GlaxoSmithKline Plc (GSK) Q4 2016 Results - Earnings Call Transcript

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GlaxoSmithKline Plc (NYSE:GSK)

Q4 2016 Earnings Call

February 08, 2017 9:30 am ET

Executives

Andrew P. Witty - GlaxoSmithKline Plc

Simon Dingemans - GlaxoSmithKline Plc

Analysts

Graham Parry - Bank of America Merrill Lynch

Andrew S. Baum - Citigroup Global Markets Ltd.

James Daniel Gordon - JPMorgan Securities Plc

Richard Parkes - Deutsche Bank AG

Jo Walton - Credit Suisse Securities (Europe) Ltd.

Timothy Minton Anderson - Sanford C. Bernstein & Co. LLC

Kerry Holford - Exane BNP Paribas

Seamus Fernandez - Leerink Partners LLC

Michael Leuchten - UBS Ltd.

Keyur Parekh - Goldman Sachs International

Andrew P. Witty - GlaxoSmithKline Plc

Thank you very much. Good afternoon and welcome to this call for GSK's Full Year 2016 Results. I'm pleased to report that sales and profits were up in all three of our businesses, Pharmaceutical, Vaccine, and Consumer Healthcare. Total group sales were £27.9 billion, up 6% CER. And core EPS was at £1.024, up 12% CER. This was towards the top end of our financial guidance. which as you know we increased during the year.

In sterling terms core EPS was up was 35%, reflecting a significant movement in the currency in 2016. And if sterling rates were to remain in line with January average rate for the rest of 2017, we would expect a 9% benefit to core EPS during the year.

Total EPS for the group was £0.188, down on last year primarily as a consequence of the comparative to the £9.2 billion gain in the Novartis transaction during 2015.

We've declared a dividend £0.23 for the quarter, bringing a total dividend of £0.80 for 2016. And we continue to expect to pay a dividend of £0.80 for 2017.

The positive momentum we saw in 2016 delivered Pharmaceutical sales of £16.1 billion, up 3%; Vaccine sales of £4.6 billion, up 14%; and Consumer Healthcare of £7.2 billion, up 9%. On a pro forma basis sales growth was respectively +4%, +12%, and +5%. On a geographic basis U.S. accounted for £10 billion, Europe £7.5 billion, and international, £10 billion.

Operating margins also improved in all three businesses, reflecting good cost control and delivery of organic and transaction related savings with a group core profit margin of 27.9%, up 3.9 points on last year.

These performances reflect the investments we've made to build scale and sustainability in the group and to deliver new products. Sales of the 11 Pharmaceutical and Vaccine products that we have launched in the last four years more than doubled to £4.5 billion in 2016. And in the fourth quarter alone sales were £1.4 billion. In Pharmaceuticals new products in the fourth quarter accounted for 27% of sales.

This new sales growth has been driven by products for treatment of HIV, Tivicay and Triumeq; respiratory disease, Relvar/Breo, Anoro, Incruse, and Nucala; and Vaccines to prevent meningitis, Bexsero and Menveo. We're very focused on ensuring that the sales momentum of these new products continues. And we expect to bolster this portfolio with several new arrivals in 2017 and 2018.

This follows good progress last year to file a number of new product opportunities, including Shingrix, a potential new vaccine to prevent shingles, and closed triple, potentially the first ever three-in-one treatment for COPD. We expect regulatory decisions on these before the end of the year.

Last year we also initiated a number of Phase III trials for assets in HIV, respiratory, and anemia. And started Phase II trials for five new assets. Over the course of 2017/2018 we expect important data for between 20 to 30 assets in clinical development to read out.

Product innovation is also important for our Consumer business and accounted for 13% of sales in 2016. Today in the U.S. we're launching Sensimist, our second allergy prescription product to be switched to over-the-counter status in the last three years. And we're very optimistic that we can follow the huge success of Flonase.

All of this bodes well for GSK going forward. And reflects our strategy to create a group that can both access growth opportunities from new innovation and navigate changes both in our portfolio and the challenges we face in today's operating environment.

We continue to be confident in the financial outlooks to 2020 that we first laid out to investors in May 2015. For 2017 we do face some uncertainty as to the level of our earnings performance, given the possibility of a substitutable generic competition to Advair in the U.S. And this is reflected in the guidance we've issued you today. This event is something we've anticipated and prepared for and is consistent with the assumptions we provided back in 2015. Given our new product portfolio and the innovation we have in our pipeline, we fully expect to maintain our leadership in Respiratory.

In summary, the group has performed positively in 2016 with momentum set to continue this year. I've been working closely with Emma [Walmsley] as she transitions into the CEO role and as we enter a new period of leadership for the company. And I believe GSK is well positioned to deliver long-term performance for its shareholders.

With that I'd like to hand over to Simon to give you more details.

Simon Dingemans - GlaxoSmithKline Plc

Thanks, Andrew. The results that we've reported today demonstrate the progress we've made in delivering on our strategy, as well as the financial goals we set out in our financial architecture. All three of our businesses are contributing to the delivery of more broadly based revenue growth. Our continued focus on the execution of our integration and restructuring programs has accelerated the delivery of the targeted benefits, allowing us to improve our margins and operating leverage, while still making substantial investments behind our new products, supply chain improvements, as well as progressing the R&D pipeline.

We've also maintained our focus on financial efficiency in the P&L and in the allocation of our capital, allowing us to deliver core EPS growth ahead of sales and at the top end of our EPS guidance as well as a significant improvement in our cash generation and a dividend of £0.80 per share.

We expect continued progress from the business in 2017 with all three businesses continuing to benefit from recent new product launches and other investments, including supply chain capacity as well as the completion of the integration and restructuring programs.

The guidance we've given today for core EPS performance in 2017 reflects that momentum, but also takes account of the possibility that a substitutable generic alternative to Advair may be launched in the U.S. this year. This is a situation that is bound to evolve during the year. And we will update our guidance as and when there is more certainty on the competitive position. Given that this will depend on a number of variables, including pricing and supply availability of any generic, it seems unlikely that we'll have any greater clarity before the middle of the year. I'll come back to details of the guidance shortly.

Our earnings release provides an extensive amount of detail on the results for both the fourth quarter and the year. And so as usual, my comments will focus on the major points, our expectations for 2017, and some comparative points you might want to take note of for your modeling. As always, all my comments will be at CER, except when I specifically refer to currency.

Group sales, up 6% reported, 5% pro forma. Core EPS up 12%. On currency specifically, the weakness in sterling resulted in a tailwind of 11% to sales. The tailwind on EPS was higher at 23%, which I've said before is due to the group having a higher proportion of costs than sales in sterling. With sterling weakness continuing into the start of 2017, we currently expect a further tailwind from currency in 2017, particularly during the first half of the year, unless rates start to reverse the moves we saw last year. If FX rates remain in line with January average rates for the rest of 2017, we expect a 9% tailwind to core EPS.

Starting with our total results. The year-on-year decline in earnings is primarily driven by the comparison with a £9.2 billion profit we made in 2015 on the disposal of our oncology business. We also had higher charges in 2016 for transaction related revaluations during the year, as the sterling values of the contingent consideration liability to Shionogi and the ViiV and Consumer put options increased due to the post-Brexit weakness in sterling as well as an improved outlook for the businesses concerned.

As you'll recall, both our minority partners in the HIV business had put options against us for their shareholdings, which we included on the balance sheet at Q1. We've recently restructured the shareholders' agreement with Shionogi to remove that put option and the associated estimated liability of £1.2 billion. We continue to carry the Pfizer option on the balance sheet at £1.3 billion.

Total results were also significantly impacted by restructuring charges associated with the integration and restructuring program. But benefited comparatively as the charges were significantly lower than the previous year as the program comes to an end. We charged approximately £1 billion during the year, almost half the level charged in 2015.

Turning to our core results. All three businesses delivered growth in line with or above the medium-term growth expectations we laid out for them at our Capital Markets Day in 2015. Pharma was up 4% pro forma with new products now significantly more than offsetting the decline in Seretide/Advair sales.

In addition to a continuation of the strong growth in HIV, Respiratory also returned to growth overall, up 2%, in line with our expectations. This reflects the continued progress in transitioning our Respiratory business to the new Ellipta portfolio globally.

For Pharma in 2017 in addition to expecting continued growth from recently launched new products in Respiratory and HIV, we're preparing for the launch of closed triple, which is on track for a potential approval in Q4. We think this is a very important addition to the Ellipta portfolio and has significant potential. But as we have flagged before, given the payer environments in the U.S. and Europe it will take time to build coverage. And so you should not expect significant sales before 2018.

Focusing on Advair, before any impact from a substitutable generic in the U.S., we expect Seretide/Advair to continue to decline globally in the face of price and other competitive pressures, but also as we continue the transition to new products. Overall, we expect Seretide/Advair to be down around 15% to 20% globally, similar to the trend of the last couple of years with the U.S. in line with this range. But Europe more at the 20% and given the different stage of transition in our portfolio.

In HIV we expect dolutegravir to continue to be a strong growth driver but from a higher base. So the overall percentage growth in HIV sales is likely to be lower, particularly when you take into account that there are now Epzicom/Kivexa generics in most of our major markets.

Elsewhere in the Pharma portfolio, 2016 saw a better performance from our established products business, as improved supply and mix partly offset the impact of biennial price revisions in Japan and the reshaping of our China business away from older products. Going forward we continue to expect similar mid to high single digit declines from this portfolio before any disposals, given its generic profile. But we will also continue to manage it to optimize its cash returns either through operating performance or targeted disposals, such as those recently agreed with Aspen. The products being sold to Aspen contributed approximately £100 million of sales to 2016 that will act a further drag to the established products business during 2017 of around 4%.

Moving to Vaccines. Sales up 12% pro forma. That's driven by strong execution across the business, particularly around the meningitis franchise and Bexsero in particular. We continue to invest to expand production capacity. But this is a long cycle process and supply is likely to remain tight for some time.

We also had a very successful flu season, especially in the U.S., driving overall pro forma growth for Vaccines to 12%. This was above our medium-term expectations for the business and creates a tough comparator for 2017. But underlying momentum remains encouraging, even though quarter to quarter Vaccines remains a lumpy business.

Looking forward we expect regulatory decisions on Shingrix in the U.S. and Europe in Q4 2017. And our launch preparations are progressing well. That said, the timing of any approval remains uncertain. So while there may be some sales reported in 2017, we would not expect a meaningful contribution from Shingrix until we get into 2018.

Moving to Consumer. We delivered a strong performance in the first full year of the joint venture. Sales up 5% pro forma, consistent with our medium-term outlook for this business. In line with our strategy this growth was driven primarily by the seven power brands. The U.S. and Europe contributed most strongly, driven by oral care and wellness, particularly Sensodyne and Voltaren, which both delivered double digit growth. This helped offset a few tough comparators and headwinds in international later in the year, including the impact on the Indian business of demonetization and a slowdown in the nutrition category, as well as the divestment of the Nigerian drinks business at the end of Q3.

Some of these pressures and comparator issues will continue as we go into 2017 and will likely take growth for Consumer overall this year down a notch relative to the medium-term trend, especially when you factor in the possible impact of a general sales tax on reported sales in India. However, momentum in the rest of the business continues with the launch of another OTC switch, Sensimist, already underway as we have announced today. And other innovation investments supporting continued growth of the key power brands globally.

Turning to core operating profit. Our core margins improved across the board with increased leverage in all three of the businesses. The pro forma margin was up 460 basis points in total, 200 from currency and 260 points from operational improvements. This was driven by leverage from a growing top line, significant additional integration and restructuring benefits, as well as continued tight cost control that allowed us to deliver substantial margin improvement, while still making important investments to build our new products, improve the supply chains, and advance the R&D pipeline.

Looking to the future. We remain on track to achieve our 2020 divisional margin targets. But 2017 may see some fluctuation, as we invest behind new products in Vaccines and Pharma and continue the transition of our Respiratory business, particularly if we see a generic competitor to Advair this year. Also remember that Vaccines benefited from a royalty catch up in 2016. We expect total royalties to be around £300 million in 2017. In Consumer we expect continued progress on margins, and we remain on track to achieve our 20% plus target by 2020.

Accelerating the delivery of the targeted benefits of the integration and restructuring program was a key objective when we closed the Novartis transaction. And we're very pleased with the progress we've made through a sustained focus across the company on executing this program. We've now delivered annualized benefits of £2.8 billion, excluding £200 million of currency benefits, almost the full targeted total benefits from the program a year earlier than originally planned. We are confident in delivering the remaining £200 million during 2017.

The costs we've incurred to get to this stage have also been better than originally expected with total cash costs accrued to date of £2.9 billion, compared to the initial estimate of £3.65 billion. Delivery of the remaining £200 million of benefits is also expected to cost less than originally even anticipated at around an additional £300 million of cash costs to be charged in 2017 to deliver the full total of benefits.

In the bottom half of the P&L net finance costs were up slightly, mainly due to currency. The higher core tax rate in 2016 reflects the increasing proportion of earnings in the U.S. And the increase in noncontrolling interest reflects the growth of our Consumer and HIV businesses. In 2017 we expect a modest uptick in interest costs, reflecting the higher debt levels. And as for tax, we expect a core rate of 21% to 22%, again reflecting the changing geographical mix of our business. Noncontrolling interest will reflect primarily the performance of our Consumer and HIV businesses.

On cash flow and net debt. Reported free cash flow for the group was £3.1 billion, significantly improved on the small outflow we saw in 2015. This was driven by our continued sales momentum, better operating leverage, as well as an ongoing focus on controlling working capital, CapEx, and restructuring spend, together with the benefit of the currency tailwinds that I've already discussed. Tangible and intangible CapEx in 2016 was £2.35 billion, including £0.2 billion spent on acquiring the late-stage BMS HIV assets. And in 2017 we expect total CapEx to be slightly lower at around £2.2 billion, as we continue to invest in expanding capacity, new product platforms, and upgrading our systems.

Restructuring spend came in under our original expectations with cash spend in 2016 of £1.1 billion, compared to the £1.3 billion we previously indicated. This reflects the continued scrutiny and tight approval processes we have in place before we implement any of our restructuring or integration initiatives. As I highlighted earlier, cash spend on the integration and restructuring program is expected to decline sharply in 2017 to around £300 million, as the program completes the delivery of its targeted benefits.

Net debt increased by £3.1 billion, driven by an aggregate currency impact of £2.2 billion that affected cash balances and other financing items, but primarily impacted the translation of foreign currency borrowings. We do not hedge the principal amounts of these borrowings, as they're matched to equivalent foreign currency earnings. Excluding the exchange effect, net borrowings increased £0.9 billion, reflecting the payment of dividends during the year of £4.9 billion, including the special dividend of £1 billion declared in 2015, offset by free cash flow of £3.1 billion, and asset disposals of £1 billion.

Looking to 2017, the outlook clearly depends on whether Advair encounters substitutable generic competition in the U.S. If there's no generic launched in the U.S. this year, then we would expect core EPS growth of 5% to 7% on a constant currency basis. And again this is based on an expected ongoing decline in 2017 U.S. Advair sales of 15% to 20%, again on a constant currency basis.

However, it's now a real possibility that a substitutable generic to Advair could be launched in the U.S. during 2017, given the filings already made. While the timelines for the introduction of a generic are far from clear, and its impact will depend heavily on the pricing strategy and supply capacity deployed, we've assessed a number of scenarios in our planning for this year. And against this uncertainty and to help you with your models, we've set out today our assessment of the impact on our 2017 growth in core EPS of a midyear introduction of a substitutable generic to Advair in the U.S. In this event we would expect that U.S. Advair sales for 2017 as a whole would decline to around £1 billion at constant exchange rates at $1.36 to the £1.

However, we still expect to have enough momentum in the rest of the group to deliver core EPS of flat to a slight decline in percentage terms compared with 2016, again on a constant currency basis.

While this is only one scenario, it seems reasonable relative to the outstanding filing timelines. But clearly the impact could be somewhat better or worse, depending on how the generic threat actually plays out. We'll update you as and when we have more clarity. But realistically it is likely to take some time for the potential impact to be clearer and probably not before the middle of the year.

So to wrap up. Our focus on execution has served us well. I'm pleased with the progress we've made, including delivering sales growth across the board, improving the operating leverage in all the businesses, and also improving our cash generation to support future investment requirements and sustainable returns to shareholders. And we expect to return another £0.80 of dividend for 2017.

And with that I'll hand back to Andrew.

Andrew P. Witty - GlaxoSmithKline Plc

Thanks very much, Simon. Let's open up the call to questions. If maybe the operator could just remind everybody the protocol for how to request a question please.

Question-and-Answer Session

Operator

And for your first question comes from the line of Graham Parry from Bank of America Merrill Lynch. Please go ahead, Graham.

Graham Parry - Bank of America Merrill Lynch

Great. Thanks for taking my questions. So firstly on the guidance, if you could just run through some of the reasoning for your assumptions. So for example, the midyear approval of a generic when GDUFA is at the end of Q1. And the what appears to be $0.75 (sic) [£0.75] decline post generic, given that you've previously questioned the ability of generics to erode sales due to pricing and manufacturing restraints or potential pricing and manufacturing restraints.

And secondly, if I look at consensus at about the $1.36 [to £1] FX rate, Advair sales and consensus would've looked to be about £1.2 billion versus the £1 billion consensus. EPS is flattish for the year. So is it fair to say that what you're trying to tell us is that you think you could just about make something close to current consensus EPS, even if Advair sales in the U.S. were about 20% lower than consensus is currently forecasting? Thank you.

Andrew P. Witty - GlaxoSmithKline Plc

Thanks, Graham. I think in the – just on the assumption piece, it's clear that to get this right on all the dimensions – i.e., the timing of an approval, the timing of a launch, the amount of supply, the pricing dynamics – impossible to get that right. So what we've aimed to try and do is come up with an answer, which we think it essentially covers most of the likely outcomes. So of course it's possible people could launch a bit earlier. But it's also possible they don't have as much supply as you would need to get 75% erosion. Maybe they – something else happens in the marketplace.

But we think the combination of a midyear launch with a pretty aggressive decline of 70%, 75% in the second half after a 15% decline in the first half, getting you to about that £1 billion, that feels like a reasonably sensible balance of probabilities. Because you might say the timing moves a bit. You might say the erosion curves move a bit. But net-net, you might come out at a broadly similar number.

It could end up being a bit better. It could end up being a little bit worse. But I think this is a pretty reasonable estimate, realistic estimate of what could happen. Obviously if we've seen no product launched by the middle of the year, then we're on the upside territory and the like. I think in terms of what we're trying to tell you. We're trying to tell you we think it's £1 billion if that scenario plays out.

Simon Dingemans - GlaxoSmithKline Plc

Yeah.

Andrew P. Witty - GlaxoSmithKline Plc

I mean I think what's clear is if any of those assumptions go our way a bit – so if we see the decline being a bit less than 15% in the first half, if we see the generic being a bit delayed, if the generic only has 50% supply – then clearly we're going to do better than that number.

But we're just trying to give you a sense of what we think is a reasonable estimate for what the bottom end of the bracket is for the year, so that you can model from there. We don't really think it's very far away from where consensus was this morning, maybe a point or two, but certainly doesn't feel like it's very far away. And I think when looked at the general view of the market, I think most people's view of the market is actual arrival of the product into the marketplace probably is midyear.

I mean I remind you, when we had Advair approved, it took GSK six months to get from Advair approval to launch. Now we're 15 years, 16 years down the road. People are more sophisticated now. Give people credit for doing things better now than we did in those days. Everybody's had more experience. But not super trivial to just produce 20 million packs of supply overnight for a product like Diskus. I mean I think that's a fair area to think, even if you did get a first pass approval, not super trivial to turn on maximum supply overnight.

And so we think this is a reasonable – this is a reasonably simple way to pull together two or three elements of the assumption set, recognizing they won't be right, but probably covering most of the outcomes. And as we go through the year, obviously once facts becomes facts, we can start to fine tune this for you. But I don't think it's going to be a million miles away. If there's no generic, I think the 5% to 7% is a good estimate for where we'd be. And if there is a generic, I think the flat to slightly down is a good estimate to where it could be at the bottom end of the curve. Thanks, Graham. Next question?

Operator

Thank you. Your next question comes from the line of Andrew Baum from Citi. Please go ahead.

Andrew S. Baum - Citigroup Global Markets Ltd.

Good afternoon. A couple of questions. Before that, I just want to say that I'm sure occasionally dealing with sell-side analysts has been as much fun for Andrew as getting his teeth drilled. But I wanted to express my thanks for the candor, insights, and openness over the years.

On the questions, two things. Number one, Andrew, could you address value-based pricing? It's obviously highly topical in the U.S., given the new administration among the industry. In particular how easy is it going to appear to implement, given the very significant challenges across the range of therapeutic?

And then, Simon, again in terms of the new administration, obviously U.S. tax reform, border tax proposals look like they're going to happen. Could you talk how that will impact GSK? In particular I note that you committed to new manufacturing sites in Scotland rather than the U.S. And whether these are indeed going to be supplying the U.S.? And then second, I know you also relocated some IP out of the U.S. into the UK.

Andrew P. Witty - GlaxoSmithKline Plc

Thanks, Andrew, and thanks very much for your kind words at the beginning. Value-based pricing. The first thing to say is I think if you ask four different people to describe value-based pricing, you'd probably get five different definitions. So I think there remains a bit – this is a bit of a bucket description, which different people interpret different things. And it does vary a bit by country and payer model, what is viable.

I think in the U.S. it's quite tricky to see how you get to value-based pricing without more transparency in the pricing system, Andrew, in the first instance. And I suspect it's going to require some simplification of some of the regulatory thicket which exists in the U.S. pricing environment.

As you think about in any given zip code in the U.S., you've got every single piece of legislation which touches Medicare, Medicaid, Veterans, private, all over superimposed on each other. And so to try and drive a new pricing model through that thicket of regulation, sometimes they're quite inhibitory in the way in which you might want to innovate your pricing approach.

Those two areas need – we probably need to be – frankly, we probably need to see a pretty coordinated effort from industry intermediates, payers, and government to try and rethink what this space is like to create a more fertile environment for some innovation in this space.

For me what it really all boils down to is companies starting to take more risk in terms of the price that you charge for the product and having more dynamism in terms of the likely price received for the product over time, as your contribution basically ebbs and flows according to data and all the rest of it. I do think it is a viable way forward. But as I've said, I think there's quite a lot of clearance to be done before it can progress. That would be the first thing to say.

I just want to – before Simon talks in more detail on the tax pieces, the – just to remind you. We have nine factories in the U.S., one of our two global R&D centers in the U.S. We're just in the process of commissioning a brand new vaccine research center in the U.S. in Maryland. Tremendous – and we have a policy basically, Andrew, of whenever we launch a new product like Tivicay or the Ellipta platform, even if it's initially launched in a factory outside of America, we as quickly as possible transfer production to our U.S. factories. So things like Tivicay, things like Breo are already now being manufactured in the U.S.

There are some technologies and bulk primary manufacture – and some vaccines are probably a good example. And we wouldn't be unique in this, where there is only one manufacturing site in the world that makes it, and it is where it is.

So just from a factual point of view of network, I think we're in a pretty good position. The reality is it's going to be very difficult for the U.S. to own every single piece of input that goes into its system. I don't think anybody realistically believes that. And we are definitely in the process as we speak of continuing to expand our physical footprint in America. As you rightly say, we are also doing in Britain. But the U.S. and Britain really represent the two very biggest parts of our networks. But Simon should comment, more detailed, on the tax points.

Simon Dingemans - GlaxoSmithKline Plc

Yes. Thanks, Andrew. I mean I think as you will anticipate, the devil is going to be in the detail of what the proposals finally turn out to be. But particularly in relation to any border adjustment and which products it covers and how it covers cross-border flows. Because we're not alone in having our supply chains stretch across those borders.

On balance from what we can see today, we think it's likely to be a net positive. Exactly how much, impossible to say at this point. But we feel reasonably well hedged, given the manufacturing footprint that Andrew just described. And we have retained structural flexibility to move parts of the group around, including our R&D investments and intellectual property to respond to where governments place the incentives. And that would include the U.S. as well as the UK. So at the moment we're watching. We're participating in the debate. And we'll see what proposals appear.

Andrew P. Witty - GlaxoSmithKline Plc

Thanks, Simon. Thanks, Andrew. Our next question?

Operator

Thank you. Your next question comes from the line of James Gordon from JPMorgan. Please go ahead, James.

James Daniel Gordon - JPMorgan Securities Plc

Hello. James Gordon from JPMorgan. Thanks for taking the two questions. The first question was just how are you thinking about overall U.S. integrase uptake over the next few years? Because I know you're going to have new doublets. But there could also be a competitive integrase combo from Gilead. Do you think that's going to significantly increase the pace that integrase market expansion occurs? Or is it going to be more of a share battle?

And then the second question, just pipeline wasn't a big focus on the presentation. But in terms of pipeline readouts for this year, what's important particularly in – maybe in oncology? And could we see anything progressing to Phase III in the pipeline this year?

Andrew P. Witty - GlaxoSmithKline Plc

Yeah. No. Thanks very much. So in terms of integrase, I mean I would – we've seen a very significant expansion of the integrase market since we launched dolutegravir. And I would expect to see, A, our progress continue. We've seen very little change in the uptake curves of the product. We're seeing tremendous amount of new starts coming into our product as well as switches from non-integrase backbones.

Clearly if a competitor brings out another product, it just depends how good that product is. But at the very least you'd expected it to probably self-cannibalize some of its own portfolio, so again increasing the size of the market.

I think it's a reasonably challenging ask to start to take business away from dolutegravir, given the extraordinarily effective resistance profile that dolutegravir has got and the kind of a lead we've got in terms of establishing ourselves. If we then are able to demonstrate that the doublet approach really does deliver both the efficacy and the resistance protection at a wide range of viral loads, which is clearly what we want to achieve, then I think that really starts to reshape the whole game.

So I think one way or the other, it's a pretty safe bet, James, that integrase market size grows. I think the degree to which it grows dramatically obviously revolves around whether we win in the doublet space and/or our competitors develop a product, which has got any point of differentiation which is meaningful to clinicians and patients. Those two things are going to get played out over the next 12 months. So we're going to know probably on both of those dimensions over the next 12 months the kind of shape we're going to get.

In terms of products coming through. An awful lot beginning to read out through the organization. And I think as Emma takes over, my suspicion is that a lot of the conversations over the next two years or three years with you is going to be as these various stage readouts play out, how we feel about them and how that drives our capital allocations going forward.

I mean in terms of the key news flow events though, for the next couple of years that really stand out, obviously the Shingrix and triple approvals, obviously the completion of the dual HIV programs that we've just been talking about, the delivery of the long-acting cabotegravir program is very important. Those really are some key points.

And then as you look a little bit deeper into the pipeline, the BCMA data won't be too far away. The first RIP kinase data is not too far away. Those are going to be important. The BET inhibitor is going to be important. The OX40 program data, starting to come through on that over the next couple of years. So you're going to start see a lot of that type of data flow.

Back in Respiratory, you look at things like danirixin, you look at the PI3 delta kinase program and then the GM-CSF in rheumatoid arthritis. So those are going to be some of the products which you're going to start to see some important data coming. As you go through the two years, then the PHI program should be starting to deliver its Phase III results.

So a lot coming in a number of different areas. All together we think 20 to 30 programs have the potential to read out in this period. Some very interesting stuff in there, very interesting first-in-class products. And ultimately it's going to be fascinating to see how big of the 11 oncology assets we have in the clinic we make through, and then what do we see in the rest of these areas. But a good portfolio of R&D work to come. Next question?

Operator

Thank you. The next question is from Richard Parkes from Deutsche Bank. Please go ahead, Richard.

Richard Parkes - Deutsche Bank AG

Hi. Thanks for taking my questions. The first one was just expanding on Graham's on the assumptions around generic Advair. Obviously I think consensus is assuming a 30% decline in the U.S. this year. And I think you're assuming around a 45% decline. Just is it safe to say that your assumption is what you'd see as essentially a worst-case scenario if generic Advair is approved and there could be upside if the rate of erosion is slower? Is that the right way to think about it?

And then secondly, the guidance for 5% to 7% underlying EPS growth. I'm just wondering how much of that is driven by continued delivery on the cost saving versus organic growth and margin leverage? I'm assuming it's largely the latter. But just interested in your perspective on whether that's a good guide for the longer-term organic growth potential from the business. Thanks.

Andrew P. Witty - GlaxoSmithKline Plc

Yeah, thanks very much, Richard. Well, on the second point I think very much the latter, so very much driven. I mean still some cost savings coming through, but as Simon said, the lion's share of that is now delivered. We're in the tail end of that. And we've done that early. That program has kind of done its job. So very much driven by what we expect to see, which is top line growth, a lot of new product momentum carrying forward.

I mean it's worth just reminding you. I know you've seen it already. But £4.5 billion of new product sales in 2016, £1.4 billion in Q4. So that's annualizing at £5.6 billion. So it's clear that there is significant further organic growth flowing through the business. So that's going to be essentially the driver of that 5% to 7%.

As far as the Advair assumption is concerned, what we've tried to lay out here, Richard, is what we think is a properly realistic conclusion. And you can get there any way you want. You can decide to launch a bit earlier. You can decide to have a bit lower decline curve. What we simply picked was a scenario where we said, it's the middle of the year and it's a pretty aggressive decline curve. Could the actual situation be different from that? Absolutely. Could it be better than that? Yes. Could it be a bit worse than that? Yes.

So I'm not saying to you this is the exact number and I'm not saying to you this is the absolute worst case. Is it something where there's a, in my view and I think in the company's view, is this something which is likely to be close to a realistic outcome? Yeah. That's why we've made this estimate. And we think it's a perfectly sensible scenario, given all of our experience in the complexity of manufacturing these products and given everything that has to go right for a full-on generic attack on Advair. And we've essentially assumed that somebody figures that out in July, and they get a good hit of the product from July onwards. That may or may not happen. Next question?

Operator

Thank you. The next question comes from Jo Walton at Credit Suisse. Please go ahead.

Jo Walton - Credit Suisse Securities (Europe) Ltd.

Thank you. I wonder if you could talk a little bit about your Vaccine and your Consumer business? In particular you've already reached the target margin for the Vaccine. So I wonder if you could tell us a little bit about the capacity constraints and how you are looking to free those up for this year, or whether we should assume that effectively all of the extra Bexsero that you were able to deliver, you haven't actually got that much more runway for this year. So just to help us think about that Vaccine business.

And to dive a little bit more into the Indian problems and the turnaround or when we should start to see Consumer improve again. Because I think that the Consumer, certainly the profitability was slightly less than expected in the fourth quarter of the year.

Andrew P. Witty - GlaxoSmithKline Plc

Yeah, thanks very much, Jo. I think in terms of the Vaccine business, so we've been investing very significantly in fixed infrastructure, capacity, and also process redesign over the last many years actually. And we are beginning, we saw during 2016 and we continue to see the continued benefits of that. So capacities are going up all the time, as Simon rightly said.

In some, for example Bexsero, we acquired Bexsero with a certain demand curve and a certain capital base. It takes a while to adjust to the higher kind of sales level that we're currently running at. So there will be within any given year probably situations where we're not in an unconstrained supply position for every vaccine. And the reality is actually, Jo, that at some price you can pretty much sell 100% of your vaccine output on a global basis. So there is an almost unlimited marketplace. And the pace at which you can expand is to some degree the limiting factor.

As we look forward between 2016 and 2017, I fully expect us to continue to grow the Vaccine business. I just wouldn't expect it to grow as fast as it grew in 2016. Now partly that was because we had the effect of Bexsero coming off a very, very low base into a very much bigger base. But partly it was a consequence of having a very big flu season, which may or may not repeat. But I think, we all know flu can be seasonal. So I think there is a likelihood the Vaccine business might grow a bit slower, but it will still grow I think during the year.

In terms of margins, I think we've shown really very quickly how we could essentially take the Novartis and the GSK vaccine businesses, essentially fix that margin issue that was there, and return ourselves to where we believe we need to be. And I think broadly speaking we will want to maintain that level. But in any particular year, particularly as I think forward into 2017, as we invest to launch Shingrix, there are bound to be specific investment opportunities, which might, excuse the pun, but at the margin affect the margin. And that's the kind of thing you're going to see as we go through over the next couple of years.

So I think we're very much where we want to be. Can I guarantee you it's going to look like that every quarter? No. Because the Vaccine business is inevitably a bit lumpy. And there will be some discrete investment opportunities we want to take to drive future growth.

In terms of the India situation. Really the demonetization issue certainly affected us very significantly toward the end of the year. And we're probably a bit more exposed to this to a lot of – compared to many other Indian businesses, in the sense that a lot of our Horlicks business is distributed and consumed at a very low level of the income pyramid, who essentially don't have bank accounts, that don't have credit cards, and they don't historically deal in big high value rupee notes. So the reality is this demonetization affected the cash flows of those families quite significantly.

We'd expect that to probably take a couple more months to play through. It is beginning to. Cash is beginning to be recycled into the marketplace. We think in the long run it's a positive for India. But it's definitely disruptive in the short run. And no question we've seen that effect. We're probably also going to see a bit of impact from the GST changes later in the year. So we probably got a little bit more of this kind of extraneous noise in the system.

If we look at the overall share performance of our Indian business, very, very strong in our core GSK Consumer Healthcare products like Sensodyne, the pain meds, those sorts of things. A bit more challenged in a slowdown in the nutritional category. So that's the area we need to focus on. In terms of – but in terms of let's call it the new generation Consumer products, extremely robust and extremely strong. And I'm confident that the monetization issue will wash through. But it was – as for everybody, it was a surprise. And it's had a pretty significant short-term impact. Next question?

Operator

Thank you. The next question comes from the line of Tim Anderson from Bernstein. Please go ahead, Tim.

Timothy Minton Anderson - Sanford C. Bernstein & Co. LLC

Thank you. If I could go back to the HIV category. So in the integrase area Gilead has their bictegravir. And it seems like there's a fair amount of excitement among KOLs about this. And they certainly seem to be taking on dolutegravir head on in a variety of their trials that are head-to-head studies versus your product.

And I'm wondering if you can see at this point how you think they're going to try to differentiate their product? I know that once in a while with dolutegravir for example you hear about CNS side effects. I'm wondering if that's an area for example that they might try to go after. And we've got data coming up here, I think this month at CROI, Phase II data. I'm wondering if you have any visibility on that?

And then the second question was on your zoster vaccine. You recently initiated a Phase III study to look at the impact of the reactogenicity with the product on quality of life. And I'm wondering if you can give us additional context here? Whether that's just for commercial purposes or if that's actually a regulatory requirement?

Andrew P. Witty - GlaxoSmithKline Plc

Great. Thanks very much, Tim. And thanks for the questions. I think on the HIV front, obviously it's not my job to figure out the positioning strategy of a competitor. So I'm going to resist the temptation to do that.

I think looking at dolutegravir, and I've worked in HIV since AZT days in 1989. And the same is true now as it was then. What people want are effective, resistant – effective drugs, which have high barriers to resistance with a good safety profile in the short and the long run.

And I think when you look at dolutegravir you've got a very, very attractive molecule there. No resistant isolates identified during the Phase III programs. Extremely, extremely impressive resistance profile with over 300,000 people dosed. And a very, very strong track record of efficacy into the marketplace. And as we've started to develop the combination product, obviously that's opened up a lot of opportunity for further growth.

That is going to be quite – once you have a zero resistance profile, it's not easy to beat that, right? I mean it's like an antibody, which is like 99.9% effective, how do you top that? So in terms of the thing that really matters, I think dolutegravir remains an extremely impressive molecule that people may try to look for peripheral things.

The reality is what it will boil down to is physicians' personal experience of what they've seen with patients. And, yes, you might see a patient with some idiosyncratic kind of reaction to a drug. But that's true of any drug in reality.

My understanding of the CROI data next week – and obviously I have no idea what that data shows. But my understanding of the study that's going to be released next week is in 75 patients. Now just to you remind you, I just said 300,000 for dolutegravir.

So I think there's still a while to go before we really understand what these relative profiles are. Meanwhile, what we're focused on is being able to develop a doublet approach, which may allow us to drop one of the three drugs completely from the regimens, which then starts to reduce other side effect risks which might be present in the current triple regimen.

So I think this is going to be a very competitive space, Tim. I think we're in a strong position. There's lots of data that's going to have to play out on both sides of the fence. And it's going to be an interesting race to watch. But I think we start this with the momentum behind us. We start with a very, very good molecule. And then with some very, very innovative strategies to potentially transform the way HIV is treated. But we don't know the answer to that yet.

As far as zoster is concerned, the reactive study is not a regulatory requirement. I mean actually this is in some ways reacting to some of the noise that has been generated since we first released the data, where people have looked at the phenomenal efficacy of this vaccine and then say, oh, but we see there's some reactogenicity.

And so what we're keen to do is to make sure that's put into a real world context. As you know, the clinical trials we ran were essentially against placebo. And therefore you're bound to see kind of a gap of reactogenicity between the two. We want to really put that into context and make sure that people understand it and that people can't make mischief with data potentially out of context. So it's for that purpose only, Tim. It's not a regulatory requirement. But thanks very much for the questions. And next question?

Operator

Thank you. Your next question comes from the line of Kerry Holford from Exane BNP Paribas. Please go ahead, Kerry.

Kerry Holford - Exane BNP Paribas

Thank you very much. Two questions please. So firstly, on cost savings and how that related your guidance. So the current £3 billion selling program is nearing an end now. And I notice very little incremental savings this year. And these savings have seemed to have come through faster than you anticipated. But could you see the ability to cut costs further?

And then exclusively, is that assumed within your 2017, if you like, worst case guidance for earnings this year? Are you assuming that there's some reduction in sales reps or promotional spend or something behind Advair within that guidance?

And then secondly, for the put options there, so following the news on Shionogi today, should we consider that you might be having similar discussions with Pfizer? Do you have similar call options there that you could look to exchange? Thanks.

Andrew P. Witty - GlaxoSmithKline Plc

Thanks, Kerry. I'll ask Simon to comment on those two. Just on the specific of if there were a generic Advair, then there is cost associated directly with the Advair promotion in the U.S., which we would obviously cease. So to that degree there is some relating. It's not a huge amount, but there is some. And of course that is factored into the downside guidance that we've issued. But let me ask Simon to comment on the put and anything else you want to say on cost savings within the guidance structure.

Simon Dingemans - GlaxoSmithKline Plc

Yeah, thanks, Kerry. I mean I think as I said in my remarks, you should assume the £200 million to complete the program is what we have baked into our 5% to 7% guidance. Clearly as we've done with previous restructurings, we'll continue to look to see whether there are other opportunities. But there's nothing that you should be including at this stage.

And as Andrew said, on the downside there is a small amount of cost still attached to Advair. Not a lot, because part of the restructuring we've been doing over the last two years or three years is to get ahead of this moment. And so that will drop out and is factored into the downside. Although not all of it, as some of it will get reallocated to continuing to drive the new products. So the profitability position you're looking at is a net one.

And on the put options. I think there's a distinction between Shionogi and Pfizer in that this is a very significant part of Shionogi's business. And I think as we talked with them as shareholders, it seemed extremely unlikely to a nonexistent risk that they were going to ever exercise the put. And we thought it was a good idea to remove that uncertainty. Pfizer is perfectly comfortable with its position, and we're perfectly comfortable with their position. So there's no discussions going on with them at the moment in terms of a similar initiative. And let's see what Pfizer want to do over the longer term.

Andrew P. Witty - GlaxoSmithKline Plc

Great. Thanks, Simon. Thanks, Kerry. Next question?

Operator

Thank you. Your next question comes from the line of Seamus Fernandez from Leerink. Please go ahead, sir.

Seamus Fernandez - Leerink Partners LLC

Oh, thanks for the questions. Andrew, I hope you've already gotten the invitation from Richard Branson. But just as a follow up on some of the questions asked earlier. As we think about the opportunity to really grow the profitability of the Respiratory franchise, we keep hearing about declines in pricing. When do you think that this really stabilizes? And the overall Ellipta franchise can actually drive incremental cash flow growth?

And then the second question. As we think about – we've heard some good things about your BCMA product. As we think about oncology and sort of building around that, we've seen single-asset oncology areas be quite successful. But do you see GSK really working to continue to build around the BCMA asset? Thanks.

Andrew P. Witty - GlaxoSmithKline Plc

Yeah, thanks very much for the question. And yeah, I haven't been practicing my water.

Simon Dingemans - GlaxoSmithKline Plc

Kite surfing.

Andrew P. Witty - GlaxoSmithKline Plc

Kite surfing. Kite surfing. So I haven't been doing that. And you probably wouldn't want to see me try I don't think.

In terms of your questions, thanks for those. But I think what we're seeing with Ellipta is very – first of all, I think pricing is stabilizing. It doesn't mean there isn't still pressure out there. But I think the lion's share of the adjustments which we needed to make have been made. And to reassure everybody as Advair pricing came down, the Breo pricing kind of came down with it. So we're not sat here with some big discontinuity if and when a generic comes along, which gives us quite a lot of confidence.

We've never had more contracted access for our products across the board in the U.S. than we do this year. Extremely good position in terms of access. And if you look at the NBRx as well as the NRx and TRx curves, you can see there continues to be significant upswing momentum behind all of the new products, implying a continued good performance there. So I think from that point of view, very good.

Of course we're invested heavily in those new products, as you'd expect. And Advair has been a very generous support during that period of the last two years or three years in terms of helping us fund the growth of the replacement products. But as we move forward, the new products are going to be the ones that are going to be kicking in the cash flow and the profitability. And as you can see, they're all now beginning to move into scales, which you would expect to be very much net contributors as we move forward over the next year or two years. So I think that has played out very nicely.

And I think actually worked out just as we hoped really. I mean I don't think any of us particularly welcomed the big adjustment in pricing that took place in 2014. But given that that happened, the way in which we've been able to manage the decline of Advair, get ready for a possible generic -maybe, maybe not – and drive through products now which are very substantial with Tivicay now on a monthly basis ahead of Advair. With the new products in total representing within just three years a quantum bigger than total Advair/Seretide globally.

And actually annualizing now, the new products we've launched, they're now annualizing an annual revenue bigger than the peak sales of Advair after just four years, which is what we always said we would try and do. That we would try and generate a portfolio of products, which would allow us to move on after Advair. And so I think from that point of view, I feel very good about that. And I think the company feels very good about that.

In terms of the oncology business. Yes, the BCMA data looks very encouraging. We've shared with you before some encouraging data on the BET inhibitors. As I've mentioned earlier, whether it's ICOS, OX40, or a number of other programs moving through, 11 now in the clinic.

I think one of the most intriguing questions for Emma over the next two years or three years will be exactly what data do we have on each of those assets? And how do we build up our presence? We made a very conscious strategic decision not to divest ourselves of the discovery oncology organizations when we sold the more mature, older tech products. I think that was the right call. I think we've been able to benefit. We brought forward all the value from those older products in that transaction. And we now have the option opening up for a portfolio of oncology.

I hope very much that we have multiple assets here. I think the work we've done to collaborate with Merck in the Keytruda combinations, I think we made the right choices in terms of which program to partner with. And we're very optimistic here. But the proof's going to be in the next 12 to 18 months. And data is going to start – is rolling in basically as we speak. You've seen some of the BCMA data. You'll see more this year. You'll see more next year. And then the company will make its choices about how it wants to establish here.

What we know is we can do this. We know if we have good differentiated assets, we can establish a presence here. And as you rightly say, some of these assets are in areas where, as individual products, but certainly as a portfolio, they could represent pretty meaningful contribution for the company. So it's going to be an exciting data-driven period to make those decisions. Next question?

Operator

Thank you. Your next question comes from the line of Michael Leuchten from UBS. Please go ahead, Michael.

Michael Leuchten - UBS Ltd.

Thank you. Michael Leuchten from UBS. One question about your longer-term guidance please, and one question about your net debt profile. So on the 2016 to 2020 range that you've given to mid to high single digit EPS CAGR, does that include at the upper end of the range Novartis putting their stake in the Consumer business to you? Or is that end of the range achievable without?

And then on your net debt profile, could you help me think about how that looks like as we go into 2017 and 2018, given the slide you presented on the currency impact on your net debt, the restructuring charges that you talked about, but also Advair potentially going away in the U.S. if we get a substitutable generic? Thank you.

Andrew P. Witty - GlaxoSmithKline Plc

Thanks very much, Michael. I'll ask Simon to comment on the net debt. As far as the shape we outlined in 2015 for the 2020 group, that assumed no change in the Novartis put, no change in ownership of the Consumer company. So if that were indeed to happen, that would obviously be an upside to that scenario. That was not part of the base scenario. I will take the opportunity though, to remind you that an assumption on essentially the more or less total loss of Advair in America during the period was part of the assumption. So the guidance we're giving you today on Advair is absolutely consistent with what we had embedded within the 2020 outline we gave you back in 2015. Simon, do you want to just comment on net debt?

Simon Dingemans - GlaxoSmithKline Plc

Yeah, on net debt, given the investments that I've described in my remarks, I think we'd expect debt to start to come down in 2017, not by very much, and then fall further as we go forward from there as the cash generation comes out of the other side of the Advair impact. So that's a trend that I've described earlier, back last year. And I think the picture still looks very much the same going forward.

Andrew P. Witty - GlaxoSmithKline Plc

Do you want to just, Simon, comment on how you feel about the currency effect on the debt, given where the debt is versus our businesses? I think that might have also been part.

Simon Dingemans - GlaxoSmithKline Plc

Yes. I mean the translation effect is very significant. As I called out in the comments earlier, we saw £2.2 billion of impact from currency just in terms of cash and translation of foreign currency borrowings on the balance sheet. And clearly we could take a different approach and hedge those. We don't. We match them up to the currencies that we generate earnings in, so that they are naturally hedged across the businesses. So that translation effect is something we keep an eye on. but it's not driving the economic value or the capital allocation decisions we're making.

And the comments I just made assume that currencies don't really move from the January rates that we've got in front of us and clearly that may swing the picture around a bit. But the underlying position peaking at these sorts of levels and beginning to now start to come down as we come out of the other side of the restructuring and integration programs, the impact of the Advair generic, and then into the regeneration of the cash generating capability within the company on the back of the new products in Vaccines and Consumer as we've discussed before.

Andrew P. Witty - GlaxoSmithKline Plc

Thanks, Simon. And I think we just have time for one last question.

Operator

Thank you. So your next question comes from Keyur Parekh from Goldman Sachs. Please go ahead.

Keyur Parekh - Goldman Sachs International

Good afternoon. One big picture question for you, Andrew, and then one kind of on the HIV business. First on the big picture stuff, given everything that's happening in the world kind of from a pharma perspective, pricing, kind of innovation, FDA, et cetera, how do you see the shape of the industry changing over the next few years? And what do you anticipate Glaxo's role to be in that change?

And then secondly on the HIV stuff, what do you think doctors are going to need to see to feel comfortable moving to the dual regimen? Is it going to be longer-term data? Is it going to be more experience when the product's on the market? How do you think that shift happens? Thank you.

Andrew P. Witty - GlaxoSmithKline Plc

Thanks. On the second point I think what they're going to want to see is a high barrier to resistance in a range of viral load patients. And I think that's clearly what we're aiming to show through our trials. I think that's key. What we know in this marketplace, Keyur, is that people are more than willing to try new medicines, new molecules, new combinations based on the typical kind of Phase III trial duration time. So it's really about the data that's generated in those trials.

I don't think that this will necessarily require a very different kind of set of experiences. I think people will look at it based on what they see. People are very used to looking at 48- or 96-week data. They'll look for what's happening on the resistance profile. That's what I think will really drive this, just as it always has done. As we've gone up the drug regimen, I think it will drive any choices to come down the drug regimen. And we'll obviously see that as the Phase IIIs start to conclude.

The big picture question, good grief, in all the world what do you see might happen. I think it's this industry is one of the most fascinating industries. It's always been fascinating. There's always been a major dynamic going on. I think what we're seeing now more than ever is a kind of global focus on pricing and affordability. And really for the first time in the last two or three years, the U.S. marketplace has really become a central player within that discussion.

I think the number one question is whether or not something fundamental changes in the U.S. As I said at the very beginning of this call, there is tremendous complexity and rigidity in the U.S. marketplace due to regulation and various other things. So a lot's going to have to change there. I think it should change. I think there needs to be some change. I think there needs to be a better balance in the system than there is today.

There needs to be more transparency. If you look at the University of [California] Berkeley data showing that of $100 paid to an innovative drug company at list, only $63 on average makes it through to the company. That's $37 out of the $100 are being paid to non-innovators in a system which thinks it's paying high prices for innovation.

So that's really, that's something that's going to have to start to be addressed. I'm not saying that the people in between aren't adding value. But people need to understand that dynamic better than it's understood today. And we need to. Those are the sorts of things that are going to have to be unlocked before something big changes.

I think on a global basis the countervailing pressure is the enormous expansion of volume opportunity. And I think what we've seen at GSK over the last few years in the Vaccine, Consumer, and even the Pharma business is that with judicial adjustments to price, we've been able to open up gigantic volumes.

And what we've shown in these results and certainly the last couple of years' results is that you can drive your margin up even if your prices are not quite at the leading edge of price but at a level which can open up volume. And that's a model which I like a lot. I think it's more sustainable than being preoccupied just with price. And it's certainly evident that in today's world if you want to accelerate the arrival of your product into a marketplace, price is potentially an accelerator or a break to that decision making. And as I said earlier, the fact that we have such wide availability now for our medicines in the U.S. is indicative of what I think has been a pretty responsible approach to pricing. So I think that's where the big debate is.

What does that mean for GSK? That's up to Emma. I mean going forward she gets to make the choices about how we engage with this marketplace. I think what we've been able to do to this point is to create a series of businesses which are leaders in their categories, which have got innovation and which have got to a point where their momentum is robust and they have margins which are highly competitive. I think that's a good starting place to then engage with, what does the external world mean for a company? And you evolve your strategy accordingly.

What does it mean for the rest of the industry? I suspect that over time there will be a bit of a reset in terms of the excitement around individual products and super specialty being the driver of economic value. I think that will always be important. But I think it's in a relatively extreme position over the last five years or six years.

And there may be at some point some further M&A in the sector. Although while it's obvious that that happens at the small to medium size, it remains difficult to see just quite how large-scale M&A gets done. I suspect the pressures on it increase rather than decrease.

So I've had 30 years in this industry, and there's never been a dull year. And there's never been a year where it hasn't felt challenging and interesting. And I suspect the next 30 years won't be any different. But the reality is the industry does something quite amazing for people around the world. And as long as we keep doing that, it will be a very vibrant industry.

Andrew P. Witty - GlaxoSmithKline Plc

With that I'd like to say thank you for all of your questions. And of course the IR team are available here at GSK should you want to ask any more questions on our guidance on Advair, which I suspect some of you might. Please feel free to do so. And we look forward to helping you as much as we can. Thank you very much.

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