 785 3,915
Dividends (520) (527) (2,346)
---- ---- ----
Retained profit 650 258 1,569
---- ---- ----
pence per 2003 pence per 2002
share share
£m £m
Dividends ---- ---- ---- ----
First interim - paid 3rd July 2003 9 524 9 535
Second interim - paid 2nd October 2003 9 522 9 530
Third interim - payable 6th January 2004 9 520 9 527
Fourth interim 13 754
---- ----
40 2,346
---- ----
The number of shares in issue, excluding those held by the Employee Share Ownership Trusts (ESOTs), at 30th September
2003 was 5,780 million (30th September 2002: 5,859 million).
STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES
9 months 2003 9 months
2002 2002
£m £m £m
---- ---- ----
PROFIT ATTRIBUTABLE TO SHAREHOLDERS 3,694 2,980 3,915
Exchange movements on overseas net assets 166 (326) (154)
Unrealised gains on equity investments 7 1 7
Tax on exchange movements and unrealised gains 7 - (67)
---- ---- ----
TOTAL RECOGNISED GAINS AND LOSSES 3,874 2,655 3,701
---- ---- ----
SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT
Three months ended 30th September 2003
Q3 2003 Q3 2002 2002
£m £m £m
---- ---- ----
BUSINESS PERFORMANCE OPERATING PROFIT 1,719 1,410 6,583
Depreciation and other non-cash items 288 230 909
Decrease/(increase) in working capital 106 195 (98)
Increase in net liabilities 331 452 530
---- ---- ----
2,444 2,287 7,924
Restructuring/integration costs paid (103) (144) (669)
---- ---- ----
NET CASH INFLOW FROM OPERATING ACTIVITIES 2,341 2,143 7,255
Dividends received from joint ventures and associates 1 - 2
Returns on investment and servicing of finance (44) (49) (237)
Taxation paid (449) (494) (1,633)
---- ---- ----
FREE CASH FLOW 1,849 1,600 5,387
---- ---- ----
Purchase of tangible fixed assets (194) (227) (1,044)
Sale of tangible fixed assets 1 5 59
Purchase of intangible fixed assets (61) (36) (182)
---- ---- ----
(254) (258) (1,167)
Product divestments - - (1)
Proceeds from own shares for employee share options 6 17 58
Purchase of equity investments (7) (6) (75)
Sale of equity investments 31 - 65
---- ---- ----
Capital expenditure and financial investment (224) (247) (1,120)
---- ---- ----
Purchase of businesses (3) (10) (21)
Business disposals - 6 6
Investment in joint ventures and associates (2) (5) (5)
---- ---- ----
Acquisitions and disposals (5) (9) (20)
---- ---- ----
Equity dividends paid (523) (536) (2,327)
---- ---- ----
NET CASH INFLOW 1,097 808 1,920
Issue of ordinary share capital 8 12 56
Purchase of shares for cancellation (280) (353) (2,220)
Net non-cash funds of subsidiary acquired - - (4)
Other financing cash flows (51) 35 135
Exchange movements (54) (75) (121)
---- ---- ----
DECREASE/(INCREASE) IN NET DEBT IN PERIOD 720 427 (234)
NET DEBT AT BEGINNING OF PERIOD (2,162) (2,527) (2,101)
---- ---- ----
NET DEBT AT END OF PERIOD (1,442) (2,100) (2,335)
---- ---- ----
SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT
Nine months ended 30th September 2003
9 months 9 months
2003 2002
£m £m
---- ----
BUSINESS PERFORMANCE OPERATING PROFIT 5,484 4,855
Depreciation and other non-cash items 632 638
Increase in working capital (245) (50)
Increase in net liabilities 106 727
---- ----
5,977 6,170
Restructuring/integration costs paid (279) (477)
---- ----
NET CASH INFLOW FROM OPERATING ACTIVITIES 5,698 5,693
Dividends received from joint ventures and associates 1 -
Returns on investment and servicing of finance (193) (195)
Taxation paid (1,566) (1,130)
---- ----
FREE CASH FLOW 3,940 4,368
---- ----
Purchase of tangible fixed assets (533) (635)
Sale of tangible fixed assets 32 33
Purchase of intangible fixed assets (117) (127)
---- ----
(618) (729)
Proceeds from own shares for employee share options 18 54
Purchase of equity investments (22) (19)
Sale of equity investments 117 62
---- ----
Capital expenditure and financial investment (505) (632)
---- ----
Purchase of businesses (12) (17)
Business disposals 3 6
Investment in joint ventures and associates (3) (5)
---- ----
Acquisitions and disposals (12) (16)
---- ----
Equity dividends paid (1,810) (1,800)
---- ----
NET CASH INFLOW 1,613 1,920
Issue of ordinary share capital 26 48
Purchase of shares for cancellation (807) (1,941)
Other financing cash flows 93 87
Exchange movements (32) (113)
---- ----
DECREASE IN NET DEBT IN PERIOD 893 1
NET DEBT AT BEGINNING OF PERIOD (2,335) (2,101)
---- ----
NET DEBT AT END OF PERIOD (1,442) (2,100)
---- ----
BALANCE SHEET
30th September 30th September 31st December
2003 2002 2002
£m £m £m
---- ---- ----
Goodwill 151 164 171
Intangible fixed assets 1,710 1,611 1,637
Tangible fixed assets 6,526 6,603 6,649
Investments 3,092 3,128 3,121
---- ---- ----
FIXED ASSETS 11,479 11,506 11,578
---- ---- ----
Equity investments 159 137 161
Stocks 2,251 2,165 2,080
Debtors 6,738 5,604 6,200
Liquid investments 2,189 1,498 1,256
Cash at bank 1,670 839 1,052
---- ---- ----
CURRENT ASSETS 13,007 10,243 10,749
---- ---- ----
Loans and overdrafts (1,596) (1,751) (1,551)
Other creditors (6,884) (7,207) (7,257)
---- ---- ----
CREDITORS: amounts due within one year (8,480) (8,958) (8,808)
---- ---- ----
NET CURRENT ASSETS 4,527 1,285 1,941
---- ---- ----
TOTAL ASSETS LESS CURRENT LIABILITIES 16,006 12,791 13,519
---- ---- ----
Loans (3,705) (2,686) (3,092)
Other creditors (227) (263) (206)
---- ---- ----
CREDITORS: amounts due after one year (3,932) (2,949) (3,298)
---- ---- ----
PROVISIONS FOR LIABILITIES AND CHARGES (3,226) (2,542) (2,833)
---- ---- ----
NET ASSETS 8,848 7,300 7,388
---- ---- ----
Called up share capital 1,490 1,510 1,506
Share premium account 249 216 224
Other reserves 1,922 1,901 1,905
Profit and loss account 4,402 2,874 2,946
---- ---- ----
EQUITY SHAREHOLDERS' FUNDS 8,063 6,501 6,581
Non-equity minority interest 542 573 559
Equity minority interests 243 226 248
---- ---- ----
CAPITAL EMPLOYED 8,848 7,300 7,388
---- ---- ----
RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS
9 months 9 months
2003 2002 2002
£m £m £m
---- ---- ----
Equity shareholders' funds at beginning of period 6,581 7,390 7,390
Total recognised gains and losses for the period 3,874 2,655 3,701
Dividends (1,566) (1,592) (2,346)
Ordinary shares issued 26 48 56
Ordinary shares purchased and cancelled (836) (2,001) (2,220)
Exchange movements on goodwill written off to reserves (16) 1 -
---- ---- ----
Equity shareholders' funds 8,063 6,501 6,581
---- ---- ----
FINANCIAL REVIEW - CASH FLOW AND BALANCE SHEET
Cash flow
Operating cash flow, after restructuring and integration payments of £103 million, was £2,341 million in Q3 2003. This
represents an increase of £198 million over Q3 2002 arising from higher profits in the quarter. The operating cash
flow is in excess of the funds needed for the routine cash flows of tax, capital expenditure on tangible assets and
dividend payments, together amounting to £1,166 million. In addition, a further £280 million was spent in the quarter
on purchasing the company's own shares for cancellation.
Net assets
The book value of net assets increased by £1,460 million from £7,388 million at 31st December 2002 to
£8,848 million at 30th September 2003. This reflects a reduction in net debt together with increased working capital
and a reduction in the dividend creditor following the payment of the Q4 2002 dividend.
Fixed asset investments comprise investments in associates, long-term equity investments and an investment in own
shares held by the ESOTs. At 30th September 2003 the ESOTs held 179 million GSK ordinary shares, at a carrying value
of £2,782 million and market value of £2,229 million, against the future exercise of share options and share awards.
This valuation shortfall is not considered to represent a permanent diminution in value in the context of the length of
the future period over which the related share options may be exercised. Accordingly no provision has been made. The
carrying value of associates and equity investments was £469 million and the market value was £1,196 million.
Equity shareholders' funds
Equity shareholders' funds increased from £6,581 million at 31st December 2002 to £8,063 million at
30th September 2003. The increase arises from retained earnings and positive exchange movements on overseas net assets
partly offset by own shares purchased and cancelled.
Legal proceedings
Legal proceedings in which GlaxoSmithKline is involved are described in the 'Legal proceedings' note to the Financial
Statements and the 'Risk factors' in the operating and financial review and prospects included in the Annual Report
2002, as updated in the 'Legal proceedings' notes to the first and second quarter results announcements. Developments
since the dates of the Annual Report and the first and second quarter results are set out below.
With respect to the Group's action against Synthon Pharmaceuticals for infringement of the Group's patents for
paroxetine hydrochloride and paroxetine mesylate, the judge has scheduled a two week trial commencing 12th January
2004.
With respect to Wellbutrin SR, in September 2003 the US Court of Appeals for the Federal Circuit (CAFC) reversed the
summary judgement of non-infringement granted to Andrx by the US District Court for the Southern District of Florida in
February 2002 and remanded the case to the district court for trial. As of the date of this Results Announcement the
CAFC has yet to rule on the Group's appeals from the summary judgements of non-infringement granted to Impax
Laboratories and Excel Pharmaceuticals.
In August 2003 the Group filed an action against Teva Pharmaceuticals USA Inc. in the US District Court for the
District of New Jersey for infringement of the Group's patent for the specific salt form used in Avandia. Teva has not
challenged the basic compound patent for Avandia. In September 2003 the Group filed an action against Dr. Reddy's
Laboratories in the US District Court for the District of New Jersey for infringement of the same patent. The cases
are in their early stages.
In September 2003 the Group filed an action against Teva Pharmaceuticals USA Inc. in the US District Court for the
District of Delaware for infringement of the Group's patents related to the injectable presentation of ondansetron
(Zofran). The case is in its early stages. Patent litigation relating to oral forms of Zofran continues.
With respect to the patent infringement action filed by Pfizer against Bayer AG and GlaxoSmithKline relating to
vardenafil (Levitra), the US Patent and Trademark Office has initiated a re-examination of the newly issued Pfizer US
patent based on questions of patentability in light of prior art. The Pfizer action, including an additional suit
filed in the same US District Court following the launch of Levitra in the USA, is predicated on the validity of that
patent.
With respect to product liability litigation related to Paxil, in September 2003 a federal district judge in California
denied class certification for a purported class of plaintiffs alleging that paroxetine (the active ingredient in
Paxil) is addictive and causes dependency and withdrawal reactions. The same federal judge had denied class action
certification in January 2003 but had permitted counsel for the plaintiffs to file one more motion for class
certification.
In October 2003 the US Food and Drug Administration (FDA) began an investigation of the Group's manufacturing facility
in Cidra, Puerto Rico. The Cidra site is engaged in tableting and packaging for a range of GlaxoSmithKline products -
primarily for the US market - including Paxil, Paxil CR, Coreg, Avandia and Avandamet. Although the FDA has not
informed the Group of the specific nature of its investigation, records provided to the FDA focus on manufacturing at
the site in 2001 and 2002. The Group has received no indication that ongoing supply from the site will be affected.
The Group is fully co-operating with the investigation and is working to clarify the specific nature of the FDA's
concerns.
Legal expenses incurred, relating to the defence of the Group's intellectual property, and litigation costs and
provisions relating to product liability claims on existing products, are charged to selling, general and
administration costs. Litigation costs and provisions relating to legal claims on withdrawn products and anti-trust
matters are charged to other operating income/expense. Provisions are made, after taking appropriate legal advice,
when a reasonable estimate can be made of the likely outcome of the dispute.
The ultimate liability for legal claims may vary from the amounts provided and is dependent upon the outcome of
litigation proceedings, investigations and possible settlement negotiations.
Developments with respect to tax matters are described in 'Taxation' on page 12.
EXCHANGE RATES
The results and net assets of the Group, as reported in sterling, are affected by movements in exchange rates between
sterling and overseas currencies. GSK uses the average of exchange rates prevailing during the period to translate the
results and cash flows of overseas Group subsidiary and associated undertakings into sterling and period-end rates to
translate the net assets of those undertakings. The currencies which most influence these translations, and the
relevant exchange rates, are:
9 months 9 months
2003 2002 2002
Average rates: ---- ---- ----
£/US$ 1.61 1.48 1.50
£/Euro 1.45 1.60 1.59
£/Yen 191.00 187.00 188.00
Period-end rates:
£/US$ 1.66 1.57 1.61
£/Euro 1.43 1.59 1.54
£/Yen 185.00 192.00 192.00
During 2003 average sterling exchange rates were stronger against the US dollar and the yen and weaker against the euro
compared with the same period in 2002. Comparing Q3 2003 period-end rates with Q3 2002 period-end rates, sterling was
stronger against the US dollar and weaker against the euro and the yen.
ACCOUNTING PRESENTATION AND POLICIES
This unaudited Results Announcement for the period ended 30th September 2003 is prepared in accordance with the
accounting policies expected to apply in 2003. These are unchanged from those set out in the Annual Report 2002.
Data for market share and market growth rates relate to the 12 months ended 30th June 2003 (or later where available).
These are GSK estimates based on the most recent data from independent external sources, valued in sterling at relevant
exchange rates. Figures quoted for product market share reflect sales by GSK and licensees.
The profit and loss account, statement of total recognised gains and losses and cash flow statement for the year ended,
and the balance sheet at 31st December 2002 have been derived from the full Group accounts for that period, which have
been delivered to the Registrar of Companies and on which the report of the auditors was unqualified and did not
contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985.
INVESTOR INFORMATION
Announcement of Q3 Results 2003
This Announcement was approved by the Board of Directors on Wednesday 22nd October 2003.
Financial calendar
The company will announce preliminary results for 2003 and fourth quarter 2003 results on 12th February 2004. The
fourth interim dividend for 2003 will have an ex-dividend date of 18th February 2004 and a record date of 20th February
2004 and will be paid on 15th April 2004.
Internet
This Announcement, and other information about GSK, is available on the company's website at: http://www.gsk.com.
This information is provided by RNS
The company news service from the London Stock Exchange
