3rd Quarter Results

GlaxoSmithKline PLC 26 October 2006 Issued: 26th October 2006, London Results announcement for the third quarter 2006 Strong GSK performance continues: Q3 EPS 24.7p up 21% CER (16% reported) Earnings guidance raised; Dividend increased; New share buy-back programme GlaxoSmithKline plc (GSK) today announces its results for the third quarter ended 30th September 2006. The full results are presented under 'Income Statement' on pages 8 and 9, and are summarised below. FINANCIAL RESULTS* 9 months 9 months Q3 2006 Q3 2005 Growth 2006 2005 Growth Â£m Â£m CER% Â£% Â£m Â£m CER% Â£% Turnover 5,642 5,471 7 3 17,266 15,753 9 10 Operating profit 2,023 1,783 19 13 6,108 5,241 16 17 Profit before tax 2,022 1,753 21 15 6,089 5,126 18 19 Earnings per share 24.7p 21.3p 21 16 74.5p 62.8p 18 19 Q3 2006 SUMMARY* â€¢ Pharmaceutical sales up 7% to Â£4.9 billion, led by US performance (up 14%): - Seretide/Advair +14% to Â£813 million - Lamictal +27% to Â£257 million - Avandia family +11% to Â£378 million - Valtrex +26% to Â£215 million - Vaccines +5% to Â£412 million - Coreg +32% to Â£195 million â€¢ Consumer Healthcare sales up 4% to Â£766 million: - Proposed acquisition of CNS Inc. to deliver two new high-growth consumer brands - Breathe Right strips and FiberChoice â€¢ Approvals and filing updates for several major new products: - Coreg CR & FluLaval - Two significant new product opportunities recently approved by the FDA - Tykerb - New oral treatment for breast cancer now filed for approval in the USA and Europe - Cervarix - Required number of phase III events achieved; US filing now expected by April 2007 â€¢ 2006 Earnings guidance raised to mid-teens EPS percentage growth (in CER terms) â€¢ Q3 dividend of 12p (2005: 10p). Expected full year dividend increased to 48p (2005: 44p) â€¢ New share buy-back programme of Â£2 billion per year; Â£6 billion expected over next 3 years Commenting on the performance in the quarter and GSK's outlook, JP Garnier, Chief Executive Officer, said: "GSK's strong performance this year continues, with EPS growth of 21% in CER terms this quarter. This has enabled us to raise our earnings guidance and increase our expected dividend for the year. We have also announced today our intention to start a new Â£6 billion share buy-back programme - doubling our current annual repurchases to Â£2 billion. In terms of the pipeline, we recently completed filings for Tykerb, our new breast cancer treatment, and reached the required number of phase III events to enable us to file Cervarix in the USA, now expected by April 2007. We also received FDA approvals for two significant future products - Coreg CR and FluLaval." * The Group's practice is to discuss its results in terms of constant exchange rate (CER) growth. All commentaries compare 2006 results with 2005 in CER terms unless otherwise stated. See 'Accounting Presentation and Policies' on page 23. PHARMACEUTICAL UPDATE Total pharmaceutical sales up 7% to Â£4.9 billion In the United States, sales were Â£2.6 billion up 14%, with a 2 percentage point benefit from the reversal of a provision following resolution of a rebate dispute. Sales in Europe were level at Â£1.3 billion, reflecting the impact of generic competition to Lamictal, Imigran and Zofran, which started earlier this year. In contrast, European sales of key products Seretide (+12%) and the Avandia family (+39%) continue to perform strongly. In International markets, sales grew 3% to nearly Â£1 billion. Seretide/Advair sales up 14% to Â£813 million; US Advair HFA inhaler launched in October Total sales of Seretide/Advair, for asthma and COPD, rose 14% to Â£813 million, with sustained growth seen across all regions. US sales were up 17% to Â£464 million, with some benefit from wholesaler stocking patterns; European sales grew 12% to Â£271 million. In October, GSK launched Advair HFA metered dose inhaler in the USA, and submitted a file to the FDA to include the positive results of TORCH, a COPD mortality study, in Advair's product label. The TORCH data were presented, in detail, for the first time, to US COPD specialists at the recent meeting of the American College of Chest Physicians. The data were filed with European regulators in September. Avandia family sales up 11%; DREAM study shows reduced risk of progression to type 2 diabetes The Avandia family of products, for the treatment of type 2 diabetes, continues to perform well with sales up 11% to Â£378 million in the quarter. Reported US sales growth of 6% was adversely impacted by wholesaler stocking patterns following the re-supply of Avandia and Avandamet during the second quarter of this year. In September, results of the landmark DREAM study were presented to the European Association for the Study of Diabetes. These data demonstrated that Avandia reduced the risk of developing type 2 diabetes by 62% relative to placebo, among people at high risk of developing type 2 diabetes. This highly statistically significant reduction of 62% (p<0.0001) was additive to standard counselling on healthy eating and exercise, and is the first evidence that Avandia can reduce the risk of progression from pre-diabetes to type 2 diabetes in high-risk patients. Vaccines sales over Â£400 million; FDA approves new influenza vaccine, FluLaval Total vaccines sales increased 5% to Â£412 million, with US sales up 8% to Â£130 million. Overall sales growth was impacted by delays in shipments, including seasonal influenza vaccines, which were late due to difficulties in growing one of the strains recommended by the World Health Organisation. On 5th October, GSK gained FDA approval for an additional influenza vaccine, FluLaval. The company now expects to bring more than 25 million doses of flu vaccine to the US market this flu season. The FDA approval, which follows GSK's acquisition of ID Biomedical Corporation last year, relates to both the vaccine and its manufacturing site. As a result, this approval will significantly increase GSK's potential manufacturing capacity for both seasonal and pandemic influenza vaccines. Lamictal, Valtrex, and Coreg - sales of Â£667 million, with recent FDA approvals Lamictal for epilepsy and bipolar disorder grew 27% to Â£257 million. In the USA, a strong sales performance (+43% to Â£201 million) was accompanied by FDA approval, in September, for a new indication to treat one of the most serious forms of epilepsy - primary generalised tonic-clonic seizures. Third quarter sales of Valtrex for herpes rose 26% to Â£215 million. Sales of Coreg, for heart disease, grew 32% to Â£195 million. Last week, GSK received FDA approval for Coreg CR, a new once-daily longer acting formulation, for the treatment of three cardiovascular conditions: hypertension, post-myocardial infarction left ventricular dysfunction and mild to severe heart failure. The new once-daily regimen represents a significant new opportunity by helping simplify treatment for those patients taking multiple medications for heart conditions, in particular hypertension. The company intends to launch Coreg CR in the first quarter of 2007. Requip, Avodart, Boniva: total sales of Â£154 million grew over 90% Sales of Requip, for Parkinson's disease/Restless Legs Syndrome (RLS), grew significantly in the quarter up 71% to Â£70 million. This month, GSK filed a submission with the FDA for approval of Requip CR, to treat RLS. Sales of Avodart for benign prostatic hyperplasia (enlarged prostate) grew 61% to Â£57 million. Sales of Boniva/Bonviva, the only once-monthly medicine for osteoporosis, jointly promoted by GSK and Roche were Â£60 million this quarter. GSK's share of the co-promotion income recorded in turnover for the quarter was Â£27 million. Other products: Sales of GSK's HIV products were Â£363 million, down 6% due to competition to older products, Combivir (-12% to Â£125 million) and Epivir (-25% to Â£46 million). Conversely, sales of newer products grew strongly with Epzicom/Kivexa up 88% to Â£63 million and Lexiva up 7% to Â£31 million. Sales of Wellbutrin XL increased 28% to Â£208 million in the quarter, whilst Flonase sales fell 59% to Â£64 million reflecting further generic competition in the USA. PIPELINE UPDATE "Avandia in Focus" On 4th December, GSK intends to hold a webcast meeting ("Avandia in Focus") for analysts and investors to review prospects for the global diabetes market, and new opportunities for Avandia. The meeting will include a review of results from the ADOPT clinical trial, which is to be presented to the International Diabetes Federation at their meeting in South Africa on the same day. ADOPT - A Diabetes Outcome and Progression Trial - was conducted over a 4-year period in over 4,000 patients, and was designed to assess use of Avandia, as first line monotherapy compared to metformin and glibenclamide, for long-term control of type-2 diabetes. Approvals/Filings: Tykerb filed in USA and Europe GSK completed submissions of Tykerb, its new oral treatment for breast cancer, to the US and European regulatory authorities in September and October, respectively. The submissions were based on data, which demonstrated that Tykerb, in combination with Xeloda, significantly improved the time to disease progression for patients with (ErbB2+) advanced breast cancer whose disease had progressed on Herceptin. Cervarix - US filing expected by April 2007 GSK has now obtained the required number of events to trigger interim analysis of its phase III study required for regulatory submission. The company intends to file Cervarix for US approval by April 2007. Arixtra accepted for FDA priority review The FDA has granted GSK's anticoagulant product, Arixtra, priority review following the company's submission for approval to treat acute coronary syndromes (ACS) in July. The application was based on positive results from two pivotal, phase III trials: OASIS 5, which compared Arixtra to Lovenox, and OASIS 6, which compared Arixtra to standard therapies for ACS. A filing for approval in Europe was also submitted to regulators in July. Trexima - New data to be submitted to FDA Following the receipt of an approvable letter from the FDA in June, results from five recently completed US clinical trials have become available. The number of patients treated in these trials nearly doubles the total number of patients that have received Trexima. These data will be incorporated into the full response to the approvable letter that will be submitted to the FDA in November. News on other key assets: New data for Promacta Positive phase III data for Promacta (eltrombopag) were recently received for the short-term treatment of patients with idiopathic thrombocytopenic purpura (ITP). These data will be presented at scientific congresses in 2007 and the company is working closely with regulatory agencies to determine whether these data will be sufficient to file for approval next year. A phase III clinical programme is underway to assess the use of Promacta for the long-term treatment of ITP, with filings for this indication anticipated in 2008. Separately during the quarter, positive phase II data for use of Promacta, in patients with Hepatitis C associated thrombocytopenia, were accepted for presentation to the American Association for the Study of Liver Disease (AASLD) meeting on 30th October. Phase III clinical trials are expected to start in 2007. During the quarter, GSK also received data from a phase II trial for the treatment of chemotherapy-induced thrombocytopenia (CIT). A positive effect was seen with Promacta on increasing platelet production during chemotherapy cycles; however, the primary endpoint of the study was not met as the chemotherapy agent used in the trial did not induce sufficient levels of thrombocytopenia to differentiate Promacta versus placebo. These data are now being used to assess the design of further studies in CIT. Entereg - Phase III results in OBD received in Q3; FDA action date for POI in November During the quarter, GSK announced results from two phase III studies (012 and 013), using Entereg (alvimopan) for the treatment of opioid-induced bowel dysfunction. Study 012 achieved statistical significance for the primary endpoint - the proportion of patients who had a weekly average of three or more spontaneous bowel movements (SBM). Study 013 did not achieve statistical significance on this endpoint. However, the data did show supportive evidence in a key secondary endpoint of change in average weekly frequency of SBMs. Further analysis of study 013 is being undertaken. The FDA's action date for approval of Entereg, for the management of post-operative ileus, is 9th November. Pazopanib - Promising data seen in renal cell carcinoma study During the quarter, a planned interim analysis of a phase II trial, assessing use of pazopanib in patients with advanced Renal Cell Carcinoma (RCC) was conducted. Based on positive findings, an independent data monitoring committee recommended that randomization of patients to the placebo arm of the trial be discontinued and that patients on placebo may be switched to treatment with pazopanib. The study is continuing as a single-arm trial, examining rate and duration of patient response with pazopanib, and results will be submitted for presentation to ASCO in 2007. Concurrently, over 100 patients have now been enrolled into a phase III trial assessing use of pazopanib for treatment of advanced RCC. New generation flu vaccine demonstrates superior immune response in elderly population New phase II data reported at the International Conference on Influenza Vaccines for the World (IVW), this month, demonstrated that GSK's new generation seasonal influenza vaccine showed a consistently better immunogenicity profile when compared with a currently used seasonal flu vaccine, in elderly subjects (65 years and over), permitting the elderly to reach the level of immune response typically observed in young adults. Data for the new adjuvanted vaccine demonstrated a seroprotection rate of 90.5% in the elderly, which was more than 25% higher than that reported in the age matched comparator group. Phase III registration trials in over 3,500 participants are now underway, with data expected in 2007. H5N1 pandemic flu vaccine GSK also presented complete immunogenicity data for its candidate adjuvanted H5N1 pandemic flu vaccine at IVW. The vaccine enabled over 80% of subjects who received 3.8(micro)g of antigen (the lowest dose tested in the study) to demonstrate a strong seroprotective immune response. The clinical development programme for the vaccine is progressing well and GSK intends to file for approval with European regulatory authorities before the year-end. On 18th October, GSK announced a supply contract with the Swiss Government for 8 million doses of its H5N1 influenza vaccine for pre-pandemic use. Supply and stockpiling of the vaccine is expected in early 2007, once it has been approved by the Swiss regulatory authorities. The supply contract also provides for an advance purchase agreement for 7.5 million doses of pandemic vaccine which will be manufactured once a pandemic strain is identified by the WHO. GSK is in discussions with governments around the world regarding further supply agreements of vaccines for use in a pre-pandemic situation and in the event of a pandemic. Other pipeline news: During the quarter, GSK received further positive phase II results for its MAGE-A3 immunotherapeutic vaccine for non-small cell lung cancer. GSK now intends to begin the phase III development programme for the vaccine in the first half of 2007. Clinical trials for Redona, a DPPIV inhibitor for treatment of type 2 diabetes, were voluntarily placed on hold earlier this month following assessment of unfavourable preliminary data from pre-clinical long-term toxicity trials. These data are now being assessed to determine next steps for development of the product. Development of 270773, for sepsis, has been discontinued following an unfavourable risk/benefit assessment. CONSUMER HEALTHCARE UPDATE Brand portfolio to be enhanced with proposed CNS acquisition Consumer Healthcare sales grew 4% to Â£766 million. Continuing strong growth in International (+10%), together with Europe (+4%), was partly offset by lower sales in the USA, down 3%. â€¢ Nutritional healthcare products sales grew 8% to Â£178 million. Sales of Lucozade grew 19% to Â£86 million driven by new brand packaging and a new apple flavour variant. Horlicks sales were up 5% to Â£39 million and Ribena sales were down 4% to Â£44 million. â€¢ Oral care sales were level in the quarter at Â£240 million reflecting strong sales of Sensodyne, up 11% to Â£62 million, with sales of Aquafresh down 10% to Â£69 million. â€¢ Over-the-counter medicine sales grew 4% to Â£348 million. On 9th October, GSK announced its intention to acquire CNS, the manufacturer of Breathe Right nasal strips and FiberChoice dietary fibre supplements, for approximately $566 million. The transaction, which is expected to close by early 2007, is subject to CNS shareholder approval and regulatory clearance. GSK is in ongoing discussions with the FDA regarding its application for OTC approval of alli (orlistat) as a weight-loss aid in the USA. All relevant safety and efficacy data have been provided to the agency and, subject to FDA approval, the company expects to launch alli in the first half of 2007. FINANCIAL REVIEW These results have been prepared under International Financial Reporting Standards as adopted for use in the European Union (see 'Accounting Presentation and Policies' on page 23). Operating profit and earnings per share Operating profit of Â£2,023 million for the quarter increased by 19% compared with Q3 last year, and was above turnover growth of 7%, driving an improvement in operating margin of 3.3 percentage points to 35.9%. Consumer Healthcare operating profit was down 19%, compared with 2005, as a result of lower profits on product disposals. Excluding profits on these disposals, operating profit grew in line with turnover. SG&A costs were 10% lower than last year, owing to lower legal charges. Excluding legal charges SG&A costs were 1% lower than the previous year reflecting the continuing benefits of cost saving programmes. In the quarter, gains from asset disposals were Â£63 million (Â£122 million in 2005), costs for legal matters were Â£22 million (Â£190 million in 2005), the fair value movements on the Quest collar and Theravance options resulted in income of Â£22 million (Â£37 million income in 2005) and charges related to restructuring programmes were Â£124 million (Â£29 million in 2005). The total operating profit impact of these items was a Â£61 million charge in 2006, compared with a Â£60 million charge in 2005. Profit after taxation grew by 19% which was level with the growth in operating profit and reflected lower net interest costs, largely offset by the higher expected tax rate for the year. EPS of 24.7 pence increased 21% in CER terms (16% in sterling terms) compared with Q3 2005. The adverse currency impact of 5% on EPS reflected a weaker dollar and yen. Currencies The Q3 2006 results are based on average exchange rates, principally Â£1/$1.88, Â£1/Euro 1.48 and Â£1/Yen 219. The period-end exchange rates were Â£1/$1.87, Â£1/Euro 1.47 and Â£1/Yen 221. At 20th October 2006, the exchange rates were Â£1/ $1.88, Â£1/Euro 1.49 and Â£1/Yen 222. If exchange rates were to hold at this level for the remainder of 2006, the adverse currency impact on EPS growth for the full-year would be around 1-2%. Dividend The Board has declared a third interim dividend of 12 pence per share. This compares with a dividend of 10 pence per share for Q3 2005. The equivalent dividend receivable by ADR holders is 45.0456 cents per ADS based on an exchange rate of Â£1/$1.8769. The dividend will have an ex-dividend date of 1st November 2006, a record date of 3rd November 2006 and will be paid on 4th January 2007. In recognition of GSK's strong financial performance to date the full year dividend for 2006 is expected to be 48 pence compared with 44 pence in 2005. Earnings guidance GSK earnings guidance for the full-year 2006 is mid-teens EPS percentage growth in CER terms. Previously guidance was for EPS growth around 12% in CER terms. Share buy-back programme GSK repurchased Â£316 million of shares in Q3 2006, to be held as Treasury shares. The company completed its second Â£4 billion share repurchase programme in September, and has announced today its intention to commence immediately a new share buy-back programme totalling Â£6 billion. This programme is expected to be completed over a three year period including Â£2 billion in the first 12 months. The exact amount and timing of future purchases, and the extent to which repurchased shares will be held as Treasury shares rather than being cancelled, 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 Philip Thomson (020) 8047 5502 Alice Hunt (020) 8047 5502 Gwenan White (020) 8047 5502 US Media Nancy Pekarek (215) 751 7709 Mary Anne Rhyne (919) 483 2839 Patricia Seif (215) 751 7709 European Analyst / Investor Anita Kidgell (020) 8047 5542 Jen Hill (215) 751 7199 David Mawdsley (020) 8047 5564 Sally Ferguson (020) 8047 5543 US Analyst / Investor Frank Murdolo (215) 751 7002 Tom Curry (215) 751 5419 Brand names appearing in italics throughout this document are trademarks of GSK or associated companies with the exception of Levitra, a trademark of Bayer, Entereg, a trademark of Adolor and Bonviva/Boniva, a trademark of Roche, which are used under licence by the Group. 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 2005. INCOME STATEMENT Three months ended 30th September 2006 Q3 2006 Growth Q3 2005 Â£m CER% Â£m --- --- --- Turnover: Pharmaceuticals 4,876 7 4,709 Consumer Healthcare 766 4 762 --- --- TURNOVER 5,642 7 5,471 Cost of sales (1,222) 5 (1,184) --- --- Gross profit 4,420 7 4,287 Selling, general and administration (1,617) (10) (1,884) Research and development (871) 11 (803) Other operating income 91 183 --- --- Operating profit: Pharmaceuticals 1,842 24 1,553 Consumer Healthcare 181 (19) 230 --- --- OPERATING PROFIT 2,023 19 1,783 Finance income 64 67 Finance expense (81) (113) Share of after tax profits of associates and joint ventures 16 16 --- --- PROFIT BEFORE TAXATION 2,022 21 1,753 Taxation (596) (500) Tax rate % 29.5% 28.5% --- --- PROFIT AFTER TAXATION FOR THE PERIOD 1,426 19 1,253 --- --- Profit attributable to minority interests 35 46 Profit attributable to shareholders 1,391 1,207 --- --- 1,426 1,253 --- --- EARNINGS PER SHARE 24.7p 21 21.3p --- --- Diluted earnings per share 24.4p 21.1p --- --- INCOME STATEMENT Nine months ended 30th September 2006 9 months Growth 9 months 2006 2005 2005 Â£m CER% Â£m Â£m --- --- --- --- Turnover: Pharmaceuticals 14,942 9 13,553 18,661 Consumer Healthcare 2,324 5 2,200 2,999 --- --- --- TURNOVER 17,266 9 15,753 21,660 Cost of sales (3,565) 2 (3,466) (4,764) --- --- --- Gross profit 13,701 10 12,287 16,896 Selling, general and administration (5,323) 1 (5,210) (7,250) Research and development (2,477) 13 (2,168) (3,136) Other operating income 207 332 364 --- --- --- Operating profit: Pharmaceuticals 5,624 18 4,719 6,159 Consumer Healthcare 484 (8) 522 715 --- --- --- OPERATING PROFIT 6,108 16 5,241 6,874 Finance income 204 172 257 Finance expense (266) (326) (451) Share of after tax profits of associates and joint ventures 43 39 52 --- --- --- PROFIT BEFORE TAXATION 6,089 18 5,126 6,732 Taxation (1,796) (1,461) (1,916) Tax rate % 29.5% 28.5% 28.5% --- --- --- PROFIT AFTER TAXATION FOR THE PERIOD 4,293 16 3,665 4,816 --- --- --- Profit attributable to minority interests 85 98 127 Profit attributable to shareholders 4,208 3,567 4,689 --- --- --- 4,293 3,665 4,816 --- --- --- EARNINGS PER SHARE 74.5p 18 62.8p 82.6p --- --- --- Diluted earnings per share 73.5p 62.3p 82.0p --- --- --- PHARMACEUTICAL TURNOVER Three months ended 30th September 2006 Total USA Europe International -------------- --------------- ------------- ------------- Â£m CER% Â£m CER% Â£m CER% Â£m CER% ------ ----- ------ ----- ---- ----- ---- ----- RESPIRATORY 1,185 (1) 593 (4) 399 4 193 3 Seretide/Advair 813 14 464 17 271 12 78 7 Flixotide/Flovent 145 (1) 64 3 39 (7) 42 - Serevent 69 (10) 20 (16) 35 (11) 14 - Flixonase/Flonase 64 (59) 39 (70) 10 (29) 15 23 CENTRAL NERVOUS SYSTEM 913 18 661 34 142 (16) 110 - Seroxat/Paxil 137 4 33 62 35 (27) 69 7 Paxil IR 103 (8) 2 100 35 (29) 66 6 Paxil CR 34 61 31 60 - - 3 25 Wellbutrin 234 27 229 28 1 - 4 (20) Wellbutrin IR, SR 26 17 22 21 1 - 3 (25) Wellbutrin XL 208 28 207 29 - - 1 - Imigran/Imitrex 180 4 144 15 26 (28) 10 (15) Lamictal 257 27 201 43 42 (16) 14 7 Requip 70 71 46 >100 21 24 3 50 ANTI-VIRALS 703 9 339 6 218 14 146 11 HIV 363 (6) 168 (11) 149 - 46 (4) Combivir 125 (12) 57 (15) 52 (9) 16 (5) Trizivir 63 (16) 34 (19) 27 (10) 2 (25) Epivir 46 (25) 16 (23) 21 (33) 9 (8) Ziagen 28 (12) 11 (8) 10 (23) 7 - Agenerase, Lexiva 32 3 18 (10) 12 33 2 - Epzicom/Kivexa 63 88 31 38 26 >100 6 >100 Herpes 242 21 160 35 36 3 46 - Valtrex 215 26 158 36 28 12 29 - Zovirax 27 (6) 2 - 8 (20) 17 - Zeffix 42 16 4 - 6 50 32 13 Relenza 30 - - - 24 >100 6 >100 METABOLIC 438 16 289 15 64 30 85 10 Avandia 323 13 242 14 30 7 51 16 Avandamet 44 (21) 13 (64) 25 100 6 - Avandaryl 11 - 10 - - - 1 - Bonviva/Boniva 27 >100 24 >100 3 >100 - - VACCINES 412 5 130 8 169 6 113 2 Hepatitis 114 (2) 39 - 54 (5) 21 6 Infanrix/Pediarix 122 6 45 (4) 65 16 12 - Boostrix 18 64 14 75 3 50 1 - CARDIOVASCULAR AND UROGENITAL 406 23 269 37 96 (6) 41 23 Coreg 195 32 193 32 - - 2 100 Levitra 11 22 11 71 - - - - Avodart 57 61 37 85 17 21 3 100 Arixtra 13 100 7 >100 6 >100 - - Fraxiparine 49 2 - - 44 5 5 (17) ANTI-BACTERIALS 311 (8) 52 (2) 135 (13) 124 (5) Augmentin 121 (15) 20 (28) 54 (21) 47 (2) Zinnat/Ceftin 35 (10) 3 - 16 (16) 16 (5) ONCOLOGY AND EMESIS 279 11 223 18 37 (8) 19 (13) Zofran 223 8 185 16 25 (10) 13 (26) Hycamtin 28 12 17 - 10 29 1 100 OTHER 229 (7) 18 6 61 (18) 150 (2) Zantac 51 (11) 16 7 11 (31) 24 (10) -------------- -------------- -------------- -------------- 4,876 7 2,574 14 1,321 - 981 3 -------------- -------------- -------------- -------------- Pharmaceutical turnover includes co-promotion income. PHARMACEUTICAL TURNOVER Nine months ended 30th September 2006 Total USA Europe International -------------- --------------- ------------- ------------- Â£m CER% Â£m CER% Â£m CER% Â£m CER% ------ ----- ------ ----- ---- ----- ---- ----- RESPIRATORY 3,726 1 1,845 (2) 1,264 3 617 6 Seretide/Advair 2,451 13 1,377 13 840 11 234 12 Flixotide/Flovent 487 4 219 13 131 (6) 137 1 Serevent 217 (11) 64 (16) 107 (12) 46 2 Flixonase/Flonase 263 (46) 167 (55) 40 (15) 56 (17) CENTRAL NERVOUS SYSTEM 2,727 16 1,928 29 458 (15) 341 5 Seroxat/Paxil 457 1 126 23 114 (22) 217 8 Paxil IR 335 (6) 16 (11) 114 (22) 205 6 Paxil CR 122 32 110 30 - - 12 50 Wellbutrin 688 30 674 30 2 100 12 20 Wellbutrin IR, SR 77 12 67 10 2 100 8 14 Wellbutrin XL 611 32 607 32 - - 4 33 Imigran/Imitrex 537 4 413 11 93 (12) 31 (16) Lamictal 739 17 561 36 136 (22) 42 2 Requip 192 79 124 >100 60 22 8 33 ANTI-VIRALS 2,121 10 1,021 7 645 11 455 18 HIV 1,155 - 532 (7) 475 5 148 10 Combivir 409 (7) 182 (14) 169 (2) 58 8 Trizivir 207 (9) 109 (12) 88 (5) 10 (9) Epivir 159 (21) 54 (25) 72 (24) 33 (3) Ziagen 89 (14) 36 (12) 31 (28) 22 17 Agenerase, Lexiva 97 20 55 8 36 50 6 - Epzicom/Kivexa 172 >100 92 60 68 >100 12 >100 Herpes 723 19 456 30 108 3 159 7 Valtrex 633 24 450 30 82 11 101 12 Zovirax 90 (5) 6 20 26 (16) 58 (2) Zeffix 120 15 10 - 17 13 93 16 Relenza 54 >100 1 - 39 >100 14 >100 METABOLIC 1,401 24 956 26 183 36 262 14 Avandia 1,075 22 822 24 95 14 158 17 Avandamet 136 4 54 (40) 65 >100 17 33 Avandaryl 28 - 26 - - - 2 - Bonviva/Boniva 61 >100 54 >100 7 >100 - - VACCINES 1,165 19 303 23 509 20 353 15 Hepatitis 351 5 118 15 167 (1) 66 8 Infanrix/Pediarix 375 29 125 14 209 41 41 24 Boostrix 42 >100 28 >100 10 100 4 33 CARDIOVASCULAR AND UROGENITAL 1,215 24 791 42 294 (5) 130 22 Coreg 580 38 575 38 - - 5 25 Levitra 31 - 29 12 1 (67) 1 (100) Avodart 155 70 95 >100 50 25 10 67 Arixtra 37 >100 20 >100 16 >100 1 - Fraxiparine 156 (1) - - 135 2 21 (13) ANTI-BACTERIALS 1,015 (10) 160 (16) 464 (13) 391 (2) Augmentin 425 (15) 69 (35) 201 (15) 155 (1) Zinnat/Ceftin 122 (15) 9 33 60 (28) 53 (2) ONCOLOGY AND EMESIS 856 13 674 20 120 (4) 62 (8) Zofran 682 11 549 17 86 (9) 47 (13) Hycamtin 85 14 54 8 26 19 5 50 OTHER 716 (7) 65 24 183 (22) 468 (3) Zantac 177 (1) 56 34 39 (17) 82 (9) -------------- -------------- -------------- -------------- 14,942 9 7,743 16 4,120 - 3,079 7 -------------- -------------- -------------- -------------- Pharmaceutical turnover includes co-promotion income. CONSUMER HEALTHCARE TURNOVER Three months ended 30th September 2006 Q3 2006 Growth Â£m CER% --------- --------- Over-the-counter medicines 348 4 Analgesics 91 1 Dermatological 37 12 Gastrointestinal 61 (2) Respiratory tract 42 22 Smoking control 73 (6) Natural wellness support 30 (3) Oral care 240 - Nutritional healthcare 178 8 --------- --------- Total 766 4 --------- --------- CONSUMER HEALTHCARE TURNOVER Nine months ended 30th September 2006 9 months Growth 2006 CER% Â£m --------- --------- Over-the-counter medicines 1,087 4 Analgesics 285 6 Dermatological 122 - Gastrointestinal 189 1 Respiratory tract 118 16 Smoking control 250 2 Natural wellness support 94 (4) Oral care 735 5 Nutritional healthcare 502 8 --------- --------- Total 2,324 5 --------- --------- FINANCIAL REVIEW - INCOME STATEMENT Operating profit Q3 2006 Q3 2005 Growth ---------------------- -------------------- ---------------- % of % of Â£m turnover Â£m turnover CER% Â£% ------ ------ ------ ------ ------ ----- Turnover 5,642 100.0 5,471 100.0 7 3 Cost of sales (1,222) (21.7) (1,184) (21.6) 5 3 Selling, general and administration (1,617) (28.6) (1,884) (34.4) (10) (14) Research and development (871) (15.4) (803) (14.7) 11 8 Other operating income 91 1.6 183 3.3 ------ ------ ------ ------ ------ ---- Operating profit 2,023 35.9 1,783 32.6 19 13 ------ ------ ------ ------ ------ ---- Overall, the operating margin increased 3.3 percentage points as sterling operating profit increased 13% on a sterling turnover growth of 3% reflecting lower SG&A costs, partially offset by an increase in R&D expenditure and lower other operating income. Cost of sales grew below the rate of turnover growth. This reflected a number of factors including favourable price and regional mix changes, and the adverse impact of higher charges related to restructuring programmes. SG&A costs were 10% lower than last year owing to lower legal charges. Excluding legal charges SG&A costs were 1% lower than the previous year reflecting the continuing benefits of cost saving programmes. R&D expenditure increased 11% and was adversely impacted by higher charges related to restructuring programmes but benefited from lower intangible write-offs. This resulted in the R&D margin increasing 0.7 percentage points to 15.4%. Excluding these items, R&D grew 7%. Pharmaceuticals R&D expenditure represented 17.4% of pharmaceutical turnover. Other operating income includes royalty income, equity investment disposals and impairments, product disposals and fair value adjustments to the Quest collar and Theravance options. Other operating income was Â£91 million in Q3 2006 compared with Â£183 million in Q3 2005. The decrease is primarily due to lower product and asset disposal profits. Taxation The charge for taxation on profit amounting to Â£596 million, represents an effective tax rate of 29.5%, which is the expected rate for the year (2005 - 28.5%). The 'Taxation' note to the Financial Statements included in the Annual Report 2005 set out in detail the transfer pricing issues affecting the group. The current status relating to these issues is set out below. GSK and the US Internal Revenue Service agreed to a resolution of their transfer pricing dispute on 11th September 2006. As at 30th September 2006, GSK had made gross payments to the IRS of $3.3 billion under this agreement. The Group expects to discharge the remaining liabilities arising out of this agreement by the end of 2006. Under the agreement the final net cash cost to GSK will be approximately $3.1 billion which covers federal, state and local taxes, interest and also the benefit of tax relief on the payments made. The settlement resolved all the transfer pricing issues which were in dispute for the period 1989 - 2000, which was due to go to trial in February 2007, and also covers the subsequent years 2001 - 2005. GSK had previously made provision for the dispute and this settlement will not have any significant impact on the company's reported earnings or tax rate for the year. The Group has remaining open taxation issues with the UK, Japan and Canada. Discussions continue with HMRC in respect of the UK dispute; in Japan court hearings are expected to be completed before the end of the year with a decision expected in the first half of 2007; and in Canada a court hearing ended in July and a decision is expected this year. GSK uses the best advice in determining its transfer pricing methodology and seeking to manage transfer pricing and other taxation 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 ultimate liability for such matters may vary from the amounts provided and is dependent on the outcome of litigation proceedings and negotiations with the relevant tax authorities. Weighted average number of shares Q3 2006 Q3 2005 millions millions ---- ---- Weighted average number of shares - basic 5,641 5,668 Dilutive effect of share options and share 70 44 awards ---- ---- Weighted average number of shares - diluted 5,711 5,712 ---- ---- 9 months 9 months 2006 2005 2005 millions millions millions ---- ---- ---- Weighted average number of shares - basic 5,652 5,680 5,674 Dilutive effect of share options and share awards 70 42 46 ---- ---- ---- 5,722 5,722 5,720 ---- ---- ---- The number of shares in issue, excluding those held by the ESOP Trusts and those held as Treasury shares at 30th September 2006, was 5,632 million (30th September 2005: 5,658 million). Dividends Paid/ Pence per payable share Â£m ---- ---- ---- 2006 First interim 6th July 2006 11 619 Second interim 5th October 2006 11 619 Third interim 4th January 2007 12 676 2005 First interim 7th July 2005 10 568 Second interim 6th October 2005 10 567 Third interim 5th January 2006 10 568 Fourth interim 6th April 2006 14 791 ---- ---- 44 2,494 ---- ---- The liability for an interim dividend is only recognised when it is paid, which is usually after the accounting period to which it relates. The second and third interim dividends for 2006 have not been recognised in these results. STATEMENT OF RECOGNISED INCOME AND EXPENSE 9 months 9 months 2005 2006 2005 Â£m Â£m Â£m ---- ---- ---- Exchange movements on overseas net assets (293) 128 203 Tax on exchange movements (141) 56 99 Fair value movements on available-for-sale investments 23 (5) (1) Deferred tax on fair value movements (8) (5) (10) Exchange movements on goodwill in reserves 20 7 9 Actuarial gains/(losses) on defined benefit plans 409 (462) (794) Deferred tax on actuarial movements in defined benefit plans (137) 156 257 Fair value movements on cash flow hedges (5) (1) (4) Deferred tax on fair value movements on cash flow hedges 2 (2) 1 ---- ---- ---- Net losses recognised directly in equity (130) (128) (240) Profit for the period 4,293 3,665 4,816 ---- ---- ---- Total recognised income and expense for the period 4,163 3,537 4,576 ---- ---- ---- Total recognised income and expense for the period attributable to: Shareholders 4,101 3,422 4,423 Minority interests 62 115 153 ---- ---- ---- 4,163 3,537 4,576 ---- ---- ---- BALANCE SHEET 30th September 2006 30th September 2005 31st December 2005 Â£m Â£m Â£m ASSETS ---- ---- ---- Non-current assets Property, plant and equipment 6,795 6,332 6,652 Goodwill 679 334 696 Other intangible assets 3,194 2,641 3,383 Investments in associates and joint ventures 292 256 276 Other investments 379 350 362 Deferred tax assets 2,054 2,140 2,214 Other non-current assets 565 529 438 ---- ---- ---- Total non-current assets 13,958 12,582 14,021 ---- ---- ---- Current assets Inventories 2,493 2,200 2,177 Current tax recoverable 758 409 416 Trade and other receivables 5,252 4,854 5,348 Liquid investments 1,043 336 1,025 Cash and cash equivalents 2,344 6,093 4,209 Assets held for sale 4 3 2 ---- ---- ---- Total current assets 11,894 13,895 13,177 ---- ---- ---- TOTAL ASSETS 25,852 26,477 27,198 ---- ---- ---- LIABILITIES Current liabilities Short-term borrowings (653) (1,616) (1,200) Trade and other payables (4,611) (4,579) (5,147) Current tax payable (1,100) (2,231) (2,269) Short-term provisions (929) (1,005) (895) ---- ---- ---- Total current liabilities (7,293) (9,431) (9,511) ---- ---- ---- Non-current liabilities Long-term borrowings (4,852) (5,212) (5,271) Deferred tax provision (587) (425) (569) Pensions and other post-employment benefits (2,613) (3,164) (3,069) Other provisions (655) (572) (741) Other non-current liabilities (448) (495) (467) ---- ---- ---- Total non-current liabilities (9,155) (9,868) (10,117) ---- ---- ---- TOTAL LIABILITIES (16,448) (19,299) (19,628) ---- ---- ---- NET ASSETS 9,404 7,178 7,570 ---- ---- ---- EQUITY Share capital 1,497 1,487 1,491 Share premium account 804 382 549 Other reserves (79) (410) (308) Retained earnings 6,940 5,486 5,579 ---- ---- ---- Shareholders' equity 9,162 6,945 7,311 Minority interests 242 233 259 ---- ---- ---- TOTAL EQUITY 9,404 7,178 7,570 ---- ---- ---- RECONCILIATION OF MOVEMENTS IN EQUITY 9 months 9 months 2005 2006 2005 Â£m Â£m Â£m ---- ---- ---- Total equity at beginning of period 7,570 5,925 5,925 Total recognised income and expense for the period 4,163 3,537 4,576 Dividends to shareholders (1,978) (1,823) (2,390) Shares issued 261 81 252 Shares purchased and held as Treasury shares (828) (638) (1,000) Consideration received for shares transferred by ESOP Trusts 120 23 68 Share-based incentive plans net of tax 175 183 265 Changes in minority interest shareholdings 2 (32) (40) Distributions to minority shareholders (81) (78) (86) ---- ---- ---- Total equity at end of period 9,404 7,178 7,570 ---- ---- ---- FINANCIAL REVIEW - BALANCE SHEET Net assets The book value of net assets increased by Â£1,834 million from Â£7,570 million at 31st December 2005 to Â£9,404 million at 30th September 2006. Net debt increased and the overall tax creditor position decreased following the payment of Â£1.8 billion under the transfer pricing dispute settlement with the US Internal Revenue Service (see 'Taxation' on page 14) and the pension and other post-employment liabilities decreased following a strengthening of long-term interest rates, including an increase in the rate used to discount UK pension liabilities from 4.75% to 5.0%. The carrying value of investments in associates and joint ventures at 30th September 2006 was Â£292 million, with a market value of Â£1,224 million. Equity At 30th September 2006, total equity had increased from Â£7,570 million at 31st December 2005 to Â£9,404 million. The increase arises principally from retained earnings and actuarial gains on defined benefit pension plans in the period partially offset by further purchases of Treasury shares. At 30th September 2006, the ESOP Trusts held 156.5 million GSK ordinary shares against the future exercise of share options and share awards. The carrying value of Â£2,091 million has been deducted from other reserves. The market value of these shares was Â£2,225 million. At 30th September 2006, GSK also held 198.1 million shares as Treasury shares, at a cost of Â£2,627 million, which has been deducted from retained earnings. CASH FLOW STATEMENT Three months ended 30th September 2006 Q3 2006 Q3 2005 Â£m Â£m ---- ---- Operating profit 2,023 1,783 Depreciation and other non-cash items 303 253 (Increase)/decrease in working capital (289) 9 Increase in other net liabilities 77 280 ---- ---- 2,114 2,325 Taxation paid (2,166) (469) ---- ---- Net cash (outflow)/inflow from operating activities (52) 1,856 ---- ---- Cash flow from investing activities Purchase of property, plant and equipment (368) (237) Proceeds from sale of property, plant and equipment 15 36 Purchase of intangible assets (74) (33) Proceeds from sale of intangible assets 76 54 Purchase of equity investments (22) (10) Proceeds from sale of equity investments 6 11 Share transactions with minority shareholders (158) - Purchase of businesses, net of cash acquired 7 (143) Investment in associates and joint ventures (1) - Interest received 58 71 Dividends from associates and joint ventures 6 5 ---- ---- Net cash outflow from investing activities (455) (246) ---- ---- Cash flow from financing activities (Increase)/decrease in liquid investments (59) 2 Proceeds from own shares for employee share options 17 4 Issue of share capital 37 33 Purchase of Treasury shares (309) (235) Repayment of long-term loans - (69) Net increase in/(repayment of) short-term loans 43 (8) Net repayment of obligations under finance leases (10) (7) Interest paid (74) (117) Dividends paid to shareholders (619) (568) Dividends paid to minority interests (15) (5) Other financing cash flows (50) 109 ---- ---- Net cash outflow from financing activities (1,039) (861) ---- ---- (Decrease)/increase in cash and bank overdrafts in the period (1,546) 749 Exchange adjustments 11 66 Cash and bank overdrafts at beginning of period 3,543 5,050 ---- ---- Cash and bank overdrafts at end of period 2,008 5,865 ---- ---- Cash and bank overdrafts at end of period comprise: Cash and cash equivalents 2,344 6,093 Overdrafts (336) (228) ---- ---- 2,008 5,865 ---- ---- CASH FLOW STATEMENT Nine months ended 30th September 2006 9 months 9 months 2005 2006 2005 Â£m Â£m Â£m ---- ---- ---- Operating profit 6,108 5,241 6,874 Depreciation and other non-cash items 887 669 1,103 Increase in working capital (460) (68) (323) (Decrease)/increase in other net liabilities (278) 103 11 ---- ---- ---- 6,257 5,945 7,665 Taxation paid (3,405) (1,272) (1,707) ---- ---- ---- Net cash inflow from operating activities 2,852 4,673 5,958 ---- ---- ---- Cash flow from investing activities Purchase of property, plant and equipment (896) (555) (903) Proceeds from sale of property, plant and equipment 32 63 54 Purchase of intangible assets (155) (185) (278) Proceeds from sale of intangible assets 183 224 221 Purchase of equity investments (35) (18) (23) Proceeds from sale of equity investments 22 22 35 Share transactions with minority shareholders (158) (32) (36) Purchase of businesses, net of cash acquired (17) (143) (1,026) Disposals of businesses and interests in associates 3 - (2) Investment in associates and joint ventures (8) (2) (2) Interest received 197 200 290 Dividends from associates and joint ventures 13 8 10 ---- ---- ---- Net cash outflow from investing activities (819) (418) (1,660) ---- ---- ---- Cash flow from financing activities (Increase)/decrease in liquid investments (49) 1,234 550 Proceeds from own shares for employee share options 120 23 68 Issue of share capital 261 81 252 Purchase of Treasury shares (814) (625) (999) Increase in long-term loans - 982 982 Repayment of long-term loans - (124) (70) Net repayment of short-term loans (874) (314) (857) Net repayment of obligations under finance leases (27) (25) (36) Interest paid (247) (321) (381) Dividends paid to shareholders (1,978) (1,823) (2,390) Dividends paid to minority interests (81) (78) (86) Other financing cash flows (100) 32 53 ---- ---- ---- Net cash outflow from financing activities (3,789) (958) (2,914) ---- ---- ---- (Decrease)/increase in cash and bank overdrafts in the period (1,756) 3,297 1,384 Exchange adjustments (208) 213 233 Cash and bank overdrafts at beginning of period 3,972 2,355 2,355 ---- ---- ---- Cash and bank overdrafts at end of period 2,008 5,865 3,972 ---- ---- ---- Cash and bank overdrafts at end of period comprise: Cash and cash equivalents 2,344 6,093 4,209 Overdrafts (336) (228) (237) ---- ---- ---- 2,008 5,865 3,972 ---- ---- ---- RECONCILIATION OF CASH FLOW TO MOVEMENTS IN NET DEBT 9 months 9 months 2005 2006 2005 Â£m Â£m Â£m ---- ---- ---- Net debt at beginning of the period (1,237) (1,984) (1,984) (Decrease)/increase in cash and bank overdrafts (1,756) 3,297 1,384 Cash outflow/(inflow) from liquid investments 49 (1,234) (550) Net increase in long-term loans - (858) (912) Net repayment of short-term loans 874 314 857 Net repayment of obligations under finance leases 27 25 36 Net non-cash funds of businesses acquired - (23) (68) Exchange adjustments (12) 83 39 Other non-cash movements (63) (19) (39) ---- ---- ---- (Increase)/decrease in net debt (881) 1,585 747 ---- ---- ---- Net debt at end of the period (2,118) (399) (1,237) ---- ---- ---- FINANCIAL REVIEW - CASH FLOW Operating cash flow was Â£2,114 million in Q3 2006. This represents a decrease of Â£211 million over Q3 2005, principally due to higher operating profits which were more than offset by an increase in working capital and a lower increase in other net liabilities. Taxation paid during the quarter included the payment of Â£1.8 billion under the transfer pricing dispute settlement with the US Internal Revenue Service (see 'Taxation' on page 14). Excluding this payment the operating cash flow is in excess of the funds needed for the routine cash flows of tax, capital expenditure on property, plant and equipment and dividend payments, together amounting to nearly Â£1.4 billion. Receipts of Â£54 million arose from the exercise of share options: Â£17 million from shares held by the ESOP Trusts and Â£37 million from the issue of new shares. In addition, Â£309 million was spent in the quarter on purchasing the company's shares to be held as Treasury shares. 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 2006 2005 2005 Average rates: ---- ---- ---- Â£/US$ 1.82 1.85 1.82 Â£/Euro 1.46 1.46 1.46 Â£/Yen 211.00 199.00 200.00 Period-end rates: Â£/US$ 1.87 1.77 1.72 Â£/Euro 1.47 1.47 1.46 Â£/Yen 221.00 201.00 203.00 During the period to 30th September 2006, average sterling exchange rates were weaker against the US dollar, level against the Euro and stronger against the Yen compared with the same period in 2005. Comparing Q3 2006 period-end rates with Q3 2005 period-end rates, sterling was level against the Euro and stronger against the US dollar and the Yen. LEGAL MATTERS The Group is involved in various legal and administrative proceedings, principally product liability, intellectual property, tax, anti-trust and governmental investigations and related private litigation concerning sales, marketing and pricing. The Group makes provision for those proceedings on a regular basis and may make additional significant provisions for such legal proceedings, as required in the event of further developments in those matters, consistent with generally accepted accounting principles. Litigation, particularly in the USA, is inherently unpredictable and excessive awards that may not be justified by the evidence can occur. The Group could in the future incur judgements or enter into settlements of claims that could result in payments that exceed its current provisions by an amount that would have a material adverse effect on the Group's financial condition, results of operations and cash flows. Intellectual property claims include challenges to the validity of the patents on various of the Group's products or processes and assertions of non-infringement of those patents. A loss in any of these cases could result in loss of patent protection for the product at issue. The consequence of any such loss could be a significant decrease in sales of that product and could materially affect future results of operations for the Group. At 30th September 2006, the Group's aggregate provision for legal and other disputes (not including tax matters described under 'Taxation' on page 14) was over Â£1.1 billion. 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 since the date of the Annual Report as previously updated by the Legal matters section of the Results Announcement for the first and second quarters of 2006 include: Intellectual property With respect to Biovail's patent infringement action against Anchen Pharmaceuticals in respect of Wellbutrin XL, on 1st August 2006 the judge granted Anchen's motion and ruled that Anchen's ANDA product did not infringe Biovail's patent. Biovail has appealed that decision to the US Court of Appeals for the Federal Circuit. At the date of this report no generic version of Wellbutrin XL has been launched in the USA. With respect to Biovail's infringement action against Abrika Pharmaceuticals in respect of Wellbutrin XL, oral argument on Abrika's motion for summary judgement was held in April 2006 but at the date of this report no decision has been announced. With respect to Biovail's infringement action against Impax Laboratories in respect of Wellbutrin XL, Impax filed a summary judgement motion of non-infringement on 14th August 2006 but at the date of this report no decision has been announced. With respect to the counterclaim based on FDA Orange Book listing activities filed against the Group by Watson Laboratories in connection with Biovail's infringement action against Watson, on 19th October 2006 that counterclaim was dismissed. With respect to the Group's patent infringement actions in respect of Imitrex oral tablets, the Group has reached a settlement with Dr. Reddy's Laboratories. The settlement, which remains subject to review by the US Federal Trade Commission (FTC) and the Department of Justice (DOJ), provides that Dr. Reddy's may exclusively distribute authorised generic versions of sumatriptan tablets in the USA with an expected launch date late in the fourth quarter of 2008. The trial date for the Group's infringement action against Cobalt Pharmaceuticals on the same compound patent as the Dr. Reddy's case, and also for oral tablets, has been rescheduled for 27th November 2006. The trial date for the Group's infringement action against Spectrum Pharmaceuticals regarding Imitrex subcutaneous injection is set for 14th November 2006. A second infringement action against Spectrum Pharmaceuticals was filed in September 2006 regarding Imitrex pre-filled syringes; this action is on the same compound patent as the other Imitrex infringement actions but no trial date has been set. With respect to the appeal by Kali Laboratories from the district court decision in favour of the Group in respect of infringement of the Group's method of use patents relating to Zofran, the parties have reached a settlement agreement which is subject to review by the FTC and the DOJ. Kali has filed a motion to withdraw its appeal. Terms of the settlement remain confidential. Sales and marketing and regulation On 10th August 2006, the Group reached civil settlements to resolve most of the litigation about the Average Wholesale Price (AWP) of certain of the Group's prescription drugs. The Group agreed to a nationwide settlement (subject to court approval) of $70 million to resolve class-action claims filed on behalf of certain individuals, health plans and insurance companies, including all claims filed against the Group in a consolidated Multidistrict Litigation pending in the US District Court for the District of Massachusetts. In addition, the Group reached civil settlements in AWP litigation filed by the Attorneys General of New York, California, Connecticut, Nevada, Montana and Arizona as well as potential AWP claims by 34 other states and the District of Columbia. The total amount of the settlements was covered by the Group's existing legal provision. Anti-trust With respect to the ongoing investigation by the European Commission concerning enforcement of patent rights, litigation surrounding regulatory approvals and marketing of Seroxat in Europe, the Commission made a formal request for further information on 5th October 2006. The Group continues to co-operate fully with the Commission. On 4th September 2006, GSK received a favourable decision from the Greek Competition Authority (GCA) regarding GSK's refusal to supply unlimited quantities of pharmaceutical products, at Greek regulated prices, to distributors, which were likely to be exported to other EU member states, where prices were higher. The GCA ruled that there was no abuse by GSK in refusing to supply unlimited quantities of the drugs to wholesalers and pharmacy co-operatives in Greece. On 27th September 2006, the European Court of First Instance (CFI) ruled in GSK's favour that a distribution scheme, that involved different prices depending on the destination of a medicine, set up by a pharmaceutical company to reduce parallel trade between EU member states, is not per se prohibited under EU competition law. In coming to this decision, the CFI took account of the differences in national pricing regimes in the EU, which create significant price differences between member states. Commercial and corporate With respect to the securities class action filed against the Group in the US District Court for the Southern District of New York, on 6th October 2006 the US district court judge entered an order dismissing the complaint. Developments with respect to tax matters are described in 'Taxation' on page 14. ACCOUNTING PRESENTATION AND POLICIES This unaudited Results Announcement containing condensed financial information for the three and nine months ended 30th September 2006 is prepared in accordance with IAS 34 'Interim Financial Reporting' and the accounting policies set out in the Annual Report 2005, except that IFRIC Interpretation 4 'Determining whether an arrangement contains a lease' and an amendment to IAS 39 'Financial guarantee contracts' have been implemented in 2006. Neither change has had a material effect on the current or prior periods. Adjustments have been made to the balance sheet at 30th September 2005 from that published in the Q3 2005 Results Announcement in order to reflect the presentation subsequently adopted in the Annual Report 2005. The adjustments have been made to deferred tax and minority interests and they have decreased net assets and total equity at 30th September 2005 by Â£214 million compared with the previously reported balances. The adjustments had no impact on the profits reported in Q3 2005. The income statement, statement of recognised income and expense and cash flow statement for the year ended, and the balance sheet at, 31st December 2005 have been derived from the full Group accounts published in the Annual Report 2005, which have been delivered to the Registrar of Companies and on which the report of the independent auditors was unqualified and did not contain a statement under either section 237(2) or section 237(3) of the Companies Act 1985. Data for market share and market growth rates are GSK estimates based on the most recent data from independent external sources and, where appropriate, are valued in sterling at relevant exchange rates. Figures quoted for product market share reflect sales by GSK and licensees. In order to illustrate underlying performance, it is the Group's practice to discuss its results in terms of constant exchange rate (CER) growth. This represents growth calculated as if the exchange rates used to determine the results of overseas companies in sterling had remained unchanged from those used in the previous year. All commentaries are presented in terms of CER unless otherwise stated. INVESTOR INFORMATION Approval of results for Q3 2006 This Announcement was approved by the Board of Directors on Thursday 26th October 2006. Financial calendar The company will announce preliminary results for 2006 and fourth quarter results on 8th February 2007. The fourth interim dividend for 2006 will have an ex-dividend date of 14th February 2007 and a record date of 16th February 2007. It will be paid on 12th April 2007. Internet This Announcement and other information about GSK is available on the company's website at: http://www.gsk.com. INDEPENDENT REVIEW REPORT TO GLAXOSMITHKLINE PLC Introduction We have been instructed by the company to review the financial information for the three and nine months ended 30th September 2006 which comprises the consolidated interim balance sheet as at 30th September 2006 and the related consolidated interim statements of income, cash flows and recognised income and expense for the three and nine months then ended and related notes. We have read the other information contained in the interim report and considered whether it contains any apparent misstatements or material inconsistencies with the financial information. Directors' responsibilities The interim report, including the financial information contained therein, is the responsibility of, and has been approved by the directors. This interim report has been prepared in accordance with the International Accounting Standard 34, 'Interim Financial Reporting', which requires that the accounting policies and presentation applied to the interim figures should be consistent with those applied in preparing the preceding annual accounts except where any changes, and the reasons for them, are disclosed. Review work performed We conducted our review in accordance with guidance contained in Bulletin 1999/4 issued by the Auditing Practices Board for use in the United Kingdom. A review consists principally of making enquiries of group management and applying analytical procedures to the financial information and underlying financial data and, based thereon, assessing whether the disclosed accounting policies have been applied. A review excludes audit procedures such as tests of controls and verification of assets, liabilities and transactions. It is substantially less in scope than an audit and therefore provides a lower level of assurance. Accordingly we do not express an audit opinion on the financial information. This report, including the conclusion, has been prepared for and only for the company for the purpose of this Results Announcement and for no other purpose. We do not, in producing this report, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. Review conclusion On the basis of our review we are not aware of any material modifications that should be made to the financial information as presented for the three and nine months ended 30th September 2006. PricewaterhouseCoopers LLP Chartered Accountants London 26th October 2006 Notes: (a) The maintenance and integrity of the GlaxoSmithKline plc website is the responsibility of the directors; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the interim report since it was initially presented on the website. (b) Legislation in the United Kingdom governing the preparation and dissemination of financial information may differ from legislation in other jurisdictions. This information is provided by RNS The company news service from the London Stock Exchange

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