Good day, ladies and gentlemen, and welcome to the GSK Investment Analysts Call to 15 Q3 2015 Results Call. My name is Brett and I am the call manager. [Operator Instructions] I would like to advise all parties today's conference is being recorded. And now I would like to hand the call over to Sir Andrew Witty.

Thank you very much. Good afternoon, everybody, and thanks for joining this Q3 2015 results call. We've made further progress during this quarter to deliver the benefits of our recent transaction with Novartis and successfully execute our strategy. Our integration and restructuring programs are on track and sales are benefiting from recent new product introductions and those products recently acquired. All of this is providing us with confidence in our ability to meet our guidance for 2015 and for a return to significant earnings growth in 2016. For the quarter, group sales were up 11% on a reported basis and 5% on a pro forma basis, both at CER. Earnings per share for the quarter was 23 pence at CER, and reflected a decline of 13%. The decline reflects the short-term dilution from the transaction offset by good sales progress, cost control, and accelerated delivery of our integration and restructuring programs. It's also worth noting that earnings in Q3 reflect a tough comparator with Q3 2014 where we recognized a structural SG&A benefit of £290 million. Pro-forma sales grew across all three businesses. Vaccines were at £1.2 billion, up 13%, reflecting continued progress of our new meningitis franchise and a strong performance in the U.S., which also benefited from sales of flu vaccine. With sales of £1.6 billion, Consumer Healthcare grew 7% driven by continued strong sales of Flonase OTC, a product we switched from RX status earlier in the year, as well as strong growth in key priority brands such as Sensodyne. I'm also very pleased to see sales benefiting from the re-launch of newly-acquired brands such as Excedrin and Theraflu. As we've previously said, we're also very focused on driving improvement in the core operating margin in Consumer Healthcare, and I'm pleased to report that we are starting…

Thanks, Andrew. As you can see from the announcements we've made today, we're encouraged by the progress we've made during the quarter in executing on our restructuring and integration plans and in building momentum across the group, with all three of our businesses contributing to the pro-forma growth of 5%. Progress is evident in a number of areas, including our new launches, where we're seeing stronger momentum supported by additional resources that we've freed up through the pharmaceutical restructuring program; in our supply chains, particularly Vaccines and Consumer, where the investments we've made to improve capacity and reliability allowed us to move early on the important seasonal businesses of flu vaccines and cough and cold in Consumer, creating the opportunity to take share and improve pricing, delivering a significant step-up in profitability and growth as a result; and then most obviously, in our cost base, where we're on track or slightly ahead of our plans and have delivered total incremental savings in the first nine months of this year of over £700 million compared to the same period last year, £300 million of that in the third quarter alone. These savings are most evident in the reductions in R&D and SG&A in the quarter, once you strip out the comparator effect of last year's structural savings, more than offsetting the significant investments we're making behind new launch activity and seasonal sales. These examples highlight the extent of the change that we're making to the group through the Novartis transaction and our restructuring of the Pharmaceuticals business, but also more importantly, they demonstrate the growing momentum in the business and why remain confident in our 2016 outlook of returning to growth in core EPS at rates that we expect to reach double-digits on the CER basis. In the short term, we…

Thanks very much, Simon, and we will open up the call now to Q&A if the operator could just go through the procedure.

Thank you. Ladies gentleman, your question-and-answer session will now begin. [Operator Instructions] Your first question comes from the line of Tim Anderson from Bernstein. Please go ahead.

Thank you. A few questions, if I can: on Advair generics in the U.S., is it unreasonable to model that this could potentially launch in 2017 or are you confident that that's not likely to happen? On your comments about core results in revisiting how you might book those, can you explain what the driver of that reassessment is and give us a bit more details and then the last question - high level M&A; Pfizer has been signaling a recent heightened interest in mergers and acquisitions, potentially with a tax inversion element. It's a very short with theoretical targets in the drug space that would get them this, but as you are no doubt aware, Glaxo is on that theoretical list. I would imagine that despite the financial disappointment over the last years, with the recent restructuring you guys have done, you feel energized and you would be very disinterested in any potential tie ups? So to me at least, a merger between Pfizer and Glaxo seemed highly improbable. But I would love to hear your comments on those if you can provide any.

Sure. Tim, thanks for the question. Let me ask Simon just to quickly address the core/non-core thought process, and then I'll come back to your two other questions.

Yes. Thanks, Tim. I mean, we've not had any similar divestments of this sort of scale recently, so this is a good opportunity to look at the policy afresh. And I think we just took the distinction that: A; we were going to get some of these disposals, but they worked going to be that regular, and that seemed to point at non-core, even though in the past the policy would've suggested it should go into core, and I know some other companies do that, but this seemed sporadic rather than regular. And second; we are not involved anymore and on that basis, it seemed much more akin to a disposal and so should be treated as non-core.

I think the bottom line, Tim, also, is we really want, what we're trying to show to you and the shareholder from the core is what we really believe are the kind of the elements of the business on a regular basis, you need to be keeping an eye on to track how we are doing. Obviously, as you bridge from core to total results, as you see in the release, we are very transparent, so if any shareholder wants to add back anything - and we know that many shareholders have slightly different add-backs - they can re-create those numbers. But as Simon rightly says, when you look at this transaction you say, okay, there are no ongoing activities for GSK and no ongoing receipt. It makes sense for it to be treated a disposal. Actually it's sporadic it should go into non-call. And I think we just wanted to clarify that. As far as the other two questions. So Advair generic in America. I have been CFO, I think I was appointed CEO in the fall of 2007, I've been asked this question every quarter since, just about. And we haven't get seen a generic. Obviously, we keep an eye on what some of the generic companies are saying. We are clearly moving into a window again. We've been there before where companies are talking about developing their potential generic threat. And of course, while in the past it's always failed, I can't guarantee it's going to fail in the future. And I've always been pretty clear with people that sooner or later you have to anticipate something could happen. It's just hard to know when. Now if you project forward and you look at the average review times of the FDA and all of those particularly given…

Thank you. Your next question comes from the line of James Gordon from J.P. Morgan. Please go ahead.

Hello. Thanks for taking my question. Two questions, please. The first one was on the very good cost control this quarter and the sustainability of the cost control. The guidance of the high teens EBIT decline this year or the full year basis, it seems to imply that for Q4 you're going to have a really sharp decline like at least 30% EPS decline, and I would've thought that with further progress made on cost savings as you said, if you could talk about the magnitude of the upper pressures in Q4 this year on FX and why the guidance couldn't actually be a little bit better now? The second question was on the sales force for respiratory. We saw the negative results from the summit study and I know you had split your respiratory sales forces so there was going to be a separate Breo sales force, separate Advair, separate Anoro. I'm wondering with result from Breo, does that make you less likely to invest that much in pushing Breo and might that be diverted into the mepolizumab sales force? Now are you going to set up a big mepolizumab standard and sales force?

Right. Thanks very much for the question, James. So on the second point, so obviously disappointed by the SUMMIT results. These are, they're worth doing these studies, but they are always risky and there is always a chance they're going to fail. This one failed. Just want to reiterate, it was - SUMMIT was never in any of our forecasts that we shared with the Street. So for example, when we said that we would deliver at least 6 billion pounds of new product sales by 2020, that did not include the SUMMIT. That was always an upside to those numbers. Actually since the launch of, since the news of SUMMIT, we've seen no adverse effect on Breo. And actually I think people who have read the SUMMIT data, while it's clearly a failed study, I think they read that data and they see all sorts of information in there which for many people it further convince them of the merits of products like Breo. So actually as we stand today, we continue to see very good continued momentum in the U.S. now, we've got access and in Europe and Japan, where we have had a fantastic introduction also. You're beginning to see that reflected through the growing momentum in the sales number. And we're going to continue to be very much committed to that. I think actually, James, the world is beginning to kind of settle out into markets which are historically very bronchodilator heavy and markets which are much more steroid bronchodilators orientated, and I think that's likely to be the way in which we start to evolve our strategy and our portfolio as these products begin to be established in the marketplace. As far as sales force is concerned, actually, we've been increasing, not massively, but we've…

Your next question comes from the line of a Steve Scala from Cowen. Please go ahead.

Thank You. I have several questions. Both the ZOE-50 and ZOE-70 data have read out and showed very impressive efficacy. While will it take until the second half of 2016 to file a SHINGRIX? And will you not be pursuing a pediatric indication? Secondly, the decline in emerging markets was quite striking. When do you expect the emerging market area to return to growth? And then lastly, I would just like to follow up on Tim's M&A question. You said that GSK was not looking at options and/or something along those lines. But the question didn't imply that GSK was looking but that Pfizer was looking at GSK. So, Andrew, you did not say that GSK is determined to stay independent at that you feel that greater value can be delivered to shareholders as an independent entity. So is GSK determined to stay independent? Thank you.

Thanks, Steve. So as far as SHINGRIX or the Zoster vaccines are concerned, obviously, both studies came out very, very positively. I think to see those similarly high, those similarly very high rates of protection in the older population compared to the benchmarks have been historically set was really striking. This is clearly a highly, highly effective vaccine, both in terms of preventing shingles, but clearly also in preventing postherpetic neuralgia, which is obviously a very important measure. In terms of what we would be doing for the next few months, obviously, A, assembling the file. There are CMC things we have to go through in terms of things like batch validation. So that's in most of the critical path for the next few months that Steve is around the CMC element of the file. We will be exploring a pediatric opportunity but not in the initial file. We think this is going to be a very, very significant opportunity for the company. As you know, the products in the marketplace at the moment has reasonably limited supply, has a much lower level of efficacy and protection, has a waning level of persistency. And we believe that with both our manufacturing technology and scale and the profile of this product, this can be a very, very substantial vaccine for the company. As far as EM growth is concerned, yeah, it was disappointing during the quarter. A few things going on. So you've got some extra generic pressure in a few countries. You've got some macroeconomic pressure, particularly in places like Brazil and Russia which I think is common to many, many people. But we've also, as you know, we've been restructuring quite a number of our countries. And there is inevitably a bit of disruption caused by that. We're beginning…

Your next question comes from the line of Graham Parry from Bank of America. Please proceed.

Hey. Thanks for taking the question. Firstly on Asperity, you talked about the coverage for Asperity being good into 2016, but can you give a feel for whether a similar level pricing or rebates would have to be sacrificed to achieve that? And secondly, GSK is back in the press with one of your shareholders very publicly calling for breakup of the company again. Can you just remind us for the record why you decided not to spend the divest established products and remind us to some of the challenges of breaking consumer out as a separate entity? And has a more detailed review of these options by your new chairman changed your viewpoints on any of those points at all? And then thirdly, last year you experienced a credit rating downgrade on your long-term credit rating A2. Do you see the Novartis consumer put in 2018 being cited as one of the reasons? As that approaches and becomes more of a near-term event, what options do you have to deal with that put on your balance sheet and then potentially avoid a near-term or short-term credit rating downgrade? Thank you.

Okay. Thanks very much, Graham. So in terms of coverage, yeah, coverage - so we're pretty settled for going into next year and you may have seen some of the coverage in the U.S. that some of the very big managed-care companies, in particular CVS Caremark have prioritized the GSK brands as you may have seen. Anoro and Encruz have been given priority at the expense of the deletion of the Spiriva and Spiriva-related brands. And you can, you will see a number of exclusive positions for GSK. You will also see a very wide level of coverage either at or above market, at or above the best in the market more or less across the board in the U.S. next year. So we go into next year probably with the best coverage we've ever had for our respiratory you portfolio, first thing to say. In terms of price, yes, you'll see a continued reduction in Advair price in the U.S. in terms of the net price that we are charging. But the rate of decline is decelerating. So the gig is not as great as it has been for the last couple of years. As far as the decisions around ViiV and established products are concerned, I think it's quite an interesting subject to just reflect on for a second. In all three cases or, sorry, in the established products and the Viiv case, we took a very conscious decision to essentially publicly discuss the pros and cons of whether we should keep the businesses or not. The reason we and I suppose we could have tried to secretly have this conversation with banks and, I don't know, send out a few people. But the one group we would never have been able to properly sound out in that…

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

Thanks very much for the questions. So just more a couple of pipeline questions as we're looking forward. In terms of the number, you have a number of Phase 2 products that are listed, in your overall portfolio. I know you have your R&D day next week, but just wondering, can you give us a number of what's the number of programs that you believe have the potential to move forward into Phase 3 in the next 12 months? And then separately, if you could, in terms of the Phase 3 programs as I look at them, sirukumab, the anti-(IL)-6, can you give us your thought process around what is a pretty crowded market and how you will differentiate there? And then the last question is on the pro-hydroxylase inhibitor, in terms of just the market opportunity, how are you guys thinking about market opportunity there in chronic renal disease? Thanks a lot.

Great. Thanks, Seamus. Before I get to you, I really apologize to Graham. I didn't ask Simon to address the put question. So maybe, Simon, could you do that first?

Yeah, Graham. I think as you pointed out, the agencies have already factored into their view of our balance sheet the liability of taking that put when it comes. And remember, the window doesn't open up until 2018. Exactly how we fund it and how we deal with it we'll have to decide when we get there. But it's already factored into the credit metrics for the company as the agencies and our bondholders see it today. So I'm not sure there's very much more to add at this point other than it'll obviously depend at the time on the shape of the business. And remember, bringing in that minority will be significantly credit enhancing of itself given the profitability and cash generation capability of that company.

Okay. Thanks very much, Simon. As far as - so I'm going to be a bit, sorry, a bit frustrating for you now, because obviously, we've got the R&D day just a week or so away. You're going to see, I think you're going to see the answers to your questions, Seamus, more or less at that R&D day. Maybe not absolutely everything. You're certainly going to see a very substantial amount of information about the anti-(IL)-6 program. You're certainly going to hear about the PHI program. Now overall, we're going to be talking to you about, I think, one way or another, you're going to hear about 40 discrete different medicines and vaccines next week. Now obviously they are in a spectrum of phases of development, and they carry a spectrum of attrition risk. But what's very clear is we've got a very substantial quantum of innovative product moving forward. And honestly, I think the very best thing to do is just ask you to be a little bit patient until New York next week. And, A, you'll have the chance to ask the question, we get the chance to avoid answering it in public rather than over a telephone call, and hopefully we'll be able to answer most of your question straight out without any hesitation. And you'll also have the chance, by the way, not just to meet the most senior management, including myself, Simon, Moncef, Patrick, but you'll see the leaders of our R&D organization. And so you'll have plenty of opportunity to explore some of the nuances. And you're right to focus on some of these drugs. PHI is a very exciting program. You're going to see next week exactly why we think we have the right molecule, we think we have the right differentiated program. You'll see why we believe in (IL)-6. I think you'll hear a little bit about where else we think we can take the anti-(IL)-6 into other indications. And you'll see an awful lot in the six therapy areas that GSK has focused its R&D operations in. So if I can just ask you to be patient, a week from now you should see all of that. Next question?

Thank you. Your next question comes from the line of Richard Parkes from Deutsche Bank. Please go ahead.

Hi, gentleman. Thanks for taking my question is. Firstly, I wondered if you could talk about the specific impact on Seretide in Europe? I think you saw a 16% volume decline there. It looks like from your comments there's not much there, that's kind of one-off effect in the quarter. Just other than it transitioning to the new portfolio, I wondered if there's anything else you can do to offset those pressures and defend those sales and whether maybe a change in your strategy in terms of contracting and tenders, whether you're considering that? And then a couple of things on the competitive environment in HIV. And we've seen first approvals of Gilead's new TAF formulation of its intergrase combination pill. I wondered whether you felt the need to add anything in terms of additional sales and marketing support to address maybe that increased competitive dynamic in the near term. And longer term, hearing from Gilead also yesterday that they are moving an unboostered integrated inhibitor into Phase III which could launch in 2018 and maybe be more competitive with Dolutek there. So I wondered whether that was affecting the urgency in which you feel the need to invest in lifecycle management for that franchise. Thanks.

Great. Thanks a lot, Richard. So you're going to see a lot of HIV next week. So again, I'm not going to get too much into the detail. I just do want to make a couple of comments about it, though. Dolutegravir based regimens have done so well because, A, it's an excellent molecule, and, B, the team did the most phenomenal job of coming to market not just with one pivotal study or two pivotal studies showing base competitiveness. It came to the marketplace with a full data set comparing itself to most of the other regimens and demonstrated extraordinary performance, very rare that I have seen a product which essentially hit its mark in pretty much every trial it did against every class was put up against. And I think that's what's really made this product cut through what is obviously a competitive market dominated by one company, and it's where we've of been able to take very significant market shares very quickly and deliver as I said already the most successful product launch in the category in the U.S. And when you, so I think it's really important not just to conclude that another one in the class, if indeed it does make it, if indeed it doesn't had a glitch on the way through, will somehow therefore just be the same as dolutegravir. I think you all model second and third entry molecules to class, you would all conclude that third entry model to class, that third entry to class has to be something very, very special to get ahead of numbers one and two. Given that number two is such a strongly profiled molecule, there's quite a reasonable hurdle for people to jump. You will see a lot around the lifecycle management and the science…

Thank you. Your next question comes from the line of Jo Walton from Credit Suisse. Please go ahead.

Thank you. Three quick questions, please. Firstly, on NUCALA. I wonder if you could give us some guide as to how quickly you should think, we should be thinking about the adoption? Clearly in your most recent respiratory launches, people of been disappointed at the ramp rate. So perhaps you can tell us a bit about how wide a footprint you think you NUCALA will have a bit about the message and give us some help as to how fast that can ramp up. Second question is just one on cost savings. It's very nice of you to tell us you've made $300 million of cost savings in this quarter. I wonder if you could tell us a bit about whether that's a good rate again for the fourth quarter now that you've had the deal consummated for a bit longer? Can you give us a guide as to whether you can get more cost savings or just cost savings coming through sooner, perhaps, than expected? And finally, just a quick question on vaccines: incredibly strong profitability in the third quarter - how much of that is just because of the timing of the flu business colleges' office and partly better partly just a timing issue from into the 3Q from 4Q. So how much of that is real improvement and how much should we see go away again in the fourth quarter? Thank you.

Thanks very much, Jo. So in the NUCALA launch, let's wait and see FDA PDUFA is November 4, so obviously I don't want to count any chickens until we have gone through that process. As you know, we've also have a positive opinion in Europe. My expectation is that we should see a relatively more rapid ramp-up in sales opportunity then we've seen in the classic mass market plates for respiratory products. But I still, I would guide you not to expect it from day one. And you kindly attributed the only slow ramp-ups to respiratory products. I noted this week it also happens to be happening in the cardiovascular marketplace for some other companies. So I think slow ramp is a general phenomenon. I'm going to hesitate to predict that there isn't going to be some kind of inertia in this particular category, so I think it will be quick out, so where I get to? I would like to expect that by the time we get into Q2 of next year that we would start to be seeing kind of the pattern open up, but let's wait and see. We certainly feel ready for it; we think we havoc extremely competitive profile, not just against the current standard of care out there on the marketplace but also much more importantly, we think it's pretty future-proofed from anything that's coming down the pike. And again, Jo, you'll see quite a lot about NUCALA next week. As far as the vaccine margin is concerned, you're quite right; it was a very good margin during the quarter. It was helped significantly by the flu, as you saw, we sold far more product in Q3. That's important because if you can sell early in America can also sell at higher price. So it's not just the move forward of the volume, it's also by moving forward the volume, you capture higher price than you would do if you sold it late. And so that no doubt helps. Having said that, we are seeing good underlying progression. I would not a back to Q4 margin to reflect the Q3 margin, but we are definitely seeing good underlying progression, and we're definitely seeing the beginnings. It's running a little bit behind as planned, but it's running a little bit behind Consumer, the beginnings of the cost of extraction from the integration and maybe Simon could talk about how to think about the overall timing of the deal synergies.

Yes, I think just to round out some vaccine, it's probably of the three businesses the one where I usually expect the margin to be most lumpy as it moves around quarter to quarter, similar to the top line. I think overall, as we came out of the third quarter, we were at an annual run rate of around $1.3 billion in total for the various programs that we've now aggregated. We were targeting 1.4 for the end of the year, so there's a good opportunity to do a little bit better than we planned for the year as a whole, but, let's see how the fourth quarter goes, and I think it's a bit premature to be changing the total targets that we've got for the overall program of $3 billion by 2017.

But rest assured, we're going as fast as we can to the highest number we can get is the bottom line.

We will see that in the performance of the quarter.

And I think somebody said earlier on, that surely the deal energized the company and yes, there's no question there with the pipeline in pharmaceuticals and vaccines, with the deal in vaccines and consumer and with the opportunity to reshape R&D, it's put a lot of energy into the organization. And we are seeing on almost on every metric, we're seeing the organization deliver ahead of what we ask it do in terms of synergies as a good example, but on the whole raft of other things. And from that point of view, we're feeling that this is very much on track. We'll have the next question. I think this will have to be the last one - sorry about that - but last question?

Thank you. Your next question, then, comes from the line of Alexandra Hauber with UBS. Please proceed.

Thanks for taking my questions. Two quick ones: I was wondering given the strength of the dolutegravir franchise whether now would be a good opportunity to revisit your guidance for these margins? It's hard to see what brings us down back to 70%, which would probably imply a massive ramp in the fixed costs? And secondly, just on the point, the last point you made on the vaccines, on the flu vaccines, I was wondering whether you could give us some kind of an idea on the price differential between [indiscernible] and ne Trivalent and also whether this year you are planning to ship a larger number of doses and if you could give us last year's number and actually this year's numbers that you're planning to ship. Thank you.

Thanks, Alexandra. So in terms of the HIV margin, I mean, clearly that business is going very well. I'm going to just ask, I think you should be thinking about the overall pharmaceutical margin, so I mean I'm sure it's riveting to get into the detail of the HIV only margin, but actually the whole pharma is the pharma business, and it's important to remember that. So the HIV business is a great growth business for us, of course it's generating significant contribution to the company. It's a massive beneficiary of the historically R&D spend which was itself paid for by Advair and HIV business is contributed to the massive R&D spend that we commit now for the next generation of products. So it's a very, so I don't think you're going to see that margin move around massively from where it is today, but I also am not completely convinced as a huge point in dwelling on it anymore. In terms of QIV, a couple of things, so this year, we only sold QIV in the U.S., so 100% of our shipments to QIV. That has changed over the years as we've ramped up into the new technologies. Last year, we did 50 million QIV and TIV in Q3. This year, we did 22 million QIV alone in Q3. We would expect to sell more as we go through the rest of the quarter. I won't go into the specifics of the price difference, because obviously those are all negotiated in the market but QIV is more expensive than TIV.

With that, I'm afraid we're out of time. Thank you very much for your questions, and I'm sorry if we didn't get to all of your questions. For those of you who are going to be attending the New York event next week, we look forward to having the chance to talk you there. It's going to be a reasonably long event, but it's also going to be an opportunity for you to talk to a reasonably wide number of senior leadership and scientific leadership of the R&D organizations, both in vaccine and pharmaceuticals, and I hope it will give a good opportunity for you to get well and truly tuned into a pretty broad-based number of assets within our six therapy areas that we're going to be focused on. With that, thank you for your attention, and of course, if you do have follow-up detail questions, please don't hesitate to contact the GSK Investor Relations team. Thanks very much.