Do more,
`feel better,
`live longer
`
`Annual Report for shareholders
`
`2011
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1115, p. 1 of 252
`
`

`

`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 1–133
`which includes the Business review on pages
`1 to 77. 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 1–133 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
`72–77 of this Annual Report.
`
`A number of adjusted measures are used
`to report the performance of our business.
`These measures are defined on page 51.
`
`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
`+ 134 – 221
`
`134
`135
`136
`141
`
`216
`
`Shareholder information
`
`Quarterly trend
`Five year record
`Product development pipeline
`Share price and dividends
`Nature of trading market
`Annual General Meeting
`Investor relations and registrars
`Taxation information for shareholders
`Glossary of terms
`Index
`+
`
`222 – 248
`
`222
`232
`235
`242
`243
`243
`244
`245
`247
`248
`
`Contents
`
`Overview
`
`What we do
`Where we do it
`How we create value
`How we deliver
`How we performed
`
`+ 02 – 09
`
`Strategic review
`
`Chairman’s statement
`Chief Executive’s review
`Our marketplace
`Our strategy for growth
`Grow a diversified business
`Deliver more products of value
`Simplify the operating model
`Our financial architecture
`Responsible business
`
`+
`
`10 – 50
`
`Financial review & risk
`
`Financial review 2011
`Financial position and resources
`Financial review 2010
`Risk factors
`+ 51 – 77
`
`2
`3
`4
`6
`8
`
`10
`11
`13
`
`16
`28
`38
`42
`44
`
`51
`60
`67
`72
`
`Governance & remuneration
`
`Our Board
`Our Corporate Executive Team
`Governance and policy
`Share capital and control
`Committee reports
`US law and regulation
`Total remuneration for 2011
`Remuneration policy for 2012
`Directors’ emoluments and total
`remuneration
`Directors and Senior Management
`
`+ 78 – 133
`
`78
`80
`84
`95
`97
`104
`108
`110
`
`124
`133
`
`Front cover (clockwise from top)
`Our PHASE programme educates groups
`about the importance of handwashing in
`reducing the spread of diseases. (Chris Martin)
`
`A Diskus inhaler, one of the devices that
`we have developed to deliver inhaled
`medicines directly to the respiratory system.
`(Inpress Photography)
`
`Early research into new biopharmaceuticals,
`including treatments based on antibodies,
`takes place at our large R&D centre in
`Stevenage, in the UK. (George Brooks)
`
`Page 1
`More than 12,500 people work
`in R&D in the search for new medicines,
`vaccines and consumer healthcare products.
`(Pierre Charbonneau)
`
`Testing for signs of malaria in children in
`Tanzania. (Tom Whipps)
`
`Sensodyne Repair & Protect has boosted
`performance in our Consumer Healthcare
`business. (Andy Robinson, Photofarm)
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1115, p. 2 of 252
`
`

`

`GSK Annual Report 2011
`
`Overview
`
`Strategic review
`
`Financial review & risk
`
`Governance & remuneration
`
`Financial statements
`
`Shareholder information
`
`01
`
`02
`
`10
`
`51
`
`78
`
`134
`
`222
`
`We are a science-led global
`healthcare company
`We make innovative medicines, vaccines and
`consumer healthcare products that are used by
`millions of people around the world, allowing
`them to do more, feel better and live longer.
`The products we develop and manufacture and
`how we do this contributes directly to the health of
`patients and consumers, and indirectly to the wider
`well-being of the economy and society.
`We have been fundamentally changing in recent
`years to create a more balanced business to
`address market challenges and deliver sustainable
`performance and returns for shareholders. We are
`committed to generating that performance in a
`responsible way.
`+ visit our website: www.gsk.com
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1115, p. 3 of 252
`
`

`

`02
`
`GSK Annual Report 2011
`
`Overview
`
`What we do
`
`We are a science-led global healthcare company that researches
`and develops a broad range of innovative products
`
`Our business
`
`We have three primary areas of business: Pharmaceuticals, Vaccines and Consumer
`Healthcare. Our objective is to deliver sustainable growth across this portfolio.
`In 2011, our total turnover was £27.4 billion.
`
`£27.4bn Group turnover
`
`Pharmaceuticals
`
`£18.7bn
`
`Turnover
`
`68%
`
`of Group
`
`Our Pharmaceuticals business develops
`and makes available medicines to
`treat a broad range of serious and
`chronic diseases. Our portfolio is made
`up of established brands and newer
`innovative patent-protected medicines.
`
`Vaccines
`
`£3.5bn
`
`Turnover
`
`13%
`
`of Group
`
`Our Vaccines business is one of
`the largest in the world, producing
`paediatric and adult vaccines against
`a range of infectious diseases. In 2011,
`we distributed 1.1 billion doses to 173
`countries, of which over 80% were
`supplied to developing countries.
`
`Sales by therapy area
`Respiratory
`Anti-virals
`Central nervous system
`Cardiovascular and urogenital
`Metabolic
`Anti-bacterials
`Oncology and emesis
`Dermatology
`ViiV Healthcare (HIV)
`Other
`
`R&D
`
`£m
`
`7,298
`807
`1,721
`2,740
`362
`1,390
`693
`1,087
`1,569
`1,028
`
`Sales by vaccine
`Boostrix
`Cervarix
`Fluarix, FluLaval
`Flu pandemic
`Hepatitis
`Infanrix, Pediarix
`Rotarix
`Synflorix
`Other
`
`£m
`
`192
`506
`230
`18
`688
`690
`300
`350
`523
`
`Consumer Healthcare
`
`£5.2bn
`
`Turnover
`
`19%
`
`of Group
`
`We develop and market a range of
`consumer health products based on
`scientific innovation. We have leading
`positions in three main categories:
`Over-the-counter (OTC) medicines, Oral
`healthcare and Nutritional healthcare.
`Our portfolio includes a number of
`well-known brands such as Panadol,
`Sensodyne, Lucozade and Horlicks.
`Sales by category
`OTC
`Oral healthcare
`Nutritional healthcare
`
`2,453
`1,717
`1,025
`
`£m
`
`Our business is sustained through investment in R&D.
`In 2011 we spent £3.9 billion before major restructuring*,
`£4.0 billion in total, in our search to develop new
`medicines, vaccines and innovative consumer products.
`
`We allocate our R&D investment based on our view of
`the scientific opportunities in different disease areas, our
`ability to provide significant improvements on existing
`treatments and the level of returns we can generate.
`
`We also have dedicated research programmes for diseases
`that affect the developing world. We are one of the few
`healthcare companies researching both new vaccines
`and new medicines for all three of the World Health
`Organization’s priority diseases: HIV/AIDS, malaria
`and tuberculosis.
`
`£4.0bn
`
`total R&D expenditure
`in 2011
`
`c.30
`
`assets in late
`stage pipeline
`
`12%
`
`estimated internal
`rate of return from
`R&D expenditure
`
`R&D expenditure allocation in 2011
`
`3 4
`
`1
`
`2
`
`1. Pharmaceuticals
`2. Vaccines
`3. Consumer Healthcare
`4. Major restructuring
`
`£m
`3,160
`599
`153
`97
`
`30 – 35
`
`+
`
`*The calculation of results before major restructuring is described in Note 1 to the financial statements, ‘Presentation of the financial statements’ and presented in the
`Consolidated income statement on pages 136 and 137.
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1115, p. 4 of 252
`
`

`

`Where we do it
`
`GSK Annual Report 2011
`
`Overview
`
`Strategic review
`
`Financial review & risk
`
`Governance & remuneration
`
`Financial statements
`
`Shareholder information
`
`03
`
`02
`
`10
`
`51
`
`78
`
`134
`
`222
`
`Our geographic presence covers more than
`100 countries
`
`Our global reach
`
`Since 2008, we have been re-shaping our business to capitalise on the higher growth
`potential of markets outside Europe and the USA. These territories now account for
`38% of our total sales. At the same time, we have restructured our developed markets
`business to reflect the challenging commercial environment in those markets.
`
`97,389 Employees
`
`Employees by region
`
`We have a significant global manufacturing and R&D presence with a network of 74
`manufacturing sites and large R&D centres in the UK, USA, Spain, Belgium and China.
`
`4
`
`5 6
`
`1
`
`2
`
`3
`
`1 USA
`2 Europe
`3 Emerging Markets
`4 Asia Pacific
`5 Japan
`6 Other
`+
`
` 236
`
`Turnover by region
`
`6
`
`1
`
`5
`
`4
`
`3
`
`2
`
`1 USA
`2 Europe
`3 Emerging Markets
`4 Asia Pacific
`5 Japan
`6 Other
`+
`
` 234
`
`How we’re structured
`
`Our commercial businesses are structured around regional
`units or areas of focus.
`
`For Pharmaceuticals and Vaccines, we operate in geographical
`segments that combine these two businesses.
`Our Consumer Healthcare business functions as a global
`unit, as does ViiV Healthcare, the specialist HIV company we
`founded with Pfizer in 2009.
`
`Other trading turnover includes Canada, Puerto Rico, central
`vaccine tender sales and contract manufacturing sales.
`
`Turnover by segment
`
`US Pharmaceuticals and Vaccines
`Europe Pharmaceuticals and Vaccines
`Emerging Markets Pharmaceuticals and Vaccines
`Japan Pharmaceuticals and Vaccines
`Asia Pacific Pharmaceuticals and Vaccines
`ViiV Healthcare
`Other trading
`Consumer Healthcare
`
`No.
`16,707
`38,696
`29,466
`7,039
`3,573
`1,908
`
`£bn
`8.7
`8.3
`5.3
`1.8
`2.3
`1.0
`
`£bn
`7.0
`5.8
`3.7
`2.1
`1.2
`1.6
`0.8
`5.2
`
`149
`
`+
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1115, p. 5 of 252
`
`

`

`04
`
`GSK Annual Report 2011
`
`Overview
`
`How we
`create value
`
`Our business model relies on innovation, intellectual property
`protection and brand allegiance to deliver sustainable growth
`
`Our business model
`New medicines and healthcare products
`are needed by people across the globe
`to address the many illnesses such as
`cancer, diabetes and heart disease that
`are still not well-controlled or treated.
`At the same time, scientific research
`is continuously uncovering new
`understandings about disease processes
`and technologies.
`These two elements present us with the
`opportunity to investigate and develop
`new and improved treatments. We
`create value by applying science and
`technology to discover, develop, produce
`and distribute medicines, vaccines and
`consumer healthcare products.
`Pharmaceuticals and Vaccines
`The process of discovering and
`developing new medicines and vaccines
`is long and expensive and requires
`innovation and creativity. Industry
`development times are typically 10–15
`years for new medicines and vaccines,
`with costs of up to £1 billion for each
`approved product. The R&D process often
`involves thousands of patients in trials
`to investigate the safety and efficacy of
`potential new treatments.
`
`A critical element of our business model is
`the protection of the intellectual property
`we create in developing new treatments
`and technologies. This protection allows
`us to generate income for a set period
`of time, enabling us to recoup our R&D
`costs and invest in further research.
`Patent protection for prescription
`medicines – as for other inventions
`– is around 20 years in most Western
`countries. However, by the time a new
`medicine is approved for use in patients,
`a significant proportion of this exclusivity
`period will have passed. Patents on
`our products also do not prevent the
`protection being challenged before
`they expire.
`Once patent protection expires, a
`medicine is often subject to competition
`from generic manufacturers who do
`not have the same R&D overheads
`and so are able to offer their products
`at considerably lower prices. Declines
`in sales following patent expirations
`are particularly rapid in the USA and
`Europe. Generic pressures are different in
`emerging markets, where brand allegiance
`has a greater influence. In these markets,
`a known heritage or brand for existing
`medicines – whether on-patent or not –
`is valued and provides an opportunity
`to withstand generic competition.
`
`Vulnerability to generic competition
`is less marked for vaccines and
`biopharmaceuticals, including enzymes
`and monoclonal antibodies. These large
`molecules are created through different
`development and manufacturing
`processes to that of small molecules,
`and these products are typically more
`difficult and expensive to manufacture.
`The development of generic versions
`of vaccines and biopharmaceuticals
`is also subject to different regulatory
`requirements, such as the requirement
`to carry out trials in humans. This incurs
`an additional expense not required in the
`generic manufacture of small molecules,
`and therefore places a further barrier to
`generic competition.
`Consumer Healthcare
`Intellectual property protection is not the
`same for consumer healthcare products.
`Our Consumer Healthcare business relies
`on product innovation, brand loyalty and
`trademark protection to be competitive
`and create value. Development
`timelines for new consumer healthcare
`products are significantly shorter than
`for pharmaceuticals and vaccines and
`the pace of innovation is rapid. The
`application of science and consumer
`insights are key to driving successful
`product innovation for consumer brands.
`
`Pharmaceutical discovery and development process
`
`Market
`after
`patent
`expiry
`
`Market under patent protection
`
`Regulatory
`review
`
`1c
`
`ompound
`
`5-10 years
`
`indefinite
`
`Research and
`discovery
`25,000
`compounds
`
`Development
`and testing
`25
`compounds
`
`10-15 years
`
`Final patent application
`
`Product approval
`
`Patent expiry
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1115, p. 6 of 252
`
`

`

`GSK Annual Report 2011
`
`Overview
`
`Strategic review
`
`Financial review & risk
`
`Governance & remuneration
`
`Financial statements
`
`Shareholder information
`
`05
`
`02
`
`10
`
`51
`
`78
`
`134
`
`222
`
`Why we are different
`We have fundamentally changed our
`business and our culture to help us grow
`and improve our performance. Our
`approach is now one of openness to
`challenge and innovation. This affects
`the way we do business, the way we work
`with external groups and our relationship
`with our employees. For our employees,
`the positive impact their contribution
`makes to people’s lives is one of their
`key motivators to working at GSK.
`Breadth of business
`We have a broad-based and balanced
`business across pharmaceuticals, vaccines
`and consumer healthcare products. Our
`Pharmaceuticals and Vaccines businesses
`include both established brands and new
`innovative patent-protected medicines.
`We have many category-leading brands
`in our Consumer Healthcare business.
`This diverse portfolio provides us with a
`range of products to drive our business
`in innovation-driven markets such as
`the USA and Japan. It also provides us
`with good opportunities for growth
`in emerging markets, where rapidly
`developing economies are expanding
`the number of people with access to
`healthcare treatments.
`The changes we have made to the shape
`of our business are intended to provide
`broadly-sourced sales growth and provide
`greater resilience in the face of market
`challenges, such as the loss of patent
`protection or government austerity
`measures.
`New ways of working
`We have fundamentally changed our
`R&D organisation to deliver a large and
`diverse late-stage pipeline and a discovery
`organisation structure that can sustain
`a flow of innovative new medicines
`and vaccines.
`
`To do this, we have broken up the
`traditional hierarchical pharmaceutical
`R&D business model, creating instead
`smaller units to encourage greater
`entrepreneurialism and accountability
`for our scientists.
`We are striving to develop new
`partnerships and approaches, adopting
`a different mindset, that is more
`innovative, open-minded, flexible,
`and consultative. We value the new
`and different perspectives that other
`groups can bring to our thinking. We
`are open to working with research
`charities, academia, companies and non-
`governmental organisations. We are also
`increasing consultation with patients and
`payers to ensure the medicines we are
`developing provide improvements that
`healthcare systems will value and reward.
`We are committed to researching new and
`better treatments for diseases that impact
`the developing world. Our research
`centre in Spain is dedicated to this
`discovery work and we are one of the few
`companies researching treatments and
`vaccines for malaria, TB and HIV. In 2011,
`we reported positive initial results for our
`malaria vaccine which if successful, would
`be the world’s first vaccine against this
`deadly disease. We are being more flexible
`with our intellectual property and know-
`how in areas of research such as diseases
`of the developing world, with the aim
`of stimulating progress in the search for
`new treatments.
`In our commercial organisation, we have
`pioneered new sales models to align with
`the changing market and expectations
`of our customers. For example, we have
`introduced a new remuneration system
`for our US sales representatives based
`on the service they deliver to healthcare
`professionals rather than on individual
`sales targets.
`
`Commitment to access
`We are actively seeking new ways of
`delivering healthcare and making our
`products more available and affordable
`to people who need them wherever they
`live. We do this not only because society
`expects us to and it is the right thing
`to do, but also because it is good for
`our business.
`In our effort to expand access to our
`products, we have led the industry in
`adopting a flexible approach to pricing
`of our medicines and vaccines, based
`on a country’s wealth and ability to pay.
`This has resulted in significant reductions
`in price and increases in demand for
`our products in emerging economies,
`representing a good outcome for patients,
`governments and our shareholders. In
`Western markets, we have developed
`new reimbursement approaches for our
`medicines, where we agree risk-sharing
`arrangements with payers.
`We have established a special business
`unit that is responsible for increasing
`access to our products in the least
`developed countries in the world. The
`price of our patented medicines in this
`region is kept at no more than 25% of our
`developed world prices and we re-invest a
`fifth of the profits we make from sales in
`these territories back into local healthcare
`infrastructure projects.
`We work with many agencies to
`distribute our vaccines to the people
`in these countries at the lowest price we
`can. Of the 1.1 billion vaccine doses we
`delivered in 2011, more than 80% were
`supplied to protect people in developing
`countries. We also have significant
`medicine donation programmes targeted
`at disease elimination.
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1115, p. 7 of 252
`
`

`

`06
`
`GSK Annual Report 2011
`
`Overview
`
`How we deliver
`
`Our strategy is designed to deliver sustainable growth, reduce risk
`and improve long-term financial performance and returns to shareholders
`
`Our strategic priorities
`
`Grow
`a diversified
`
`1+
`
`16 – 27
`
`global business 2
`
`3+
`
`Simplify
`the operating
`model
`38 – 41
`
`As we change the shape of our business,
`we are transforming our operating
`model to reduce complexity and make
`it more efficient. Over the past four
`years we have implemented a global
`restructuring programme which has
`delivered significant savings.
`At the same time our manufacturing
`business unit has been relentlessly
`focused on streamlining production
`processes to improve efficiency and
`eliminate waste.
`We have reorganised our global support
`functions such as facilities real estate, IT
`and procurement into one centralised
`group. This will allow us to become more
`streamlined and provide significant
`economies of scale.
`
`Deliver
`more products
`of value
`+ 28 – 37
`
`We are creating a more balanced
`business and product portfolio capable of
`delivering sustainable sales growth. This
`is centred on our three business areas of
`Pharmaceuticals, Vaccines and Consumer
`Healthcare. As well as accessing growth
`markets, we are creating a business that
`is less vulnerable to market volatility,
`including generic pressures.
`Over the past three years, we have
`substantially increased our investment
`in our Emerging Markets and Japanese
`operations as well as in our global
`Vaccines and Consumer Healthcare
`businesses.
`We are also maximising the promotion
`and distribution synergies between
`our Pharmaceuticals, Vaccines and
`Consumer Healthcare businesses in
`rapidly growing emerging economies.
`
`We have changed our R&D organisation
`so that it is better able to sustain an
`industry-leading pipeline of products
`that offer valuable improvements in
`treatment for patients and healthcare
`providers.
`We have increased the level of
`externalisation of our research, allowing
`us to access new areas of science and to
`share the risk of development with our
`partners. We have also made decisions
`earlier around pipeline progressions, so
`that only those medicines which are
`significantly differentiated from existing
`therapies are progressed. We have
`broken up the traditional hierarchical
`business model and created smaller,
`more agile groups of scientists who
`are more accountable for delivering
`their projects.
`
`£2.2bn
`
`annual benefits
`from restructuring
`programme
`
`210 days
`
`working capital
`cycle down from
`221 in 2010
`
`c.30
`
`assets in late
`stage pipeline
`
`3n
`
`ew product
`approvals
`
`£27.4bn
`
`Group turnover
`
`38%
`
`proportion of
`sales outside
`USA and Europe
`
`Our financial architecture
`In 2011 we established a new financial architecture. This aligns
`In addition, we have improved our financial reporting to align
`our planning, execution and performance measurement in order
`it more closely with our architecture. We are providing more
`to maximise financial performance and returns to shareholders.
`data and insights into the progress we are making in each of
`our businesses and regions and on our progress against the key
`It is designed to drive improvements in operating margin, greater
`drivers of operational and financial efficiency.
`financial efficiency and enhanced cash conversion from the sales
`growth we are focused on delivering. This should lead to stronger
`Starting in 2012 we are transitioning our reporting to a core
`growth in earnings per share and better free cash generation.
`basis, enabling greater visibility of the underlying performance
`of the business.
`This expected cash flow is available for dividends, reinvestment
`in the business or share buy-backs depending on where returns
`are most attractive.
`
`42 – 43
`
`+
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1115, p. 8 of 252
`
`

`

`Our underlying operating principles
`Strong governance
`Our commitment to responsible, values-based business
`underlies everything we do. Our values are applied across
`the Group. These values are to operate with transparency,
`demonstrate respect for people, act with integrity and remain
`patient-focused. We have strong policy and compliance
`programmes and expect the same standards of our suppliers,
`contractors and business partners. Our Chairman and Board of
`Directors provide leadership on corporate governance, which
`is fundamental to sound decision making and supports our
`executive management in implementing our strategy. Our
`Risk Oversight and Compliance Council (ROCC) oversees
`the management of significant business risks including
`reputational and non-financial risks. It does this in compliance
`with laws and regulations as well as in coordination with
`our other governance bodies and in the spirit of our values
`and standards. Our Audit & Assurance group support the
`ROCC and the Board’s Audit & Risk Committee, providing an
`independent view of how significant risks are being managed
`across the organisation.
`
`82 – 105
`
`+
`
`GSK Annual Report 2011
`
`Overview
`
`Strategic review
`
`Financial review & risk
`
`Governance & remuneration
`
`Financial statements
`
`Shareholder information
`
`07
`
`02
`
`10
`
`51
`
`78
`
`134
`
`222
`
`Operating responsibly
`We believe that only by being a responsible business can we
`grow and create value for our shareholders and for society in
`the long term. We think about our responsibilities in four areas:
`helping improve people’s health and well-being wherever they
`live or whatever their ability to pay; working to support the
`development of our people as well as communities around
`the world; behaving in an open and honest manner in all that
`we do, and growing our business while protecting the natural
`resources we all need for the future.
`We continue to change the way we do business so we can be
`successful and sustainable in the longer term.
`
`44 – 50
`
`+
`
`Collaborative approach
`Our business and our products touch many different groups,
`over and above the people who take our medicines and
`products. We aim to work with these groups in a transparent
`and collaborative manner to allow us to succeed with our
`partners. That approach applies to our interactions with payers,
`regulators and the healthcare professionals we work with,
`as well as our suppliers and business partners. Equally we seek
`to be a valuable participant in scientific research, through
`our collaborations with researchers and by sharing significant
`scientific developments and data through the appropriate
`routes. We actively seek to work in partnership with public
`bodies and non-governmental organisations to help progress
`health issues that present wider societal challenges, such as
`treatments for neglected tropical diseases and the prevention
`of childhood illnesses in the least developed countries.
`44 – 50
`
`+
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1115, p. 9 of 252
`
`

`

`08
`
`GSK Annual Report 2011
`
`Overview
`
`How we
`performed
`
`We measure our performance against a number of key indicators and
`the remuneration of our executives is based on many of these
`
`Operating profit and marginbefore major restructuring*+
`
`£bn
`7.9
`8.6
`8.7
`
`Growth
`#
`CER %
`(7)
`(5)
`(8)
`
`Margin
`%
`29.0
`30.4
`30.7
`
`£7.9bn
`
`#*
`
`Underlying
`growth
`CER %
`
`2011
`2010
`2009
`
`4 4
`
`n/a
`
`#
`
`Reported
`growth
`CER %
`(3)
`(1)
`3
`
`£bn
`27.4
`28.4
`28.4
`
`Group turnover
`
`£27.4bn
`
`2011
`2010
`2009
`
`Why it’s important
`
`How we performed
`
`Why it’s important
`
`How we performed
`
`A key objective of our strategy is to
`deliver sustainable broadly-sourced
`sales growth.
`
`While reported turnover fell by 3%
`in the year, over the past two years
`we have delivered average annual
`underlying turnover growth of 4%.
`Underlying turnover growth adjusts
`for the impact of the roll-off of
`sales of pandemic products,
`Avandia and Valtrex.
`
`A second key objective is to improve
`operating leverage in order to
`deliver stronger operating profit
`growth. The margin indicates how
`costs are being managed. We have
`included operating profit as a key
`measure for 2011.
`
`Operating profit excluding legal
`costs and other operating income
`has been significantly impacted this
`year by the roll-off of pandemic
`products, Avandia and Valtrex.
`
`* The calculation of underlying turnover is described on page 27.
`
`* excluding legal costs of £157 million (2010 – £4,001 million, 2009 – £591 million) and
`other operating income of £610 million (2010 – £493 million, 2009 – £1,135 million).
`
`Earnings per share before major restructuring+
`
`Free cash flow*
`
`114.1P
`
`2011
`2010
`2009
`
`53.9
`
`pence
`114.1
`
`121.2
`
`Growth
`#
`CER %
`>100
`(59)
`2
`
`£4.1bn
`
`2011
`2010
`2009
`
`£bn
`4.1
`
`4.5
`
`5.3
`
`Growth
`£%
`(8)
`(15)
`12
`
`Why it’s important
`
`How we performed
`
`Why it’s important
`
`How we performed
`
`EPS shows the portion of our profit
`allocated to each share. It is a key
`indicator of our performance and
`the returns we are generating.
`
`In 2011, EPS grew significantly
`compared with 2010, primarily
`as a result of lower legal charges.
`
`This measure shows the cash we
`generate that is available to return
`to shareholders or reinvest in the
`business, as well as our effectiveness
`in converting our earnings to cash
`through effective working capital
`control and investment discipline.
`
`Free cash flow in 2011 was
`impacted by the loss of sales of
`pandemic products, Avandia
`and Valtrex and the associated
`receivables and legal settlements
`of £1,466 million (2010 – £2,047
`million, 2009 – £254 million).
`
`* The calculation of free cash flow is described on page 51 and a reconciliation
`is provided on page 64.
`
`+ The calculation of results before major restructuring is described in Note 1 to the financial statements, ‘Presentation of the financial statements’.
`# The calculation of CER growth is described on page 51.
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1115, p. 10 of 252
`
`

`

`GSK Annual Report 2011
`
`Overview
`
`Strategic review
`
`Financial review & risk
`
`Governance & remuneration
`
`Financial statements
`
`Shareholder information
`
`09
`
`02
`
`10
`
`51
`
`78
`
`134
`
`222
`
`Turnover in our major growth areas
`
`New Pharmaceuticals and Vaccines product performance
`
`£14.8bn
`
`2011
`2010
`2009
`
`£2.5bn
`
`2011
`2010
`2009
`
`% of
`turnover
`54
`53
`47
`
`£bn
`14.8
`15.1
`
`13.5
`
`£bn
`2.5
`
`Growth
`CER %#
`47
`36
`55
`
`% of
`turnover
`11
`7
`5
`
`1.7
`
`1.3
`
`Why it’s important
`
`How we performed
`
`Why it’s important
`
`How we performed
`
`This measure focuses on our major
`growth areas: Vaccines, Consumer
`Healthcare, Emerging Markets, Asia
`Pacific and Japan and Dermatology.
`This performance highlights the
`progress we are making in delivering
`our strategy to create broad-based
`sales growth that is more resilient
`to volatility.
`
`Turnover in these business areas
`in 2011 totalled £14.8 billion,
`representing 54% of Group
`turnover. The decrease compared
`with 2010 reflects the loss of
`Avandia, Valtrex and flu
`pandemic sales.
`
`This measure shows the delivery of
`sales from newly launched products
`and creates incentives for improved
`R&D performance. New products
`are defined as products launched in
`the last five years. We have included
`this as a key measure for 2011.
`
`2011 sales totalling £2.5
`billion represented 11% of
`Pharmaceuticals and Vaccines
`turnover and included
`Cervarix (£506 million),
`Synflorix (£350 million) and
`Rotarix (£300 million).
`
`Cash returned to shareholders
`
`Total shareholder return
`
`£5.6bn
`
`2011
`2010
`2009
`
`(Dividends 3.4)
`3.2
`3.0
`
`£bn
`(Buy-backs 2.2) 5.6
`
`Growth
`£%
`75
`7
`3
`
`Why it’s important
`
`How we performed
`
`We continue to focus on delivering
`dividend growth and returning free
`cash flow to shareholders through
`share buy-backs where this offers
`a more attractive return than
`alternative investments.
`
`In 2011, we paid dividends of
`£3.4 billion and spent £2.2 billion
`on repurchasing shares.
`
`150
`
`125
`
`100
`
`75
`
`31/12/06
`
`31/12/07
`
`31/12/08
`
`31/12/09
`
`31/12/10
`
`31/12/11
`
`GlaxoSmithKline Total Return
`GlaxoSmithKline Pharma Peers Return Index