Do more, feel better, live longer
`
`GlaxoSmithKline
`Annual Report 2010
`
`GSK Annual Report 2010
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1114, p. 1 of 216
`
`

`

`Business review
`This discusses our financial and non-financial activities,
`resources, development and performance during 2010
`and outlines the factors, including the trends and the
`principal risks and uncertainties, which are likely to
`affect future development.
`
`Governance and remuneration
`This discusses our management structures and
`governance procedures. It also sets out the
`remuneration policies operated for our Directors and
`Corporate Executive Team members.
`
`Financial statements
`The financial statements provide a summary of the
`Group’s financial performance throughout 2010 and its
`position as at 31st December 2010. The consolidated
`financial statements are prepared in accordance with
`IFRS as adopted by the European Union and also IFRS as
`issued by the International Accounting Standards Board.
`
`Shareholder information
`This includes the full product development pipeline and
`discusses shareholder return in the form of dividends
`and share price movements.
`
`Underlying sales growth excludes pandemic products,
`Avandia and Valtrex. See page 21.
`
`CER% represents growth at constant exchange rates.
`Sterling % or £% represents growth at actual exchange
`rates. See page 21.
`
`The calculation of results before major restructuring
`is described in Note 1 to the financial statements,
`‘Presentation of the financial statements’.
`
`08
`10
`12
`14
`18
`19
`20
`21
`22
`29
`34
`41
`47
`53
`
`58
`60
`64
`69
`71
`74
`84
`91
`94
`96
`101
`
`102
`103
`104
`109
`
`188
`
`192
`200
`203
`207
`208
`208
`208
`210
`211
`212
`
`Contents
`
`Business review
`2010 Performance overview
`Research and development
`Pipeline summary
`Products, competition and intellectual property
`Regulation
`Manufacturing and supply
`World market
`GSK sales performance
`Segment reviews
`Responsible business
`Financial review 2010
`Financial position and resources
`Financial review 2009
`Risk factors
`
`Governance and remuneration
`Our Board
`Our Corporate Executive Team
`Governance and policy
`Dialogue with shareholders
`Internal control framework
`Committee reports
`Remuneration policy
`Director terms and conditions
`Director and Senior Management remuneration
`Directors’ interests
`Directors’ interests in contracts
`
`Financial statements
`Directors’ statement of responsibilities
`Independent Auditors’ report
`Financial statements
`Notes to the financial statements
`Financial statements of GlaxoSmithKline plc
`prepared under UK GAAP
`
`Shareholder information
`Quarterly trend
`Five year record
`Product development pipeline
`Share price and dividends
`Nature of trading market
`Annual General Meeting
`Investor relations and Registrar
`Taxation information for shareholders
`Glossary of terms
`Index
`
`GSK Annual Report 2010
`
`Business review P08–P57
`
`Governance and remuneration P58–P101
`
`Financial statements P102–P191
`
`Shareholder information P192–P212
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1114, p. 2 of 216
`
`

`

`01
`
`We exist to improve the
`quality of human life by
`enabling people to do more,
`feel better and live longer.
`
`We work by respecting people,
`maintaining our focus on the patient
`and consumer whilst operating with
`both integrity and transparency.
`We are looking to deliver shareholder
`value through growth of a diversified
`and global business, by delivering
`more products of value, simplifying
`our operating model and by running
`our business responsibly.
`What follows is our report to
`shareholders for 2010. Progress we
`have made in the year can also be
`seen by visiting our website:
`www.gsk.com/corporatereporting
`
`Notice regarding limitations on Director Liability under English Law
`Under the UK Companies Act 2006, a safe harbour limits the liability of Directors in respect of statements in and omissions from the Report of the Directors contained on pages 8 to
`101. Under English law the Directors would be liable to the company, but not to any third party, if the Report of the Directors contains errors as a result of recklessness or knowing
`misstatement or dishonest concealment of a material fact, but would not otherwise be liable.
`
`Report of the Directors
`Pages 8 to 101 inclusive comprise the Report of the Directors that has been drawn up and presented in accordance with and in reliance upon English company law and the liabilities
`of the Directors in connection with that report shall be subject to the limitations and restrictions provided by such law.
`
`Website
`GlaxoSmithKline’s website www.gsk.com gives additional information on the Group. Notwithstanding the references we make in this Annual Report to GlaxoSmithKline’s
`website, none of the information made available on the website constitutes part of this Annual Report or shall be deemed to be incorporated by reference herein.
`
`Cautionary statement regarding forward-looking statements
`The Group’s reports filed with or furnished to the US Securities and Exchange Commission (SEC), including this document and written information released, or oral statements
`made, to the public in the future by or on behalf of the Group, may contain forward-looking statements. Forward-looking statements give the Group’s current expectations or
`forecasts of future events. An investor can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘anticipate’,
`‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’ and other words and terms of similar meaning in connection with any discussion of future operating or financial
`performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and
`anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. The Group undertakes no obligation to update any
`forward-looking statements, whether as a result of new information, future events or otherwise.
`
`Forward-looking statements involve inherent risks and uncertainties. The Group cautions investors that a number of important factors, including those in this document, could
`cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, those discussed under ‘Risk factors’
`on pages 53 to 57 of this Annual Report.
`
`GSK Annual Report 2010
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1114, p. 3 of 216
`
`

`

`02
`
`GSK at a glance
`
`We are one of the world’s leading
`research-based pharmaceutical and
`healthcare companies. We are
`committed to improving the quality
`of human life by enabling people
`to do more, feel better and live longer.
`
`How we do it
`GSK has focused its business on the delivery of three strategic
`priorities, which aim to increase growth, reduce risk and
`improve GSK’s long-term financial performance:
`
`(cid:115)(cid:0) (cid:39)(cid:82)(cid:79)(cid:87)(cid:0)(cid:65)(cid:0)(cid:68)(cid:73)(cid:86)(cid:69)(cid:82)(cid:83)(cid:73)(cid:108)(cid:69)(cid:68)(cid:0)(cid:71)(cid:76)(cid:79)(cid:66)(cid:65)(cid:76)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)
`(cid:115)(cid:0) (cid:36)(cid:69)(cid:76)(cid:73)(cid:86)(cid:69)(cid:82)(cid:0)(cid:77)(cid:79)(cid:82)(cid:69)(cid:0)(cid:80)(cid:82)(cid:79)(cid:68)(cid:85)(cid:67)(cid:84)(cid:83)(cid:0)(cid:79)(cid:70)(cid:0)(cid:86)(cid:65)(cid:76)(cid:85)(cid:69)
`(cid:115)(cid:0) (cid:51)(cid:73)(cid:77)(cid:80)(cid:76)(cid:73)(cid:70)(cid:89)(cid:0)(cid:39)(cid:51)(cid:43)(cid:7)(cid:83)(cid:0)(cid:79)(cid:80)(cid:69)(cid:82)(cid:65)(cid:84)(cid:73)(cid:78)(cid:71)(cid:0)(cid:77)(cid:79)(cid:68)(cid:69)(cid:76)
`Where we do it
`GSK is a global organisation with offices in over 100 countries
`and major research centres in the UK, USA, Belgium and China.
`Our shares are listed on the London and New York Stock
`Exchanges and our corporate head office is in Brentford, UK.
`
`Our 2010 numbers
`
`£28.4bn
`
`Turnover
`
`53.9p
`
`Earnings per share before
`major restructuring
`
`Group sales
`
`32.1p
`
`Earnings per share
`
`65p
`
`Dividend per share
`
`1 US Pharmaceuticals: £7.6bn
`
`7
`
`6
`
`2 Europe Pharmaceuticals: £6.5bn
`
`5
`
`3 Consumer Healthcare: £5.0bn
`
`4 Emerging Markets
`Pharmaceuticals: £3.6bn
`
`5 Asia Pacific/Japan
`Pharmaceuticals: £3.1bn
`
`6 ViiV Healthcare: £1.6bn
`
`7 Other: £1.0bn
`
`4
`
`3
`
`1
`
`2
`
`Research & development
`
`Consumer Healthcare
`
`No.1
`
`Sensodyne has been the
`world’s fastest growing
`toothpaste brand over
`the last 5 years.
`
`2N
`
`ew Consumer Healthcare
`Research and Innovation
`centres opened in China
`and India.
`
`£3.96bn
`
`In 2010, we spent £3.96bn
`in R&D before major
`restructuring, or 14%
`of our total sales.
`We are one of the world’s
`biggest investors in R&D and are
`the biggest private sector funder
`of R&D in the UK.
`
`14%
`
`We are committed to
`improving returns in R&D,
`aiming to increase our
`estimated return
`on investment in
`this area to 14%.
`
`20%
`
`Growth of Horlicks
`in India in 2010.
`
`c.1bn
`
`Units of Lucozade,
`Ribena and Horlicks
`manufactured in
`the UK every year.
`
`Emerging markets
`
`24%
`
`Of total GSK turnover
`from emerging markets,
`by the broader definition
`(Pharmaceutical and
`Consumer Healthcare
`turnover in all markets
`excluding USA, Western
`Europe, Canada, Japan,
`Australia and New Zealand).
`
`c.30
`
`A peer-leading
`pipeline with around
`30 late-stage assets.
`
`10
`
`10 new compounds and
`vaccines starting phase III
`clinical trials since the start
`of 2010.
`
`Vaccines
`
`1.4bn
`
`Doses of our vaccines
`supplied to 179 countries
`around the world in 2010.
`
`GSK Annual Report 2010
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1114, p. 4 of 216
`
`

`

`Business review P08–P57
`
`Governance and remuneration P58–P101
`
`Financial statements P102–P191
`
`Shareholder information P192–P212
`
`03
`
`2
`
`411
`3
`6 5
`
`2
`
`2
`
`3
`
`32
`2
`
`3
`
`2
`
`22
`
`6
`
`2
`
`5 4
`
`3
`
`6
`
`2
`
`2
`
`4
`
`3
`
`2
`
`3L
`
`eading presence in
`Consumer Healthcare
`global categories: OTC,
`Oral Care, Nutritionals
`
`5%
`
`Share of world
`pharmaceutical market.
`(Source: IMS Health)
`
`GSK at a glance
`
`A global company
`
`7
`
`3
`
`3
`
`3
`
`7
`
`5
`
`Sites with over
`100 employees:
`Biologicals
` Corporate
`Consumer Healthcare
`GMS
` Pharmaceuticals
`Research and Development
`
`96,500
`
`Employees.
`
`GSK’s business model
`A balanced, synergistic business, with multiple growth drivers
`supporting a core pharmaceutical R&D operation.
`
`Core
`Pharmaceutical
`R&D
`
`Responsible business
`Malaria vaccine
`Potentially the first malaria vaccine with phase III trials ongoing in
`7 African countries.
`
`300 million
`Commitment to supply 300m doses of Synflorix at a reduced price
`to developing countries over the next decade through the AMC
`financing mechanism.
`
`5-year commitment
`To treat school age children in Africa at risk of intestinal worms.
`
`Leader
`GSK ranked first in both Access to Medicine Indexes in 2008
`and 2010.
`
`2050
`Target date for value chain, from raw materials to product disposal,
`to be carbon neutral.
`
`To find out more visit us at
`www.gsk.com/corporatereporting
`
`GSK Annual Report 2010
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1114, p. 5 of 216
`
`

`

`04
`
`Chairman & CEO summary
`
`Dear Shareholder
`Over the last two and a half years we have been implementing a
`strategy to transform our business model to address the significant
`challenges our industry faces as payers search for ever more cost-
`effective healthcare, and demand escalates for new and better
`medicines. This is being done with the direct aim of enhancing returns
`to our shareholders and improving the lives of patients and consumers.
`
`To achieve this we have substantially re-engineered GSK’s business
`through major restructuring and a more rigorous approach to
`capital allocation. The effects of these changes in 2010 were
`masked to some degree by specific events. Reported sales, for
`example, were impacted by generic competition to Valtrex, and
`reduced sales from Avandia and pandemic related products.
`Meanwhile earnings were impacted by the significant charge we
`took to help resolve long-standing legal matters. This belies the
`good progress we have made to execute our strategy and which
`is evident in diversified underlying sales growth and the increasing
`potential of our pipeline. We believe GSK is becoming a more
`balanced, synergistic business with a lower risk profile and the
`option for significant potential upside from the pipeline.
`
`GSK is also a business built on strong values and a deep
`commitment to operating with integrity. In 2010 we have taken
`further steps to make our company more responsive, more flexible
`and more open to society’s expectations.
`
`Increasing returns to shareholders
`In 2010 we were able to fund returns to shareholders, bolt-on
`acquisitions and the significant increase in legal settlements whilst
`reducing net debt by £0.6 billion.
`
`Adjusted 2010 net cash inflow before legal matters was £8.8
`billion, up 9%. Cash outflow for legal settlements was £2 billion.
`
`GSK remains financially very strong. We increased our dividend by
`7% to 65p in 2010 and our priority is to deliver further growth in
`the dividend. Since 2005, dividends have increased each year with
`average growth of 8% over the five-year period. We have
`also started a new long-term share buy-back programme to
`enhance returns to shareholders, with buy-backs of £1-2 billion
`expected in 2011.
`
`Sir Christopher Gent
`Chairman
`
`Andrew Witty
`Chief Executive Officer
`
`GSK Annual Report 2010
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1114, p. 6 of 216
`
`

`

`Business review P08–P57
`
`Governance and remuneration P58–P101
`
`Financial statements P102–P191
`
`Shareholder information P192–P212
`
`05
`
`Operating a values-based business with integrity
`Continuing to run our business in a responsible way is also central
`to the changes we have made at GSK.
`
`In 2010, we continued progress in our significant commitment to
`work on neglected tropical diseases. Our candidate malaria vaccine
`is progressing through phase III trials in Africa. If all goes well, this
`will be the first ever vaccine against malaria, with the potential
`to save the lives of millions of children and infants in Africa. We
`also announced that we will donate enough of our albendazole
`medicine to protect all school-aged children in Africa against
`intestinal worms. Intestinal worms cause more ill health in
`school-aged children than any other infection, so this will have
`a major positive health impact.
`
`Improving the environmental sustainability of our business is also
`a priority and we have launched a new set of ambitious targets.
`Our goal is to reduce the environmental impact of our whole value
`chain, from raw materials to product disposal, and to be carbon
`neutral by 2050.
`
`We are continuing to work towards resolving a number of long-
`standing legal matters. There is no doubt that the scale of legal
`provisioning that has been required is significant. However, we
`continue to believe that it is in the Group’s best interests to resolve
`this inherent unpredictability and reduce GSK’s overall litigation
`exposure. These legal cases underline just how important it is for
`us to be led by our values in everything we do.
`
`Changes to the Board
`In September we announced that Julian Heslop will retire as CFO
`at the end of March and be replaced by Simon Dingemans, who
`joined the company as CFO-designate in January 2011.
`
`We would like to thank Julian for his dedicated service to GSK as
`CFO and a member of the Board over the last six years – his integrity,
`diligence and outstanding technical ability have ensured that GSK has
`remained financially strong during a period of significant economic
`turmoil. Simon’s appointment as CFO will bring valuable new
`experience and capability to support us in implementing our strategy.
`
`Conclusion
`There is no doubt that our operating environment remains
`challenging and that the pharmaceutical industry is undergoing
`a period of intense change. However, we believe that GSK is well
`placed to succeed in this environment.
`
`Our journey to create a more balanced, synergistic business
`with increasing pipeline potential is progressing well and in
`accomplishing this we would like to recognise the significant
`contribution of our employees and our many partners. We remain
`confident that we can generate increased value for shareholders
`as well as deliver better outcomes to patients and consumers.
`
`Sir Christopher Gent
`Chairman
`
`Andrew Witty
`Chief Executive Officer
`
`GSK Annual Report 2010
`
`Chairman & CEO summary
`
`Continuing focus on return on investment
`Our drive for change, and to improve returns on investment
`through restructuring and effective capital allocation, continued to
`make progress during the year.
`
`Reinvestment of costs saved through our restructuring programme
`has enabled us to diversify and strengthen GSK’s sales base. To
`date, £1.7 billion of cost has been extracted from the business and
`we are on track to deliver £2.2 billion of annual savings by 2012.
`
`We have taken cost out from lower returning activities and
`reinvested it in key growth areas such as Emerging Markets,
`Vaccines and Consumer Healthcare. 2010 reported sales for these
`businesses were up 22%, 15% and 5% respectively.
`
`This is helping to reduce GSK’s dependency on sales of products
`generated in ‘white pills/western markets’†. Sales from these
`markets and products have decreased from 40% in 2007, to 25%
`in 2010. Over time, this should help to reduce the adverse impact
`of patent expirations on the Group.
`
`Delivering diversified underlying sales growth
`In 2010, reported sales fell 1%, impacted by the continued
`effect of generic competition to Valtrex, the rapid loss of sales
`of Avandia following regulatory decisions in the Autumn and a
`difficult comparison with the prior year which included significant
`sales of pandemic products.
`
`However, underlying sales growth (sales excluding these 3
`factors) was up 4.5%. This growth was achieved despite the
`ongoing impacts of US healthcare reform and EU government
`austerity measures and is testament to the strength of the rest of
`our portfolio.
`
`In 2011, we expect underlying sales momentum to continue and
`translate into sustainable reported growth in 2012.
`
`Increasing pipeline potential
`Reforming R&D to improve returns on investment has been a key
`element of the strategy we are implementing. We saw further
`evidence that this strategy is making progress during 2010.
`
`GSK now has a peer-leading portfolio of around 30 opportunities
`in phase III and registration. This portfolio is diverse with 5
`biopharmaceuticals and 5 vaccines in addition to NCEs. It is also
`highly innovative with more than 20 assets not currently available
`for any indication. One such asset – Benlysta – is potentially the
`first new treatment for lupus in 50 years and is currently being
`considered for approval by regulators in the USA and Europe.
`
`Importantly, we are delivering sustained progress, with 10 NCEs and
`new vaccines entering phase III since the start of 2010. By the end
`of 2012, we expect phase III data on around 15 assets, including
`potential new treatments for type 1 and 2 diabetes, several rare
`diseases and multiple cancer types.
`
`We have made fundamental changes to how we allocate our
`R&D expenditure, directing it to our late stage pipeline; reducing
`cost and risk through externalising parts of early-stage discovery;
`dismantling infrastructure; and terminating development in areas
`with low financial and scientific return. Our target remains to
`deliver a rate of return for GSK’s R&D of around 14%. We are
`the only pharmaceutical company to have explicitly set such a
`challenging target.
`
`† See page 21.
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1114, p. 7 of 216
`
`

`

`06
`
`Discover the world of GSK
`
`We have chosen ten case studies from
`2010 that demonstrate the progress we
`have made against our strategic priorities.
`Each of these stories can be viewed online
`www.gsk.com/corporatereporting
`
`GSK Annual Report 2010
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1114, p. 8 of 216
`
`

`

`Business review P08–P57
`
`Governance and remuneration P58–P101
`
`Financial statements P102–P191
`
`Shareholder information P192–P212
`
`07
`
`Our plans
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:36)(cid:82)(cid:73)(cid:86)(cid:69)(cid:0)(cid:71)(cid:82)(cid:79)(cid:87)(cid:84)(cid:72)(cid:0)(cid:73)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:80)(cid:72)(cid:65)(cid:82)(cid:77)(cid:65)(cid:67)(cid:69)(cid:85)(cid:84)(cid:73)(cid:67)(cid:65)(cid:76)(cid:0)
`business in our core markets
`
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:38)(cid:85)(cid:76)(cid:108)(cid:76)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:80)(cid:79)(cid:84)(cid:69)(cid:78)(cid:84)(cid:73)(cid:65)(cid:76)(cid:0)(cid:79)(cid:70)(cid:0)Emerging
`Markets
`
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:37)(cid:88)(cid:80)(cid:65)(cid:78)(cid:68)(cid:0)(cid:79)(cid:85)(cid:82)(cid:0)(cid:66)(cid:85)(cid:83)(cid:73)(cid:78)(cid:69)(cid:83)(cid:83)(cid:0)(cid:73)(cid:78)(cid:0)(cid:42)(cid:65)(cid:80)(cid:65)(cid:78)(cid:0)
`
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:34)(cid:85)(cid:73)(cid:76)(cid:68)(cid:0)(cid:79)(cid:85)(cid:82)(cid:0)(cid:76)(cid:69)(cid:65)(cid:68)(cid:69)(cid:82)(cid:83)(cid:72)(cid:73)(cid:80)(cid:0)(cid:73)(cid:78)(cid:0)(cid:68)(cid:69)(cid:82)(cid:77)(cid:65)(cid:84)(cid:79)(cid:76)(cid:79)(cid:71)(cid:89)
`
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:39)(cid:82)(cid:79)(cid:87)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:54)(cid:65)(cid:67)(cid:67)(cid:73)(cid:78)(cid:69)(cid:83)(cid:0)(cid:65)(cid:78)(cid:68)(cid:0)(cid:35)(cid:79)(cid:78)(cid:83)(cid:85)(cid:77)(cid:69)(cid:82)(cid:0)
`Healthcare businesses
`Our plans
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:38)(cid:79)(cid:67)(cid:85)(cid:83)(cid:0)(cid:79)(cid:78)(cid:0)(cid:84)(cid:72)(cid:69)(cid:0)(cid:66)(cid:69)(cid:83)(cid:84)(cid:0)(cid:83)(cid:67)(cid:73)(cid:69)(cid:78)(cid:67)(cid:69)(cid:0)
`
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:36)(cid:73)(cid:86)(cid:69)(cid:82)(cid:83)(cid:73)(cid:70)(cid:89)(cid:0)(cid:84)(cid:72)(cid:82)(cid:79)(cid:85)(cid:71)(cid:72)(cid:0)(cid:69)(cid:88)(cid:84)(cid:69)(cid:82)(cid:78)(cid:65)(cid:76)(cid:73)(cid:83)(cid:65)(cid:84)(cid:73)(cid:79)(cid:78)(cid:0)
`
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:50)(cid:69)(cid:13)(cid:80)(cid:69)(cid:82)(cid:83)(cid:79)(cid:78)(cid:65)(cid:76)(cid:73)(cid:83)(cid:69)(cid:0)(cid:50)(cid:6)(cid:36)(cid:0)
`
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:38)(cid:79)(cid:67)(cid:85)(cid:83)(cid:0)(cid:79)(cid:78)(cid:0)(cid:82)(cid:69)(cid:84)(cid:85)(cid:82)(cid:78)(cid:0)(cid:79)(cid:78)(cid:0)(cid:73)(cid:78)(cid:86)(cid:69)(cid:83)(cid:84)(cid:77)(cid:69)(cid:78)(cid:84)(cid:0)
`
`Our plans
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:37)(cid:86)(cid:79)(cid:76)(cid:86)(cid:69)(cid:0)(cid:79)(cid:85)(cid:82)(cid:0)(cid:67)(cid:79)(cid:77)(cid:77)(cid:69)(cid:82)(cid:67)(cid:73)(cid:65)(cid:76)(cid:0)(cid:77)(cid:79)(cid:68)(cid:69)(cid:76)(cid:0)
`
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:50)(cid:69)(cid:13)(cid:83)(cid:72)(cid:65)(cid:80)(cid:69)(cid:0)(cid:77)(cid:65)(cid:78)(cid:85)(cid:70)(cid:65)(cid:67)(cid:84)(cid:85)(cid:82)(cid:73)(cid:78)(cid:71)(cid:0)
`
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:51)(cid:84)(cid:82)(cid:69)(cid:65)(cid:77)(cid:76)(cid:73)(cid:78)(cid:69)(cid:0)(cid:79)(cid:85)(cid:82)(cid:0)(cid:80)(cid:82)(cid:79)(cid:67)(cid:69)(cid:83)(cid:83)(cid:69)(cid:83)(cid:0)
`
`(cid:115)(cid:0)(cid:0)(cid:0)(cid:0)(cid:50)(cid:69)(cid:68)(cid:85)(cid:67)(cid:69)(cid:0)(cid:87)(cid:79)(cid:82)(cid:75)(cid:73)(cid:78)(cid:71)(cid:0)(cid:67)(cid:65)(cid:80)(cid:73)(cid:84)(cid:65)(cid:76)(cid:0)
`
`Our strategy
`
`Since 2008, we have focused our business around the delivery
`of three strategic priorities, which aim to increase growth,
`reduce risk and improve our long-term financial performance:
`Grow a diversified global business
`
`We are diversifying our business to create a more balanced product portfolio and move away
`from a reliance on traditional ‘white pills/western markets’*. Sales generated from these
`markets and products have decreased from 40% in 2007, to 25% in 2010. Over time this
`should help to reduce the adverse impact of patent expirations on the Group.
`
`We expect to generate future sales growth by strengthening our core pharmaceuticals business
`and supplementing it with increased investment in growth areas such as Emerging Markets,
`vaccines, Japan, dermatology and Consumer Healthcare. Sales in Emerging Markets were up
`22%, vaccines up 15%, Japan up 14%, dermatology up 6% (on a pro-forma basis excluding
`2010 acquisitions) and Consumer Healthcare up 5% for 2010.
`
`Deliver more products of value
`
`With the aim of sustaining an industry-leading pipeline of products that deliver value for
`healthcare providers, we have been focusing on improving rates of return and delivering the
`best science in our R&D organisation. This has required a multi-faceted approach. For example
`we have increased the level of externalisation of our research, taken difficult decisions around
`pipeline progressions and focused on disease areas where we believe the prospects for
`successful registration and launch of differentiated medicines are greater.
`
`We have one of the largest and most diverse development pipelines in the industry with
`approximately 30 late-stage assets. The vast majority of these programmes address unmet
`medical need and importantly nearly two-thirds are new chemical entities or new vaccines.
`
`Simplifying the operating model
`
`As our business continues to change shape, it is essential that we transform the operating
`model to reduce complexities, improve efficiencies and reduce cost. Through our global
`restructuring programme, we have removed £1.7 billion of cost since 2008 and are on track
`to deliver our target of £2.2 billion of annual savings by 2012. These savings have been
`extracted from our developed country sales and marketing, support functions, R&D and
`manufacturing infrastructure and reinvested in higher returning activities such as Emerging
`Markets, vaccines and Consumer Healthcare.
`
`Outlook
`Whilst our operating environment remains challenging, we have made significant progress
`through restructuring and a rigorous returns-based approach to capital allocation. We expect
`underlying sales momentum (sales excluding Valtrex, Avandia and pandemic related products)
`to continue in 2011 and to translate into reported growth in 2012 at constant exchange rates,
`despite further anticipated pricing reductions in the USA and Europe.
`
`The US patent for compositions containing the combination of active substances in Seretide/
`Advair expired during 2010, but various patents over the Diskus delivery device exist in the USA
`for a number of years up to 2016. The outlook for the timing and impact of entry of ‘follow-on’
`competition is uncertain. GSK has not been notified of any acceptance by the US FDA of an
`application for a ‘follow-on’ product that refers to Seretide/Advair and contains the same active
`ingredients (as would be expected to precede the introduction of such a product), and is not able
`to predict when this may occur or when any such ‘follow-on’ product may enter the US market.
`Other products may experience generic competition in advance of the stated patent expiry as a
`result of settlement of patent proceedings. See Note 44, ‘Legal proceedings’, pages 178 to 185.
`
`GSK has a peer-leading development pipeline, with over 20 assets not currently on the market
`for any indication. By the end of 2012, we expect Phase III data on around 15 additional assets.
`
`With improvements in our net debt position, we are increasing returns to shareholders. We
`increased GSK’s dividend in 2010 and our priority is to deliver further growth in the dividend.
`We also have commenced a new long-term share buy-back programme.
`
`We remain confident that we can generate increased value for shareholders as well as deliver
`better outcomes to patients and consumers.
`
`* See page 21.
`
`GSK Annual Report 2010
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1114, p. 9 of 216
`
`

`

`08
`
`2010 performance overview
`
`Our measures
`We use a number of measures
`to track our progress against
`the strategic priorities over the
`medium to long term. These
`include the following:
`
`(cid:115) Performance of core
`pharmaceuticals and
`vaccines businesses
`
`(cid:115) Diversification of sales
`
`(cid:115) Contribution of Emerging
`Markets to our overall
`sales and growth
`
`(cid:115) Growth of Consumer
`Healthcare business
`
`(cid:115) Build our leadership position
`in dermatology
`
`Our progress in 2010
`We made good progress during the year, with a number
`of notable successes:
`
`(cid:115) Excluding pandemic products, Avandia and Valtrex,
`underlying pharmaceutical (including vaccines) sales*
`were £21.1 billion and grew 4% in the year.
`
`(cid:115) Sales from ‘white pills/western markets’† fell from 40% of
`turnover in 2007 to 25% in 2010
`
`(cid:115) Sales in our Emerging Markets pharmaceutical business
`grew by 22% to more than £3.6 billion and now represent
`15% of pharmaceutical turnover.
`
`(cid:115) Sales in our Consumer Healthcare business grew by 5% to
`£5.0 billion and now represent 17.6% of Group turnover.
`
`(cid:115) Dermatology sales grew on a pro-forma basis (excluding
`2010 acquisitions) by approximately 6% to nearly
`£1.1 billion, representing nearly 4% of Group turnover.
`
`(cid:115) Expansion of Japanese business
`
`(cid:115) Sales in GSK Japan grew 14% to nearly £2.0 billion.
`(cid:115) We received approvals for four new compounds.
`
`(cid:115) Build biopharmaceutical portfolio
`
`(cid:115) Arzerra recorded sales of £26 million on its first full year on
`the US market and was launched in Europe. Benlysta filed
`for approval in both the USA and Europe.
`
`(cid:115) Contribution to sales of new
`products
`
`(cid:115) New products launched since 2007 (excluding flu
`pandemic vaccines) grew 36% and contributed 7% of
`pharmaceutical sales in 2010.
`
`(cid:115) Number of reimbursable product
`approvals and filings
`
`(cid:115) Sustaining late-stage pipeline
`
`(cid:115) We received six product approvals in the USA and EU
`since the start of 2010
`(cid:115) Seven assets are currently filed with regulators.
`
`(cid:115) We maintained around 30 assets in phase III and
`registration, with ten new chemical entities and new
`vaccines entering phase III since the start of 2010.
`
`(cid:115) Enhanced R&D productivity and
`increased externalisation for
`Drug Discovery
`
`(cid:115) Our objective is to increase our estimated rate of return for
`R&D from around 11% to 14%.
`(cid:115) During 2010 we signed eight new collaborations to
`increase the external nature of our discovery, giving
`54 external discovery engines to complement our 38
`Discovery Performance Units.
`
`(cid:115) Delivery of major restructuring
`programme
`
`(cid:115) We have achieved annual cost savings of £1.7 billion and
`remain on track to reach £2.2 billion of annualised savings
`by 2012.
`
`(cid:115) Reduce working capital
`
`(cid:115) Working capital reduced by £1.3 billion in 2010 (including
`£600 million of cash from lower pandemic receivables).
`
`Our strategies
`We have focused the business
`around the delivery of three
`strategic priorities.
`
`Grow a diversified
`global business
`Broadening and balancing our
`portfolio and moving away from
`a reliance on ‘white pills/western
`markets’†.
`
`Business review P08–P59
`
`Deliver more
`products of value
`Transforming R&D to ensure
`we not only deliver the current
`pipeline but are also able to
`sustain the flow of products
`for years to come.
`
`Simplifying the
`operating model
`Simplifying our operating model
`to ensure that it is fit for purpose
`and able to support our business
`in the most cost efficient way.
`
`* The calculation of underlying sales growth is described on page 21.
`† See page 21.
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1114, p. 10 of 216
`
`

`

`Business review P08–P57
`
`Governance and remuneration P58–P101
`
`Financial statements P102–P191
`
`Shareholder information P192–P212
`
`2010 performance overview
`
`Key performance indicators
`
`09
`
`In 2010, reported sales were down
`1% but underlying sales growth (sales
`excluding pandemic products, Avandia
`and Valtrex) was 4.5%.
`
`CER growth %‡
`
`(1)
`
`3
`
`(3)
`
`2 9
`
`28.4
`
`28.4
`
`24.4
`
`22.7
`
`23.2
`
`Turnover
`£bn
`
`2010
`
`2009
`
`2008
`
`2007
`
`2006
`
`Earnings per share before major restructuring*
`
`53.9
`
`pence
`
`2010
`
`2009
`
`2008
`
`2007
`
`2006
`
`Free cash flow +
`
`£m
`
`2010
`
`2009
`
`2008
`
`2007
`
`2006
`
`2005
`
`CER growth %#
`
`(59)
`
`2
`
`(9)
`
`10
`
`19
`
`121.2
`
`104.7
`
`99.1
`
`95.5
`
`Earnings per share in 2010 was adversely
`impacted by legal costs of £4,001 million