3rd Quarter Results

GlaxoSmithKline PLC 23 October 2002 Issued: 23rd October 2002, London Results Announcement For The Third Quarter 2002 GSK Delivers STRONG Business Performance with EPS Growth of 15% CER GlaxoSmithKline plc (GSK) today announces its results for the third quarter ended 30th September 2002. The business performance results are summarised below. BUSINESS PERFORMANCE* RESULTS Q3 2002 Increase 9 months 2002 Increase Â£m CER % Â£% Â£m CER % Â£% Sales 5,019 6 1 15,544 7 5 Trading profit 1,555 17 10 4,989 19 15 Profit before tax 1,388 12 3 4,808 12 8 Earnings per share 16.7p 15 6 57.6p 15 11 Q3 2002 BUSINESS PERFORMANCE* HIGHLIGHTS - CER Pharmaceutical sales were up 6%. - Growth in USA at 9%; Europe 2%; International 6%; - Seretide/Advair continues strong performance up 70% to Â£392 million. Strong trading profit growth of 17%; EPS growth of 15%. Weakness of the US dollar and other currencies significantly impacted Q3 performance in sterling terms. Four major product launches planned in the USA before the end of 2002: - Avandamet for the treatment of type 2 diabetes; - Augmentin XR for the treatment of acute bacterial sinusitis and community-acquired pneumonia; - Avodart for the treatment of symptomatic benign prostatic hyperplasia; - Pediarix vaccine for the prevention of diphtheria, tetanus, pertussis, hepatitis B and polio. New Â£4 billion share buy-back programme announced. Commenting on the performance for the quarter, J P Garnier, Chief Executive Officer, said: "Despite facing generic competition to Augmentin, GSK had a good financial performance this quarter clearly demonstrating the strength of our company as we continue to drive sales in our key franchises and deliver new product approvals such as Avandamet and Augmentin XR. We also continue to advance our strong, early-stage pipeline through development with 123 projects now in the clinic, 10 more than this time last year, and today have further strengthened our drug discovery efforts by announcing two new licensing agreements." * Business performance, which is the primary measure used by management, is presented after excluding merger items, integration and restructuring costs and disposals of subsidiaries. Management believes that exclusion of these non-recurring items provides a better comparison of business performance for the periods presented. All financial commentaries are on a business performance basis and growth rates are at constant exchange rates (CER) unless otherwise stated. Results for 2001 have been restated following the implementation of FRS 19 'Deferred tax' in 2002. See "Taxation - total " on page 13. THIRD QUARTER PERFORMANCE 2002 PHARMACEUTICALS DRIVEN BY SALES GROWTH IN CNS AND RESPIRATORY Pharmaceutical sales increased 6% to Â£4.2 billion, with US sales growth up 9% to Â£2.3 billion, representing 54% of the business. The underlying growth rate for the US business is broadly consistent with reported sales growth although some products were affected by wholesaler stocking patterns. Europe sales were up 2% to Â£1.1 billion, reflecting declines in some older products, as well as significant government reforms in Italy. International markets grew 6% to Â£836 million, with strong performances in Canada and the Middle East/Africa, partially offset by continuing weakness in Mexico. HIGHLIGHTS FOR THE QUARTER STRONG PERFORMANCE IN CNS - SALES GREW 21% TO Â£1.1 BILLION GSK's leading product for depression, Seroxat/Paxil, was up 27% in the USA. Paxil CR now represents 24% of Paxil's new prescriptions in the USA and continues to gain acceptance since the product's launch in April. Sales of Wellbutrin, also for depression, increased 53% in the USA helped by wholesaler stocking; underlying growth was estimated at 21%. During the quarter, GSK filed for FDA approval of Wellbutrin XL, the new once daily version. Lamictal, for epilepsy, showed strong sales growth, up 25% worldwide with 41% growth in the USA. In August the company filed an sNDA for Lamictal seeking approval for the first-ever indication for long-term management of depressive episodes in bipolar disorder. RESPIRATORY UP 11% TO Â£922 MILLION; SERETIDE/ADVAIR CONTINUES STRONG GROWTH GSK's leading respiratory product - Seretide/Advair - grew 70% worldwide to Â£392 million, driven by market share gains in the USA and continued growth in Europe and International markets. A recent European study suggested that Seretide is more effective than budesonide and formoterol used concurrently. While both treatments produced clinically meaningful increases in lung function, Seretide patients benefited from significantly greater improvements in night-time symptoms, awakenings and a lower rate of exacerbations. ANTI-VIRALS GREW 11% TO Â£558 MILLION Global sales of HIV medicines grew 12%, driven by Trizivir, GSK's triple combination therapy. Sales of Valtrex for herpes increased 22% worldwide and 29% in the USA. In September, the FDA approved an sNDA for Valtrex for the one day treatment of cold sores. Additionally, promising data has shown that Valtrex reduces transmission of symptomatic genital herpes and the company expects to file an sNDA for this additional indication in the fourth quarter. ANTI-BACTERIALS DECLINED 15% TO Â£434 MILLION; AUGMENTIN XR TO BE LAUNCHED IN NOVEMBER US sales of Augmentin declined 40% due to generic competition that began in July. Augmentin ES, the extra strength antibiotic for children with recurrent acute otitis media now represents 15% of total prescriptions of the Augmentin (branded and generic) franchise. This market share has not been impacted by generic competition. In September the FDA granted approval for Augumentin XR to treat adults with acute bacterial sinusitis and community-acquired pneumonia. The product will be launched in November. METABOLIC/GI DOWN 23% TO Â£289 MILLION; AVANDAMET TO BE LAUNCHED IN NOVEMBER Sales of Avandia, for diabetes, were down 26% worldwide. In the USA reported sales of Avandia were down 32%, due to unfavourable wholesaler stocking patterns, which resulted in a very strong Q3 last year. Underlying growth was estimated at 6% in the USA. The company received FDA approval in October for Avandamet the first treatment that both targets insulin resistance and decreases glucose production in one convenient pill. In November GSK expects to re-introduce Lotronex in the USA for use by women with severe diarrhoea-predominant irritable bowel syndrome. VACCINES DELIVER STRONG GROWTH, UP 26% TO Â£297 MILLION Total vaccines sales were up 26% with strong performances across all regions. GSK expects Pediarix, the new vaccine to protect infants against diphtheria, tetanus, pertussis, hepatitis B and poliomyelitis, to be approved by the FDA during the fourth quarter. This five-in-one vaccine results in up to six fewer needle injections for infants. CONSUMER HEALTHCARE SALES OF Â£797 MILLION UP 4% Sales in Europe were up 5%; North America up 3% and International up 3%. Over-the-counter medicines grew 8%, led by smoking control growth in the USA, up 12%. Approval of the new NiQuitin Lozenge is expected in the USA by the end of the year. Oral care sales were down 2%, with a weak performance for Aquafresh, down 11%, partially offset by growth from other oral care brands including Sensodyne, which grew 11%. Nutritionals grew 5%, led by Lucozade in Europe. PIPELINE UPDATE GSK today issued an update of its product pipeline. The company currently has 123 projects in clinical development, an increase of ten projects since October 2001. In clinical development GSK has 57 new chemical entities (NCE's), 23 new vaccines and 43 line extensions. Planned filings for the fourth quarter are: Ariflo, an oral PDE4 inhibitor for COPD; GW433908 a protease inhibitor for the treatment of HIV and Valtrex for prevention of transmission of genital herpes. Today, GSK continued to reinforce its product pipeline by announcing two new licensing agreements: GSK and Biovitrum AB announced the signing of a worldwide agreement to develop and commercialise Biovitrum's 5-HT2c receptor agonists for the treatment of obesity and other medical disorders. The first product to be developed in the collaboration is BVT 933, an appetite-suppressing compound that Biovitrum has advanced to Phase II clinical trials. GSK also announced that it has entered into a licensing agreement with Kissei Pharmaceuticals Co. Ltd. for Kissei's novel selective inhibitors of SGLT2 (Sodium-dependent renal glucose transporter type 2). These compounds could represent a new class of oral anti-diabetic agents, which would act by suppressing glucose reabsorption in the kidney, resulting in the excretion of excess glucose from the body. The first compound is planned to enter Phase 1 during the first half of 2003. MERGER AND RESTRUCTURING GSK continues to implement its merger and manufacturing restructuring plans and remains on track to deliver forecast total annual merger and manufacturing restructuring savings of Â£1.8 billion by 2003, excluding benefits from the Block Drug acquisition. The total estimated cost of achieving this remains at Â£3.8 billion, of which Â£3.1 billion had been charged by 30th September 2002. Net costs of Â£278 million were incurred in the quarter in respect of merger and manufacturing restructuring. After tax relief of Â£86 million, the net charge was Â£192 million. TRADING PROFIT AND EARNINGS PER SHARE (EPS) Business performance trading profit was Â£1,555 million with a growth of 17%, stronger than sales growth of 6%, demonstrating an improved trading margin. This improved 2.6 points to 31% compared with Q3 2001, principally due to cost savings derived from merger integration, manufacturing restructuring and other initiatives. Other operating expenses were Â£145 million in the quarter compared with Â£59 million in Q3 2001. These expenses include an increase in the Group's provisions for US legal matters. The increase covers a variety of matters and the majority is for legal costs and expenses in defending existing claims. Third quarter business performance EPS of 16.7 pence increased 15% in CER terms and 6% in sterling terms. The adverse currency impact on EPS of 9% in the quarter reflected the significant weakening of the US dollar relative to Q3 last year and compares to a 5% adverse currency impact on sales. This difference principally arises from a different mix of currencies in profits compared with sales. The cumulative currency effect on EPS for the first 9 months of 2002 is only 4%. If exchange rates were to hold at the 30th September 2002 levels for the remainder of the year the negative currency impact on EPS would be around 6% for the full year. Total results, which include merger and manufacturing costs, delivered trading profit of Â£1,271 million. Taken together with other expenses, taxation and product divestments this resulted in EPS of 13.4 pence compared with 6.1 pence in Q3 2001. SHARE BUY-BACK PROGRAMME GSK is commencing a new Â£4 billion share buy-back programme. This follows the successful completion of the Â£4 billion buy-back programme announced in 2001. The exact amount and timing of future purchases will be determined by the company and is dependent on market conditions and other factors. EARNINGS GUIDANCE FOR 2002 AND 2003 GSK's business performance guidance remains forecast growth in earnings per share of at least 10% in 2002 and high single digits percentage growth in 2003. This guidance assumes GSK successfully defends its intellectual property surrounding Paxil in the USA. Business performance is at constant exchange rates and excludes merger items, integration and restructuring costs and disposals of subsidiaries. DIVIDEND The Board has declared a third interim dividend of 9 pence per share. This compares with a dividend of 9 pence for the third quarter in 2001. The equivalent dividend receivable by ADR holders is 27.722 cents per ADS based on an exchange rate of Â£1/$1.54013. The dividend will be paid on 3rd January 2003 to shareholders and to ADR holders of record on 1st November 2002. GlaxoSmithKline - one of the world's leading research-based pharmaceutical and healthcare companies - is committed to improving the quality of human life by enabling people to do more, feel better and live longer. For company information and a copy of the company's updated product development pipeline, visit GSK at www.gsk.com. Enquiries: UK Media Martin Sutton (020) 8047 5502 Alan Chandler (020) 8047 5502 Siobhan Lavelle (020) 8047 5502 US Media Nancy Pekarek (215) 751 7709 Mary Anne Rhyne (919) 483 2839 Patty Seif (215) 751 7709 European Analyst / Duncan Learmouth (020) 8047 5540 Investor Philip Thomson (020) 8047 5543 Joan Toohill (020) 8047 5542 US Analyst / Investor Frank Murdolo (215) 751 7002 Tom Curry (215) 751 5419 GSK prepares its financial results in Â£ sterling. Accordingly this Announcement is issued in Â£ sterling. A convenience translation in US$ is also issued. Both Â£ sterling and US$ versions of the Announcement are available on GlaxoSmithKline's corporate website at www.gsk.com. 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 2001. PROFIT AND LOSS ACCOUNT Three months ended 30th September 2002 Business performance Merger, Total restructuring and disposal of subsidiaries -------------------- -------------- ------------- Q3 2001 Q3 2001 Q3 2001 Q3 2002 (restated) Growth Q3 2002 (restated) Q3 2002 (restated) Â£m Â£m CER% Â£m Â£m Â£m Â£m --- --- --- --- --- --- --- Sales: Pharmaceuticals 4,222 4,184 6 - - 4,222 4,184 Consumer Healthcare 797 810 4 - - 797 810 --- --- --- --- --- --- SALES 5,019 4,994 6 - - 5,019 4,994 Cost of sales (1,041) (1,071) 1 (88) (79) (1,129) (1,150) --- --- --- --- --- --- Gross profit 3,978 3,923 7 (88) (79) 3,890 3,844 Selling, general and administration (1,782) (1,867) 2 (131) (262) (1,913) (2,129) Research and development (641) (640) 3 (65) (17) (706) (657) --- --- --- --- --- --- Trading profit: Pharmaceuticals 1,410 1,272 18 (267) (336) 1,143 936 Consumer Healthcare 145 144 8 (17) (22) 128 122 --- --- --- --- --- --- TRADING PROFIT 1,555 1,416 17 (284) (358) 1,271 1,058 Other operating income/(expense) (145) (59) - - (145) (59) --- --- --- --- --- --- Operating profit 1,410 1,357 13 (284) (358) 1,126 999 Profits of associates 20 19 - - 20 19 Disposal of businesses - - 6 (301) 6 (301) --- --- --- --- --- --- Profit before interest 1,430 1,376 (278) (659) 1,152 717 Net interest payable (42) (27) - - (42) (27) --- --- --- --- --- --- PROFIT BEFORE TAXATION 1,388 1,349 12 (278) (659) 1,110 690 Taxation (375) (362) 86 73 (289) (289) --- --- --- --- --- --- Profit after taxation 1,013 987 11 (192) (586) 821 401 Minority interests (31) (23) - - (31) (23) Preference share dividends (5) (6) - - (5) (6) --- --- --- --- --- --- EARNINGS 977 958 11 (192) (586) 785 372 --- --- --- --- --- --- EARNINGS PER SHARE 16.7p 15.7p 15 13.4p 6.1p --- --- --- --- To illustrate "Business performance", which is the primary measure used by management, merger items, integration and restructuring costs and disposal of subsidiaries have been excluded and an adjusted EPS presented. Appropriations of profit attributable to shareholders are set out under "Appropriations" on page 14. Results in 2001 have been restated following the implementation of FRS 19 'Deferred tax' in 2002. See "Taxation - total" on page 13. PROFIT AND LOSS ACCOUNT Nine months ended 30th September 2002 Business performance Merger, Total restructuring and disposal of subsidiaries -------------------- -------------- ------------- 9 months 9 months 9 months 9 months 2001 9 months 2001 9 months 2001 2002 (restated) Growth 2002 (restated) 2002 (restated) Â£m Â£m CER% Â£m Â£m Â£m Â£m --- --- --- --- --- --- --- Sales: Pharmaceuticals 13,196 12,486 9 - - 13,196 12,486 Consumer Healthcare 2,348 2,387 2 - - 2,348 2,387 --- --- --- --- --- --- SALES 15,544 14,873 7 - - 15,544 14,873 Cost of sales (3,168) (3,166) 2 (188) (141) (3,356) (3,307) --- --- --- --- --- --- Gross profit 12,376 11,707 9 (188) (141) 12,188 11,566 Selling, general and administration (5,502) (5,533) 2 (355) (754) (5,857) (6,287) Research and development (1,885) (1,847) 4 (110) (61) (1,995) (1,908) --- --- --- --- --- --- Trading profit: Pharmaceuticals 4,628 3,964 21 (617) (870) 4,011 3,094 Consumer Healthcare 361 363 6 (36) (86) 325 277 --- --- --- --- --- --- TRADING PROFIT 4,989 4,327 19 (653) (956) 4,336 3,371 Other operating income/(expense) (134) 32 - - (134) 32 --- --- --- --- --- --- Operating profit 4,855 4,359 15 (653) (956) 4,202 3,403 Product divestments - - 12 - 12 - Profits of associates 58 54 - - 58 54 Disposal of businesses - 96 6 (302) 6 (206) --- --- --- --- --- --- Profit before interest 4,913 4,509 (635) (1,258) 4,278 3,251 Net interest payable (105) (70) - - (105) (70) --- --- --- --- --- --- PROFIT BEFORE TAXATION 4,808 4,439 12 (635) (1,258) 4,173 3,181 Taxation (1,298) (1,191) 199 183 (1,099) (1,008) --- --- --- --- --- --- Profit after taxation 3,510 3,248 12 (436) (1,075) 3,074 2,173 Minority interests (79) (68) - - (79) (68) Preference share dividends (15) (27) - - (15) (27) --- --- --- --- --- --- EARNINGS 3,416 3,153 12 (436) (1,075) 2,980 2,078 --- --- --- --- --- --- EARNINGS PER SHARE 57.6p 51.9p 15 50.2p 34.2p --- --- --- --- Weighted average number of shares (millions) 5,933 6,074 5,933 6,074 --- --- --- --- To illustrate "Business performance", which is the primary measure used by management, merger items, integration and restructuring costs and disposal of subsidiaries have been excluded and an adjusted EPS presented. Appropriations of profit attributable to shareholders are set out under "Appropriations" on page 14. Results in 2001 have been restated following the implementation of FRS 19 'Deferred tax' in 2002. See "Taxation - total" on page 13. PHARMACEUTICAL SALES Three months ended 30th September 2002 Total USA Europe International -------------- -------------- -------------- -------------- Â£m CER% Â£m CER% Â£m CER% Â£m CER% ----- ----- ----- ----- ----- ----- ----- ----- CENTRAL NERVOUS SYSTEM 1,124 21 834 27 183 (1) 107 18 Depression 740 29 583 36 87 (3) 70 23 Seroxat/Paxil 499 20 347 27 87 (3) 65 23 Wellbutrin 241 52 236 53 - - 5 23 Migraine 217 4 164 6 39 (1) 14 (7) Imigran/Imitrex 197 5 153 8 32 - 12 (10) Naramig/Amerge 20 (10) 11 (16) 7 (3) 2 16 Lamictal 107 25 61 41 37 6 9 19 Requip 21 (5) 11 (10) 9 - 1 26 Zyban 23 4 12 (3) 6 (14) 5 85 RESPIRATORY 922 11 475 19 309 - 138 11 Seretide/Advair, 686 17 366 24 237 3 83 28 Flixotide/Flovent, Serevent Seretide/Advair 392 70 210 > 100 146 19 36 86 Flixotide/Flovent 178 (15) 90 (20) 48 (16) 40 4 Serevent 116 (21) 66 (27) 43 (13) 7 (3) Flixonase/Flonase 125 16 103 19 11 (6) 11 9 Ventolin 58 (10) (2) - 30 (1) 30 1 Becotide 30 (20) - - 25 (13) 5 (39) ANTI-VIRALS 558 11 299 16 150 4 109 6 HIV 357 12 215 14 107 8 35 11 Combivir 141 (1) 82 (2) 43 - 16 1 Trizivir 77 75 50 69 24 64 3 > 100 Epivir 71 1 41 8 21 (4) 9 (16) Retrovir 10 (28) 6 (5) 2 (71) 2 (5) Ziagen 47 26 28 24 15 25 4 42 Agenerase 11 (9) 8 (14) 2 - 1 4 Herpes 156 7 72 21 34 (8) 50 - Valtrex 103 22 65 29 18 12 20 12 Zovirax 53 (14) 7 (22) 16 (23) 30 (6) Zeffix 31 19 3 72 4 47 24 11 ANTI-BACTERIALS 434 (15) 155 (34) 146 (2) 133 5 Augmentin 197 (24) 88 (40) 65 (4) 44 7 Zinnat/Ceftin 50 (30) 5 (79) 22 - 23 (8) Fortum 46 (4) 9 (23) 21 3 16 4 Amoxil 30 (3) 8 4 10 (10) 12 (1) METABOLIC AND GASTRO-INTESTINAL 289 (23) 148 (30) 53 (23) 88 (7) Avandia 155 (26) 130 (32) 9 25 16 30 Zantac 81 (24) 17 (15) 25 (31) 39 (23) VACCINES 297 26 73 16 137 31 87 30 Hepatitis 121 16 53 23 53 14 15 1 Infanrix 67 27 19 (4) 29 35 19 69 ONCOLOGY & EMESIS 231 13 173 14 38 8 20 9 Zofran 171 19 125 22 30 10 16 10 Hycamtin 19 (26) 12 (36) 5 2 2 (4) CARDIOVASCULAR 169 26 115 30 35 17 19 17 Coreg 93 64 90 66 - - 3 18 ARTHRITIS (Relafen) 5 (83) 2 (92) 1 (60) 2 (15) OTHER 193 (6) 5 80 55 (2) 133 (9) ---------------- ---------------- ---------------- -------------- 4,222 6 2,279 9 1,107 2 836 6 ---------------- ---------------- ---------------- -------------- PHARMACEUTICAL SALES Nine months ended 30th September 2002 Total USA Europe International -------------- -------------- -------------- -------------- Â£m CER% Â£m CER% Â£m CER% Â£m CER% ----- ----- ----- ----- ----- ----- ----- ----- CENTRAL NERVOUS SYSTEM 3,284 17 2,405 23 563 (2) 316 19 Depression 2,124 23 1,647 28 274 (2) 203 27 Seroxat/Paxil 1,489 17 1,027 21 274 (2) 188 28 Wellbutrin 635 43 620 43 - - 15 18 Migraine 655 9 494 10 120 - 41 18 Imigran/Imitrex 587 9 453 11 98 (1) 36 18 Naramig/Amerge 68 5 41 4 22 2 5 17 Lamictal 317 28 180 46 107 6 30 24 Requip 64 10 33 12 28 7 3 27 Zyban 77 (25) 36 (12) 20 (36) 21 (30) RESPIRATORY 2,921 17 1,494 28 977 4 450 12 Seretide/Advair, Flixotide/ 2,131 24 1,132 36 739 8 260 30 Flovent, Serevent Seretide/Advair 1,171 > 100 625 > 100 440 42 106 > 100 Flixotide/Flovent 572 (17) 286 (23) 159 (20) 127 6 Serevent 388 (22) 221 (26) 140 (18) 27 (1) Flixonase/Flonase 412 14 321 20 40 (6) 51 - Ventolin 192 (10) 5 (76) 96 (2) 91 (4) Becotide 97 (17) - - 78 (15) 19 (25) ANTI-VIRALS 1,678 13 887 21 460 6 331 6 HIV 1,069 13 630 14 332 10 107 14 Combivir 433 (1) 250 (2) 134 (3) 49 14 Trizivir 225 > 100 147 > 100 71 > 100 7 > 100 Epivir 215 (2) 119 5 68 (5) 28 (15) Retrovir 37 (6) 17 1 13 (15) 7 (3) Ziagen 126 8 74 5 39 2 13 40 Agenerase 33 (9) 23 (19) 7 13 3 43 Herpes 478 7 223 30 105 (11) 150 (6) Valtrex 304 27 196 35 54 10 54 17 Zovirax 174 (16) 27 1 51 (26) 96 (15) Zeffix 90 21 9 75 12 41 69 14 ANTI-BACTERIALS 1,637 (9) 743 (17) 503 - 391 (1) Augmentin 898 (6) 541 (9) 229 (1) 128 2 Zinnat/Ceftin 176 (40) 25 (81) 82 (2) 69 (4) Fortum 148 1 27 (10) 71 9 50 (3) Amoxil 93 (12) 23 (16) 33 (10) 37 (11) METABOLIC AND GASTRO-INTESTINAL 1,027 (8) 555 (7) 181 (17) 291 (4) Avandia 573 (1) 490 (7) 30 38 53 64 Zantac 284 (19) 63 (10) 87 (28) 134 (17) VACCINES 802 18 225 21 341 14 236 19 Hepatitis 360 12 156 19 152 12 52 (1) Infanrix 200 15 69 32 84 (5) 47 40 ONCOLOGY & EMESIS 709 16 532 19 113 6 64 12 Zofran 508 17 371 20 88 9 49 12 Hycamtin 71 (3) 48 (6) 17 - 6 17 CARDIOVASCULAR 483 20 318 24 108 9 57 16 Coreg 230 42 222 43 - - 8 26 ARTHRITIS (Relafen) 19 (86) 7 (94) 5 (40) 7 (20) OTHER 636 - 39 17 178 5 419 (3) ---------------- ---------------- ---------------- ---------------- 13,196 9 7,205 13 3,429 2 2,562 6 ---------------- ---------------- ---------------- ---------------- CONSUMER HEALTHCARE SALES Three months ended 30th September 2002 ---------------------- Â£m CER% --------- --------- Over-the-counter medicines 380 8 Analgesics 79 6 Dermatological 46 15 Gastro-intestinal 76 5 Respiratory tract 38 (1) Smoking control 85 12 Natural wellness support 40 12 Oral care 260 (2) Nutritional healthcare 157 5 --------- --------- Total 797 4 --------- --------- Nine months ended 30th September 2002 ---------------------- Â£m CER% --------- --------- Over-the-counter medicines 1,123 3 Analgesics 235 3 Dermatological 139 5 Gastro-intestinal 230 (1) Respiratory tract 103 (1) Smoking control 249 12 Natural wellness support 117 2 Oral care 785 (1) Nutritional healthcare 440 3 --------- --------- Total 2,348 2 --------- --------- FINANCIAL REVIEW - PROFIT AND LOSS Pharmaceutical sales Sales in the quarter increased by 6%, which represented additional sales of Â£272 million (in CER terms). An analysis of sales between new products (those launched in a major market within the last five years), franchise products (established products), and older products (now less actively promoted) is set out below: Q3 2002 ---------------------------------------------- Â£m % total CER% CER Â£m --------- --------- --------- --------- New 1,139 27 23 222 Franchise 2,294 54 6 147 Other 789 19 (10) (97) --------- --------- --------- --------- 4,222 100 6 272 --------- --------- --------- --------- The growth of the new products, notably Seretide/Advair, Trizivir, and Coreg, and the franchise products, Paxil/ Seroxat, Wellbutrin, Imigran/Imitrex and Zofran, more than offsets the decline of older products such as Zantac. New products now account for 27% of total pharmaceutical sales. Regional analysis USA The USA reported 9% sales growth in the quarter and this business currently represents 54% of total pharmaceutical sales. Reported sales growth in the central nervous system products of 27% was driven by Paxil following the launch of the CR formulation in April and Wellbutrin, reflecting the expansion of the depression market and wholesaler buying patterns. Advair maintained its strong growth with sales of Â£210 million driving the overall respiratory sales growth of 19%. Sales in the anti-virals therapeutic area grew 16% led by a strong performance of Trizivir, up 69%, which partially drew sales from its constituent products. Sales of Avandia declined by 32% when compared with a very strong third quarter of 2001, and, as expected, anti-bacterial sales declined as Augmentin started to experience generic competition. In the cardiovascular franchise, Coreg sales increased to Â£90 million reflecting improved market share and wholesaler buying patterns. Europe Europe region contributed 26% of pharmaceutical sales. Although overall sales growth in the region was only 2%, good growth was recorded in a number of markets including Germany, Spain and Central and Eastern Europe, but government healthcare reforms in Italy adversely affected sales. Seretide, GSK's largest selling product in Europe, reported notable growth in France, Germany, Spain and the UK. Trizivir performed strongly in the region with growth of 64%. International Growth of 6% in the International region was driven by the vaccines portfolio, Seretide and Paxil/Seroxat. This reflected a mixture of strong growth in the Middle East and Africa, slower growth in Asia Pacific and Japan and flat sales in Latin America. In Latin America strong growth in Brazil, boosted by Infanrix sales, was offset by a decline in Mexico. Trading profit - business performance Q3 2002 Q3 2001 ----------------- ----------------- Growth 2001 Â£m % of sales Â£m % of sales CER% Â£m ------- ------- ------- ------- ------- ------- Sales 5,019 100 4,994 100 6 20,489 Cost of sales (1,041) (20.7) (1,071) (21.4) 1 (4,430) Selling, general and administration (1,782) (35.5) (1,867) (37.4) 2 (7,451) Research and development (641) (12.8) (640) (12.8) 3 (2,555) ------- ------- ------- ------- ------- ------- Trading profit - business performance 1,555 31.0 1,416 28.4 17 6,053 ------- ------- ------- ------- ------- ------- Overall the trading margin improved 2.6% and trading profit grew 17%. The improvement in margin came principally from selling, general and administration costs, which grew only 2%, while sales grew 6%, and also from cost of sales, which grew only 1%. Cost of sales reduced as a percentage of sales as a result of benefits arising from merger and manufacturing restructuring savings, and movements in stock provisions. Selling, general and administration costs also benefited from cost savings arising from merger integration implementation and other initiatives. Together these produced a reduction of 1.9 percentage points relative to Q3 2001 for the expenses expressed as a percentage of sales. Research and development (R&D) increased 3% reflecting continuing organisational efficiencies and the phasing of clinical trial expenditure. R&D expenditure is expected to be higher in the final quarter of the year compared with this quarter. Pharmaceuticals R&D expenditure represented 14.6% of pharmaceutical sales in the quarter. Profit before tax - business performance Q3 2002 Q3 2001 2001 Â£m Â£m Â£m ---- ---- ---- Trading profit 1,555 1,416 6,053 Other operating income/(expense) (145) (59) 37 Profits of associates 20 19 71 Disposal of interests in associates - - 96 Net interest payable (42) (27) (88) ---- ---- ---- Profit before tax - business performance 1,388 1,349 6,169 ---- ---- ---- Other operating income/(expense) includes litigation costs, costs associated with product liability claims and product withdrawals, equity investment write-downs due to adverse stock market conditions, royalty income, product disposals and equity investment sales. The expense for the quarter includes an increase in the Group's provisions for legal matters. Net interest increased in the quarter compared with Q3 2001 largely as a result of financing the purchase of the company's shares for cancellation. The benefit of a smaller number of shares in issue is reflected in earnings per share. Merger items, integration and restructuring costs and disposal of subsidiaries Q3 2002 Q3 2001 2001 Â£m Â£m Â£m ---- ---- ---- Manufacturing and other restructuring (39) (37) (162) Merger integration costs (228) (299) (1,069) Block Drug integration costs (17) (22) (125) ---- ---- ---- Effect on operating profit (284) (358) (1,356) Disposal of businesses 6 (301) (296) ---- ---- ---- Effect on profit before tax (278) (659) (1,652) ---- ---- ---- Taxation - total Q3 2002 Q3 2001 2001 Â£m (restated) (restated) Â£m Â£m ---- ---- ---- Business performance (375) (362) (1,655) Merger items, integration and restructuring costs 86 73 322 and disposal of subsidiaries ---- ---- ---- Taxation - total (289) (289) (1,333) ---- ---- ---- The charge for taxation on business performance profit amounting to Â£375 million represents an effective tax rate of 27.0%, which is the rate expected to apply for the year. This represents an increase compared with the effective rate for 2001 which was 26.8%, as restated. The credit for taxation on merger, restructuring and business disposals amounting to Â£86 million reflects the 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 2001. There has been no significant change since the date of that Annual Report. GSK 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. The Group has implemented the new Financial Reporting Standard, FRS 19 'Deferred tax', in 2002, which requires deferred tax to be accounted for on a full provision basis rather than a partial provision basis as before. The effect in the three months ended 30th September 2001 is to increase the business performance tax charge by Â£2 million, the total tax charge by Â£2 million, and the business performance tax rate by 0.1% to 26.8%. For the full year 2001 the business performance tax charge is increased by Â£8 million, and the total tax charge by Â£6 million. The net deferred tax asset at 31st December 2001 has been reduced by Â£127 million. Earnings Q3 2002 Q3 2001 2001 Â£m (restated) (restated) Â£m Â£m Net profit attributable to shareholders ---- ---- ---- Earnings 785 372 3,053 Adjustment for merger items, integration and restructuring costs and 192 586 1,330 disposal of subsidiaries ---- ---- ---- Adjusted earnings 977 958 4,383 ---- ---- ---- pence pence pence Earnings per share ---- ---- ---- Basic earnings per share 13.4 6.1 50.3 Adjustment for merger items, integration and restructuring costs and 3.3 9.6 22.0 disposal of subsidiaries ---- ---- ---- Adjusted earnings per share 16.7 15.7 72.3 ---- ---- ---- 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 subsidiaries. Q3 2001 2001 Q3 2002 Â£m Â£m Â£m (restated) (restated) Appropriations ---- ---- ---- Earnings (profit attributable to shareholders) 785 372 3,053 Dividends (527) (546) (2,356) ---- ---- ---- Retained profit 258 (174) 697 ---- ---- ---- 9 months 2002 9 months 2001 pence per Â£m pence per Â£m share share Dividends ---- ---- ---- ---- First interim - paid 4th July 2002 9 535 9 546 Second interim - paid 3rd October 2002 9 530 9 546 Third interim - payable 3rd January 2003 9 527 9 546 ---- ---- ---- ---- 27 1,592 27 1,638 ---- ---- ---- ---- The number of shares in issue, excluding those held by the ESOP Trusts, at 30th September 2002 was 5,859 million (30th September 2001: 6,060 million). STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 9 months 2002 9 months 2001 2001 (restated) Â£m (restated) Â£m Â£m ---- ---- ---- PROFIT ATTRIBUTABLE TO SHAREHOLDERS 2,980 2,078 3,053 Exchange movements on overseas net assets (326) (125) (151) UK tax on exchange movements - (6) - Unrealised gain on equity investment 1 - - ---- ---- ---- TOTAL RECOGNISED GAINS AND LOSSES RELATING TO THE PERIOD 2,655 1,947 2,902 ---- ---- Prior period adjustment - implementation of FRS 19 (127) ---- TOTAL RECOGNISED GAINS AND LOSSES SINCE 2,528 31st DECEMBER 2001 ---- SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT Three months ended 30th September 2002 Q3 2002 Q3 2001 2001 Â£m Â£m Â£m ---- ---- ---- BUSINESS PERFORMANCE OPERATING PROFIT 1,410 1,357 6,090 Depreciation and other non-cash items 230 223 713 Decrease/(increase) in working capital 195 (125) (67) Increase in net liabilities 452 539 744 ---- ---- ---- 2,287 1,994 7,480 Restructuring/integration costs paid (144) (296) (949) Merger transaction costs paid - - (24) ---- ---- ---- NET CASH INFLOW FROM OPERATING ACTIVITIES 2,143 1,698 6,507 Returns on investment and servicing of finance (49) (23) (191) Taxation paid (494) (404) (1,717) ---- ---- ---- FREE CASH FLOW 1,600 1,271 4,599 ---- ---- ---- Purchase of tangible fixed assets (227) (258) (1,115) Sale of tangible fixed assets 5 22 65 Purchase of intangible fixed assets (36) (29) (196) Sale of intangible fixed assets - - 6 ---- ---- ---- (258) (265) (1,240) Product divestments - (3) (30) Purchase of own shares for employee share options and awards - (326) (795) Proceeds from own shares for employee share options 17 43 194 Purchase of equity investments (6) (4) (47) Sale of equity investments - 14 139 ---- ---- ---- Capital expenditure and financial investment (247) (541) (1,779) ---- ---- ---- Purchase of businesses (10) - (848) Cash acquired with subsidiary - - 45 Business disposals 6 (4) 66 Investment in joint ventures and associates (5) (8) (44) Disposal of interests in associates - - 124 ---- ---- ---- Acquisitions and disposals (9) (12) (657) ---- ---- ---- Equity dividends paid (536) (547) (2,325) ---- ---- ---- NET CASH INFLOW/(OUTFLOW) 808 171 (162) Issue of ordinary share capital 12 27 144 Purchase of shares for cancellation (353) - (1,274) Net non-cash funds of subsidiary acquired - - 56 Redemption of preference shares issued by a subsidiary - - (457) Other financing cash flows 35 75 144 Exchange movements (75) 29 59 ---- ---- ---- DECREASE/(INCREASE) IN NET DEBT IN PERIOD 427 302 (1,490) NET DEBT AT BEGINNING OF PERIOD (2,527) (1,142) (611) ---- ---- ---- NET DEBT AT END OF PERIOD (2,100) (840) (2,101) ---- ---- ---- SUMMARY STATEMENT OF CASH FLOW AND MOVEMENT IN NET DEBT Nine months ended 30th September 2002 Nine months Nine months 2002 2001 Â£m Â£m ---- ---- BUSINESS PERFORMANCE OPERATING PROFIT 4,855 4,359 Depreciation and other non-cash items 638 544 Increase in working capital (50) (99) Increase in net liabilities 727 634 ---- ---- 6,170 5,438 Restructuring/integration costs paid (477) (743) Merger transaction costs paid - (24) ---- ---- NET CASH INFLOW FROM OPERATING ACTIVITIES 5,693 4,671 Returns on investment and servicing of finance (195) (173) Taxation paid (1,130) (1,249) ---- ---- FREE CASH FLOW 4,368 3,249 ---- ---- Purchase of tangible fixed assets (635) (672) Sale of tangible fixed assets 33 57 Purchase of intangible fixed assets (127) (86) ---- ---- (729) (701) Product divestments - (25) Purchase of own shares for employee share options and awards - (459) Proceeds from own shares for employee share options 54 171 Purchase of equity investments (19) (29) Sale of equity investments 62 133 ---- ---- Capital expenditure and financial investment (632) (910) ---- ---- Purchase of businesses (17) (845) Cash acquired with subsidiary - 45 Business disposals 6 67 Investment in joint ventures and associates (5) (8) Disposal of interests in associates - 124 ---- ---- Acquisitions and disposals (16) (617) ---- ---- Equity dividends paid (1,800) (1,777) ---- ---- NET CASH INFLOW/(OUTFLOW) 1,920 (55) Issue of ordinary share capital 48 117 Purchase of shares for cancellation (1,941) - Net non-cash funds of subsidiary acquired - 58 Redemption of preference shares issued by a subsidiary - (457) Other financing cash flows 87 58 Exchange movements (113) 50 ---- ---- DECREASE/(INCREASE) IN NET DEBT IN PERIOD 1 (229) NET DEBT AT BEGINNING OF PERIOD (2,101) (611) ---- ---- NET DEBT AT END OF PERIOD (2,100) (840) ---- ---- BALANCE SHEET Q3 2002 Q3 2001 2001 Â£m (restated) (restated) Â£m Â£m ---- ---- ---- Goodwill 164 176 174 Intangible fixed assets 1,611 1,574 1,673 Tangible fixed assets 6,603 6,744 6,845 Investments 3,128 3,041 3,228 ---- ---- ---- FIXED ASSETS 11,506 11,535 11,920 ---- ---- ---- Equity investments 137 149 185 Stocks 2,165 2,261 2,090 Debtors 5,604 5,812 6,017 Liquid investments 1,498 1,390 1,415 Cash at bank 839 1,184 716 ---- ---- ---- CURRENT ASSETS 10,243 10,796 10,423 ---- ---- ---- Loans and overdrafts (1,751) (1,892) (2,124) Other creditors (7,207) (7,180) (7,306) ---- ---- ---- CREDITORS: amounts due within one year (8,958) (9,072) (9,430) ---- ---- ---- NET CURRENT ASSETS 1,285 1,724 993 ---- ---- ---- TOTAL ASSETS LESS CURRENT LIABILITIES 12,791 13,259 12,913 ---- ---- ---- Loans (2,686) (1,522) (2,108) Other creditors (263) (140) (190) ---- ---- ---- CREDITORS: amounts due after one year (2,949) (1,662) (2,298) ---- ---- ---- PROVISIONS FOR LIABILITIES AND CHARGES (2,542) (2,376) (2,363) ---- ---- ---- NET ASSETS 7,300 9,221 8,252 ---- ---- ---- Called up share capital 1,510 1,560 1,543 Share premium account 216 143 170 Other reserves 1,901 1,849 1,866 Profit and loss account 2,874 4,856 3,811 ---- ---- ---- EQUITY SHAREHOLDERS' FUNDS 6,501 8,408 7,390 Non-equity minority interest 573 612 621 Equity minority interests 226 201 241 ---- ---- ---- CAPITAL EMPLOYED 7,300 9,221 8,252 ---- ---- ---- RECONCILIATION OF MOVEMENTS IN EQUITY SHAREHOLDERS' FUNDS 9 months 9 months 2002 2001 2001 Â£m (restated) (restated) Â£m Â£m ---- ---- ---- Equity shareholders' funds at beginning of period as previously 7,517 7,711 7,711 reported Prior period adjustment - implementation of FRS 19 (127) (121) (121) ---- ---- ---- Equity shareholders' funds at beginning of period as restated 7,390 7,590 7,590 Total recognised gains and losses for the period 2,655 1,947 2,902 Dividends (1,592) (1,638) (2,356) Ordinary shares issued 48 117 144 Ordinary shares purchased and cancelled (2,001) - (1,274) Exchange movements on goodwill written off to reserves 1 6 28 Goodwill written back - 386 356 ---- ---- ---- Equity shareholders' funds at end of period 6,501 8,408 7,390 ---- ---- ---- FINANCIAL REVIEW - CASH FLOW AND BALANCE SHEET Cash flow Operating cash flow, after restructuring and integration payments of Â£144 million, was Â£2,143 million in Q3 2002. This represents an increase of Â£445 million over the third quarter 2001 and is well in excess of the funds needed for the routine cash flows of tax, capital expenditure and dividend payments. Receipts of Â£29 million arose from the exercise of share options; Â£17 million from shares held by the Employee Share Ownership Trusts (ESOTs) and Â£12 million from new shares. In addition, Â£353 million was spent in the quarter on purchasing the company's shares for cancellation. Net assets The book value of net assets decreased by Â£952 million from Â£8,252 million at 31st December 2001 to Â£7,300 million at 30th September 2002. This principally reflects the use of funds for the share buy-back programme. Fixed asset investments comprise investments in associates, long-term equity investments and an investment in own shares held by the ESOTs. At 30th September 2002 the ESOTs held 182 million GSK ordinary shares, at a carrying value of Â£2,828 million and market value of Â£2,240 million, against the future exercise of share options and share awards. This valuation shortfall is not considered to represent a permanent diminution in value and accordingly no provision has been made. The carrying value of associates and long-term equity investments was Â£300 million and the market value was Â£1,121 million. Equity shareholders' funds Equity shareholders' funds decreased from Â£7,390 million at 31st December 2001 to Â£6,501 million at 30th September 2002. The decrease arises from the value of shares purchased and cancelled exceeding new shares issued and retained profits. 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 2001 as updated in the 'Legal proceedings' note to the Financial Statements in the Group's Half-Year Report 2002. Developments since the dates of the Annual Report and Half-Year Report are set out below. Intellectual Property In August 2002 the Group commenced proceedings against Geneva Pharmaceuticals and its parent Novartis AG, Biochemie GmbH and Biochemie SpA before the US International Trade Commission and in Colorado state court, alleging that the manufacture and sale in the USA of Geneva's generic Augmentin product using a production strain stolen earlier from GlaxoSmithKline constitutes misappropriation of GSK's trade secrets and unfair competition. Both proceedings seek to prevent the importation and sale in the USA of generic Augmentin containing clavulanate made using the GSK production strain; the Colorado action seeks damages as well. Similar state court actions have been initiated against Teva Pharmaceuticals and Ranbaxy. With respect to Wellbutrin SR and Zyban, papers have been filed with the US Court of Appeals for the Federal Circuit in connection with the Group's appeal from a summary judgement ruling in the US District Court for the Southern District of Florida that ANDRx Pharmaceuticals' product does not infringe the Group's patents. During the third quarter similar judgements were granted to both Impax Laboratories and Excel. The Group is appealing those decisions. The trial judge in the US District Court for the Southern District of New York denied the request for summary judgement filed by Eon Labs Manufacturing, at this point the only distributor with FDA approval for their generic version of the product. Eon has requested reconsideration of that decision. In August 2002 the Group commenced an action in the US District Court for the District of New Jersey against Teva Pharmaceuticals, alleging infringement of the Group's compound patent for lamotrigine, the active ingredient in Lamictal oral tablets. That patent expires in July 2008. The defendant has filed an ANDA with the US Food and Drug Administration with a certification of invalidity of the Group's patent. FDA approval of that ANDA is stayed until the earlier of expiration of the 30 month stay commencing with filing of the ANDA or resolution of the patent infringement litigation. The case is in its early stages. On 22nd October 2002 Pfizer Inc. filed an action against Bayer AG and the Group in the US District Court for the District of Delaware, alleging that the manufacture and sale of Levitra (vardenafil) would infringe a patent newly issued to Pfizer and asking that Bayer and the Group be permanently enjoined. Although the outcome of product liability and other claims, legal proceedings and other matters pending against GlaxoSmithKline cannot be assured until a final judgement has been given or settlement reached, the Directors, having taken appropriate legal advice, do not expect GlaxoSmithKline's ultimate liability for such matters, after taking into account provisions, tax benefits and insurance, to have a material adverse effect on its financial condition, results of its operations or its cash flows. As noted in the Annual Report 2001, loss of patent protection on significant products would adversely affect future revenues and profits of the Group. 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: Q3 2002 Q3 2001 2001 Average rates: ---- ---- ---- Â£/US$ 1.54 1.44 1.44 Â£/Euro 1.58 1.61 1.61 Â£/Yen 187.00 176.00 175.00 Period end rates: Â£/US$ 1.57 1.47 1.45 Â£/Euro 1.59 1.61 1.64 Â£/Yen 192.00 175.00 190.00 On average during Q3 2002 sterling exchange rates were stronger against the US dollar and the yen and weaker against the Euro compared to the same period in 2001. Comparing Q3 2002 period-end rates with Q3 2001 period-end rates, sterling was stronger against the US dollar and the yen and weaker against the Euro. ACCOUNTING PRESENTATION AND POLICIES This unaudited Results Announcement for the period ended 30th September 2002 is prepared in accordance with the accounting policies expected to apply for 2002. These are unchanged from those set out in the Annual Report 2001, except that during 2002 FRS 19 'Deferred tax' has been implemented by the Group. This FRS requires deferred tax to be accounted for on a full provision basis, rather than a partial provision basis as in 2001 and earlier years. This change in basis has been accounted for as a prior period adjustment. Data for market share and market growth rates relate to the year ended 30th June 2002 (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 2001 are an abridged statement, after adjusting for the effects of implementing FRS 19 on 1st January 2002, of 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 2002 This Announcement was approved by the Board of Directors on Wednesday 23rd October 2002. Financial calendar The company will announce fourth quarter 2002 results on 12th February 2003. The fourth interim dividend for 2002 will have an ex-dividend date of 19th February 2003 and a record date of 21st February 2003 and will be paid on 17th April 2003. Internet This Announcement, and other information about GSK, is available on the World Wide Web at the company's site at: http:/ /www.gsk.com. This information is provided by RNS The company news service from the London Stock Exchange

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