Annual Report 2013
`
`“ Being active and having
`a positive outlook on
`life is what keeps me
`going every day.”
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1117 , p. 1 of 256
`
`

`

`Overview
`
`Overview of 2013
`
`“ Our performance in 2013 was defined by remarkable R&D
`output and further delivery of sustained financial performance
`for our shareholders.”
`
` Please go to page 4 for more
`
`More at gsk.com
`
`Performance highlights
`£26.5bn
`£8.0bn
`£7.0bn
`
`Group turnover
`
`Core* operating profit
`
`Total operating profit
`
`£5.2bn
`
`Returned to shareholders
`
`112.2p
`
`Core* earnings per share
`
`112.5p
`
`Total earnings per share
`
`13%
`
`Estimated return on R&D investment
`
`6M
`
`ajor medicines approved
`
`1st
`
`1st
`
`in Access to Medicines Index
`
`Pharmaceutical company to sign AllTrials
`campaign for research transparency
`
`6m
`
`edicines with phase III data
`expected 2014/15
`
`10
`
`potential phase III study starts in 2014/15
`
`Front cover story
`
`“ Health is important to me,
`I try to take care of my
`health with all the tools
`I have and do the best
`that I can with it.”
` Betty, COPD patient,
` North Carolina, USA
`
`Betty, aged 65, (pictured) has Chronic
`Obstructive Pulmonary Disease (COPD).
`She only has 25% lung capacity. This means
`she finds even everyday tasks difficult, but
`medicines and inhaled oxygen allow her to
`live as normal a life as she can. Betty’s mindset
`is to stay busy and active, so every week she
`goes to rehab exercise classes.
`COPD is a disease of the lungs that leads to
`damaged airways, causing them to become
`narrower and making it harder for air to get in
`and out. 210 million people around the world
`are estimated to have COPD.
`Patients like Betty are the reason GSK has
`been investing more in respiratory research
`than any other healthcare company over the
`past 40 years. For more on our research into
`new medicines see page 33.
`
`Cautionary statement
`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 232 to 242 of this Annual Report.
`
`* A number of adjusted measures are used to report the performance of our business. These measures are defined on page 58 and a reconciliation of core results to total results is set out on page 65.
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1117 , p. 2 of 256
`
`

`

`Our mission
`
`At GSK our mission is
`to improve the quality
`of human life by enabling
`people to do more, feel
`better, live longer.
`
`Contents
`Strategic report
`Chairman’s statement
`CEO’s review
`Business overview
`The global context
`Our business model
`Our strategic priorities
`How we performed
`Risk management
`Grow
`Deliver
`Simplify
`Our financial architecture
`Responsible business
`Financial review
`
`Governance & remuneration
`Our Board
`Our Corporate Executive Team
`Chairman’s letter
`Board report to shareholders
`Committee reports
`Remuneration Committee
`Chairman’s Annual Statement
`Annual Report on Remuneration
`Remuneration Policy Report
`
`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
`
`Investor information
`Quarterly trend
`Five-year record
`Product development pipeline
`Products, competition and
`intellectual property
`Risk factors
`Share capital and share price
`Dividends
`Tax information for shareholders
`Annual General Meeting 2014
`US law and regulation
`Shareholder services and contacts
`
`2
`4
`6
`8
`12
`14
`16
`18
`20
`32
`44
`48
`50
`58
`
`76
`80
`82
`83
`89
`
`96
`97
`117
`
`128
`129
`132
`136
`
`211
`
`218
`222
`225
`
`229
`232
`242
`244
`244
`245
`247
`249
`
`
`
`GSK Annual Report 2013
`
`1
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1117 , p. 3 of 256
`
`

`

`Strategic report
`Chairman’s statement
`
`Chairman’s statement
`To shareholders
`
`The value of the significant changes that have been
`made in recent years is evidenced in our performance
`this year
`
`“ Since Sir Andrew became
`CEO, the company has
`returned £30 billion
`to shareholders.”
`
`It is clear from the following pages that
`the Group made good progress against
`its strategy in 2013.
`The Board believes the business is seeing
`the benefits of the significant changes the
`management team has driven over recent
`years to deliver sustainable growth, reduce
`risk and enhance returns to shareholders.
`The notably strong performance from the
`R&D organisation in 2013 – with six major
`new product approvals in areas including
`respiratory disease, HIV and cancer – is
`critical to the longer-term prospects of the
`Group. That this has been achieved at the
`same time as R&D is effectively managing its
`cost base to deliver an improved estimated rate
`of return of 13% is particularly encouraging.
`It is worth noting that since Sir Andrew
`became CEO, GSK’s market capitalisation
`has grown from approximately £55 billion
`to around £80 billion and the company has
`returned some £30 billion to shareholders
`via £20 billion of dividends and £10 billion
`of share buy-backs.
`
`Risk management and commitment
`to ethical behaviour
`The Board aims to assure the integrity of
`GSK’s business operations through rigorous
`processes and systems and during the year,
`risk management was once again a key part
`of the Board’s discussions.
`
`Through the Audit & Risk Committee, we
`oversee the issues and challenges faced by
`management, and encourage the creation
`of an environment in which GSK can achieve
`its strategic ambitions in a responsible and
`sustainable manner.
`I have no doubt that commercial success is
`directly linked to operating in a responsible way
`and which meets the changing expectations of
`society. In this respect, the company continues
`to adopt industry-leading positions on a range
`of issues.
`The announcement of plans during 2013
`to evolve the way the business interacts with
`healthcare professionals and pays sales staff
`are developments I was particularly pleased
`to see.
`In the same way the Board strongly supports
`the commitments the company has made to
`advance transparency around clinical trial
`data, and welcomes the subsequent actions
`of other companies in this field. Over time,
`it is to be hoped these steps will advance
`medical science and improve patient care.
`The allegations of fraudulent behaviour by
`certain employees within our business in
`China are wholly contrary to the company’s
`values. In addition to the Chinese Government
`investigation, we have commissioned an
`independent review of our Chinese operations
`by the law firm Ropes and Gray, and we will
`implement all appropriate actions as necessary
`on conclusion of these investigations.
`
`2 GSK Annual Report 2013
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1117 , p. 4 of 256
`
`

`

`Regarding composition of the Board, our
`priority is to have diversity in terms of gender,
`length of tenure and business experience
`across developed and emerging markets.
`During the year, GSK had 33% female
`representation on the Board, a level that
`exceeds the original aspiration to have 25%
`by the start of 2013. The Board firmly believes
`that a diverse balance of experience, insight,
`perspectives and background among its
`Board members is in the best long-term
`interests of the Group and its shareholders.
`
`Prospects
`In closing, the Board would like to thank
`Sir Andrew and his executive team for their
`commitment during a year in which the
`Group once again demonstrated its ability
`to deliver innovation while constantly striving
`for substantial change. I am confident the
`Group will continue to identify and grasp the
`many opportunities that will strengthen GSK’s
`performance, reward its shareholders, and
`create sustainable long-term value for society.
`
`Sir Christopher Gent
`Chairman
`
`Governance and remuneration
`We have been mindful of the changes outlined
`in the new UK Narrative and Remuneration
`Reporting regulations and this Annual Report
`adheres to the new reporting standards.
`In particular, this year’s Remuneration
`Report comprises two parts that will each
`require shareholder approval at the Group’s
`forthcoming AGM. Further details are set
`out in Tom de Swann’s letter to shareholders
`on page 96 of this Report.
`
`Board changes and composition
`There were a number of changes to the Board
`during the year. I would like to thank Sir Crispin
`Davis, who stood down in May, for his valuable
`contributions over nearly ten years of service.
`In April, we were pleased to have Hans Wijers
`join the Board as a Non-Executive Director.
`His extensive experience of running global
`companies has already proved to be of great
`value to Board discussions.
`There were also planned changes in the
`Chairmanships of several Board Committees.
`Tom de Swaan succeeded Sir Crispin Davis
`as Chairman of the Remuneration Committee
`and Judy Lewent succeeded Tom as Chairman
`of the Audit & Risk Committee, with Tom
`remaining as a member of that committee.
`In addition, I would like to thank Sir Deryck
`Maughan for agreeing to remain on the Board
`for up to an additional two years having
`succeeded Sir Robert Wilson as Senior
`Independent Director in May. Sir Deryck’s
`considerable experience and knowledge
`of GSK’s businesses will provide continuity
`and balance.
`Finally, Sir Robert Wilson stands down at
`the 2014 AGM after ten years of exceptional
`service and I would like to thank him for his
`longstanding commitment to the Group.
`
`Board gender diversity
`
`12
`
`3
`
`10
`
`10
`
`5
`
`5
`
`2011
`
`2012
`
`2013
`
`12
`
`10
`
`8 6 4 2 0
`
` Female
` Male
`
`
`
`GSK Annual Report 2013
`
`3
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1117 , p. 5 of 256
`
`

`

`Strategic report
`CEO’s review
`
`Our CEO’s
`Review of the year
`
`Company performance in 2013 was defined by
`remarkable output from our R&D organisation
`
`“ We led the sector for new
`medicine approvals and
`returned £5.2 billion to
`shareholders.”
`
`4 GSK Annual Report 2013
`
`Overall, GSK accounted for 19% of FDA new
`drug approvals during 2013 and, since 2009,
`we have achieved more FDA approvals of
`new molecular entities (NMEs) than any
`other company.
`The conversion of our advanced pipeline to
`approved products represents the next step
`in our strategy to deliver sustainable organic
`growth and value to shareholders.
`In particular, I want to note the growing
`strength of our respiratory portfolio. With
`Advair, Flovent, Ventolin, Breo, Anoro and
`seven other respiratory products in late-stage
`development, we are confident in our ability
`to maintain a leadership position in this area
`well into the next decade.
`In addition to the highlighted approvals, our
`future pipeline opportunity remains extensive.
`We have around 40 NMEs in Phase II/
`III clinical development. In 2014 and 2015
`we expect Phase III read-outs for six NMEs
`and are planning ten NME Phase III starts in
`key areas such as respiratory, oncology and
`immuno-inflammation.
`Importantly, we also continue to improve our
`financial efficiency in R&D and our estimated
`internal rate of return of our R&D investments
`is now 13%. This is good progress and we
`continue to target 14% on a longer-term basis.
`Improved R&D productivity is also
`underpinning our strategy to create more
`flexibility around the pricing of our new
`medicines to meet the needs of payers
`and governments.
`
`Over the past six years we have been making
`fundamental changes at GSK to deliver innovation
`and access to our products for patients and
`customers, and improved sustainable financial
`performance for our shareholders.
`In 2013, we saw further strong delivery
`against these priorities.
`During the year, we led the sector for new
`medicine approvals and returned £5.2 billion
`to shareholders through dividends and share
`buy-backs – helping generate the best annual
`total shareholder return (TSR) performance
`since the formation of GSK.
`We grew sales and earnings in line with
`guidance with turnover up 1% to £26.5 billion
`and core earnings per share up 4% to 112.2p
`(both CER). We achieved this trading result
`despite some unexpected challenges,
`including significantly reduced sales in
`our Chinese business.
`During 2013, we also continued to take action
`to reform our business model to better meet the
`expectations of society. In particular, we took
`industry-leading positions and actions to improve
`global public health, increase transparency of
`our clinical data, and modernise our commercial
`practices and interactions with customers.
`
`Exceptional R&D delivery
`2013 was the most productive period of R&D
`output in the company’s history.
`Of the six major new medicine files we profiled
`at the start of 2013, five were approved:
`Breo and Anoro for respiratory disease,
`Tafinlar and Mekinist for melanoma (skin
`cancer) and Tivicay for HIV. We are expecting
`regulatory decisions for albiglutide, the
`remaining asset in this group, in the first half
`of 2014. In addition, we launched our new
`injectable quadrivalent flu vaccine in the USA.
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1117 , p. 6 of 256
`
`

`

`Broadly based sales growth
`In terms of sales, we saw a broadly based
`performance in 2013. There was an improved
`performance in our US business, where sales
`were up 1% (or 4% excluding the divestment
`of Vesicare). We also saw stabilisation of
`our European business, which reported flat
`sales, with the benefits of our restructuring
`programme helping to offset economic and
`pricing pressures in the region.
`We remain committed to investing for
`continuing growth in our important Emerging
`Markets business. Sales in the region were up
`5% for the year and 11% in the fourth quarter,
`excluding China.
`During the year, we also took steps to increase
`our equity holdings in our fast-growing Indian
`pharmaceuticals and consumer subsidiaries
`and announced plans to build new
`manufacturing capacity in the country.
`Consumer Healthcare sales grew 4% excluding
`divested brands, with growth across all regions.
`
`Optimising and re-shaping
`our portfolio
`We continue to take steps to optimise and
`focus our portfolio.
`During 2013 we divested our anti-coagulant
`products for more than £700 million. We also
`created a new Established Products Portfolio
`made up of our older, largely non-promoted
`brands, with the aim of finding more opportunities
`to reduce complexity, enhance profitability and
`optimise the value of this group of products.
`We also completed a significant divestment in
`our Consumer Healthcare business with the
`sale of drinks brands Lucozade and Ribena
`to Suntory of Japan for £1.35 billion. While
`these are iconic brands, particularly in the
`UK, we believe their growth potential is better
`realised by a company with existing category
`presence and a substantial drinks distribution
`infrastructure in the emerging markets.
`
`Financial efficiencies and
`cash generation
`Operationally we continue to restructure and
`simplify our business to reduce our long-term
`cost base. In 2013 we delivered incremental
`year-on-year savings of around £400 million
`from both ongoing and structural initiatives.
`
`This is creating greater flexibility to invest
`in our growth markets and new product
`launches and – together with continued
`improvement in our financial efficiency –
`strengthens our ability to deliver earnings
`per share growth ahead of sales.
`The business remains highly cash generative
`with £4.7 billion in free cash flow in 2013.
`In addition, we realised £2.5 billion from
`divestments leaving net debt of £12.6 billion
`at the end of the year. We continue to focus
`on using cash to protect our credit profile
`and fund organic investment and restructuring
`programmes as well as our ongoing
`commitment to a growing dividend, further
`share buy-backs and bolt on acquisitions –
`whichever offers the most attractive returns.
`
`Changing our business model
`We made considerable further progress during
`2013 on our agenda to operate responsibly
`and meet the changing expectations of society.
`We made new commitments to increase
`transparency of our clinical research. Early
`in the year we announced our support for
`the AllTrials campaign and became the
`first pharmaceutical company to commit to
`publishing the detailed clinical study reports for
`all of our medicines. In May, we were also the
`first in our industry to launch an online system
`enabling researchers to request access to the
`anonymised patient-level data from our clinical
`trials. I am pleased that other companies are
`now also adopting this approach.
`We also announced plans to evolve the way
`we sell and market products to healthcare
`professionals to further align our activities
`with the interests of patients and remove the
`perception of conflict of interest. Specifically,
`we plan to stop direct payments to healthcare
`professionals for speaking engagements and
`for attendance at medical conferences, and
`extend the principle of our US ‘Patient First’
`programme globally, to decouple sales team
`remuneration from prescription generation.
`We continue to expand access to our medicines
`to people living in the developing world.
`During 2013 we signed a ground-breaking
`five-year partnership with Save the Children
`to combine the resources and capabilities of
`our two organisations to help save the lives
`of one million children living in the poorest
`countries in Africa.
`
`I was delighted we achieved a significant
`milestone for our malaria vaccine candidate
`which demonstrated that it could potentially
`halve the number of malaria cases in young
`children. This vaccine has the potential to save
`the lives of hundreds of thousands of children
`in Africa and we now plan to file for approval
`during 2014. We are committed to making it
`available at a not-for-profit price.
`There is no higher priority for me than the
`values-based conduct of our employees.
`In the past few years, we have focused on
`bringing to life our values of transparency,
`respect for people, integrity and patient
`focus, and being thoughtful about what
`they really mean at a human level.
`It is because of my strong belief in our
`company’s values that the allegations made in
`China about the behaviour of some individuals
`were so disappointing. The investigation
`into this matter by the authorities in China
`continues and we are co-operating fully. As
`a company, we are committed to learning the
`lessons and taking all appropriate action in
`relation to the outcome of their investigation.
`
`Outlook
`Looking to 2014, we see continued momentum
`for the business and are targeting core earnings
`per share (EPS) growth of 4-8% CER on
`turnover growth of around 2% CER on an
`ex-divestment basis (2013 EPS base of 108.4p,
`turnover £25.6 billion). The range in our
`guidance takes into account the roll-out
`of new products along with potential
`competition from generics to our older products
`such as Lovaza.
`In closing, I would like to thank all our
`employees, partners and suppliers for their
`continued commitment and support. Overall, I
`am confident that our core focus on innovative
`product development and our programme of
`investment, coupled with the changes we are
`making to our business model, are positioning
`the company competitively for the long term.
`
`Sir Andrew Witty
`Chief Executive Officer
`
`
`
`GSK Annual Report 2013
`
`5
`
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`
`

`

`Strategic report
`Business overview
`
`Business overview
`What we do
`
`We are a science-led global healthcare company that
`researches and develops a broad range of innovative
`products in three primary areas of pharmaceuticals,
`vaccines and consumer healthcare
`
`£26.5bn
`
`2013 Group turnover up 1% CER
`
`Pharmaceuticals
`
`Vaccines
`
`Consumer Healthcare
`
`£17.9bn
`
`Turnover
`
`67%
`
`of Group
`
`£3.4bn
`
`Turnover
`
`13%
`
`of Group
`
`£5.2bn
`
`Turnover
`
`20%
`
`of Group
`
`Our Pharmaceuticals business develops
`and makes medicines to treat a broad range
`of acute and chronic diseases. Our portfolio
`is made up of both patent-protected and off
`patent medicines.
`
`Sales by therapy area
`
`Respiratory
`Anti-virals
`Central nervous system
`Cardiovascular and urogenital
`Metabolic
`Anti-bacterials
`Oncology and emesis
`Dermatology
`Rare diseases
`Immuno-inflammation
`ViiV Healthcare (HIV)
`Other
`
`£m
`7,516
`667
`1,483
`2,239
`174
`1,239
`969
`770
`495
`161
`1,386
`799
`
`Our Vaccines business is one of the largest
`in the world, producing paediatric and
`adult vaccines against a range of infectious
`diseases. In 2013, we distributed more
`than 860 million doses to 170 countries,
`of which over 80% were supplied to
`developing countries.
`Sales by category
`
`We develop and market a range of consumer
`healthcare products based on scientific
`innovation. We have brands in four main
`categories: Total Wellness, Oral Care,
`Nutrition and Skin Health. These include
`a number of well-known brands such as
`Sensodyne, Panadol and Horlicks.
`Sales by category
`
`£m
`1,916
`
`1,504
`
`Total Wellness
`Oral Care
`Nutrition
`Skin Health
`
`£m
`1,935
`1,884
`1,096
`272
`
`Paediatric vaccines
`Includes vaccines against: polio,
`diphtheria, tetanus, pertussis, measles,
`mumps, rubella, meningitis C, chicken
`pox, pneumococcal disease and
`rotavirus infection
`Adolescent, adult and travel
`Includes vaccines against: flu
`(pandemic and seasonal), human
`papilloma virus (cervical cancer),
`hepatitis A and B, typhoid, meningitis
`A,C,W,Y, and booster vaccines against
`diphtheria, tetanus, pertussis and polio
`
` Read more on page 60
`
` Read more on page 61
`
` Read more on page 62
`
`6 GSK Annual Report 2013
`
`WATSON LABORATORIES, INC. , IPR2017-01621, Ex. 1117 , p. 8 of 256
`
`

`

`Our global reach
`We have a significant global commercial
`presence in more than 150 markets, a network
`of 86 manufacturing sites in 36 countries and
`large R&D centres in the UK, USA, Spain,
`Belgium and China.
`We have reshaped our business over recent
`years to better align to the strategic approach
`we have had in place since 2008. This has
`allowed us to better access markets with
`high-growth potential including those in
`Asia Pacific, Latin America and Japan.
`
`99,451
`
`Employees
`
`Employees by region 2008
`
`3%
`
`5%
`
`21%
`
`26%
`
`45%
`
` USA
` Europe
` EMAP
` Japan
` Other
`
`Employees by region 2013
`3% 3%
`
`17%
`
`39%
`
`38%
`
` USA
` Europe
` EMAP
` Japan
` Other
`
`Turnover by region 2008
`
`Turnover by region 2013
`
`5% 5%
`
`16%
`
`40%
`
`7%
`
`7%
`
`33%
`
`34%
`
` USA
` Europe
` EMAP
` Japan
` Other
`
`28%
`
`25%
`
` USA
` Europe
` EMAP
` Japan
` Other
`
`R&D
`Our business is sustained through investment
`in R&D. In 2013 we spent £3.4 billion before
`non-core items*, £3.9 billion in total, in our
`search to develop innovative medicines,
`vaccines and consumer products.
`During the year we saw significant delivery from
`our late-stage pipeline, with six key medicines
`approved by regulators in the USA alone.
`We 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.
`
`Core R&D expenditure in 2013
`
`£3.4bn
`10
`
`Potential phase III study starts in 2014/15
`
`Core R&D expenditure
`allocation in 2013
`
`Pharmaceuticals
`Vaccines
`Consumer Healthcare
`
`£m
`2,726
`496
`178
`
`%
`80
`15
`5
`
` Read more on page 36
`* The calculation of core results and non-core items
`is set out on page 65.
`
`How we’re structured
`While we have three primary areas of business,
`our commercial business is structured as a
`combination of regional units and 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, joined by
`Shionogi in 2012.
`Other trading turnover includes Canada,
`Puerto Rico, Australasia, central vaccine
`tender sales and contract manufacturing sales.
`
`Turnover by segment
`
`US Pharmaceuticals and Vaccines
`Europe Pharmaceuticals and Vaccines
`EMAP Pharmaceuticals and Vaccines
`Japan Pharmaceuticals and Vaccines
`ViiV Healthcare
`Other trading
`Consumer Healthcare
`
`£bn
`7.2
`5.2
`4.7
`1.6
`1.4
`1.2
`5.2
`
`
`
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`7
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`

`Strategic report
`The global context
`
`The global context
`Opportunities and challenges
`
`Despite continuing macro-economic and market challenges
`around the world, there remains a significant need for
`medicines and healthcare treatments.
`
`Regional pharmaceutical
`market sales
`
`
`£511bn
`
`Total global pharmaceutical market sales
`
`Source: IMS data 2013
`
`USA
`US sales were steady in 2013.
`This was partly a result of
`patent expiries on blockbuster
`medicines. However, the North
`American region still remains
`the top pharmaceutical market
`by total sales.
`
`£219bn
`
` sales in 2013
`
`Based on IMF assessments, the outlook for
`global economic growth in 2014 is 3.7%,
`with the highest rates likely to be seen in the
`developing economies of India, other Asian
`region and sub-Saharan Africa (see Figure 1).
`Factors such as political turbulence within
`the European Union and instability in the
`Middle East are likely to continue to affect
`the international business environment.
`
`The global healthcare market
`Sales in the world pharmaceutical market
`rose slightly to £511 billion (CER) in the year
`to September 2013, from £499 billion in
`the previous year, according to the industry
`information company IMS.
`Emerging markets and Asia Pacific saw the
`largest sales growth at 10%, pushing the
`proportion of total sales from this region up
`to 22% for 2013. Sales from Europe were
`largely unchanged, at 24% of the total.
`North American pharmaceutical sales were
`£219 billion, representing 43% of the market.
`The top therapeutic classes by sales were
`unchanged in terms of positioning. Oncology/
`immunomodulatory represented 16% of total
`sales (10% growth), central nervous system
`had 15% (a decline of 1%), while other areas
`also had declines (see Figure 2).
`The IMS Institute for Healthcare Informatics
`predicts that annual spend on prescription
`medicines will grow slowly – between 1-4%
`– in North America, Europe and Japan, whereas
`spending in emerging nations will grow 10-13%
`overall as a result of economic expansion and
`population changes in these markets.
`
`Population growth and
`evolving lifestyles
`Population growth, increasing prosperity
`in emerging markets, global changes in
`lifestyle and governments’ responses to these
`dynamics are all likely to expand the need for
`medicines and other healthcare products in the
`future.
`The United Nations forecasts that the global
`population will reach 9.6 billion in 2050
`compared with 7.2 billion in 2013. While birth
`rates decline in Europe and Japan, this is likely
`to be offset by the sharp rise in populations
`elsewhere, particularly in the Middle East
`and southern Asia.
`
`Global economic overview
`Global economic growth for 2013 continued to
`be affected by the fallout from the international
`financial crisis that began in 2008. At 3%,
`performance was slower than the 3.5%
`originally predicted by the International
`Monetary Fund (IMF), and also just below
`growth in the preceding year of 3.1%.
`In the USA, the economy grew at an annual
`rate of 1.9%. Indicators suggest an underlying
`recovery, supported by a rebound in the
`housing market and a continued fall in the
`unemployment rate, from a peak of 10% in
`2009 to 6.7% by the end of 2013. Despite
`earlier announcements, the Federal Reserve
`held off tapering its quantitative easing
`measures in the year.
`In the Eurozone the economy remained weak,
`unemployment high and labour markets
`depressed. Growth for the year was -0.4%.
`The stringent fiscal reforms introduced in
`a number of Eurozone countries caused
`social and political tensions.
`In Japan, the government’s fiscal stimulus
`and monetary easing to support private
`consumption and investment appears to
`be having an effect. The economy grew
`1.7% during the year.
`Performance of emerging markets and other
`regions was highly variable. In China, growth
`remained stable at 7.7%, with much of this
`growth coming in the second half of the year
`from inward investment. India grew at 4.4%.
`Growth was subdued in the economies of the
`Middle East and North Africa, Latin America and
`Russia compared with 2012. Many currencies
`were put under pressure by the US Federal
`Reserve’s tapering announcements in May 2013.
`
`6F
`
`igure 1: Current and predicted growth rates (%)
`
`5
`
`4
`
`3
`
`2
`
`1
`
`0
`
`2015
`2014
`2013
`2012
`World output Advanced economies
`Emerging market and developing countries
`Source: WEO Update, January 2014 (IMF)
`
`
`
`
`
`
`
`
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`

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`Figure 2: Total global sales of medicines by therapeutic classes (%)
`
`15.8%
`
`14.8%
`
` Oncology/Immunomodulatory (9.5%)
` Central Nervous System (-1.0%)
` Alimentary Tract and Metabolic (6.5%)
` Cardiovascular System (-6.8%)
` Respiratory System (-2.3%)
` All other therapy areas combined
`
`(% growth of global sales at CER)
`
`38.5%
`
`12.3%
`
`6.6%
`
`12.0%
`
`Reference: IMS data 2013
`Data does not include vaccines sales.
`
`Europe
`Overall performance was better in
`Europe than in 2012, with sales up
`approximately 1%. Austerity measures
`and fiscal issues in many countries are
`the main drivers for continued slow
`growth in the region.
`
`£124bn
`
` sales in 2013
`
`EMAP
`Emerging markets continue to grow
`quickly with sales up 10% in 2013.
`Sales in these diverse areas are
`predicted to continue to grow strongly.
`
` £113bn
`
` sales in 2013
`
`Japan
`While mandatory price cuts of
`5-6% have been imposed in
`alternate years, sales in Japan
`saw approximately 2% growth in
`2013 and the market continues to
`be supportive of new medicines.
`
`£55bn
`
` sales in 2013
`
`People are also living longer, partly as a result
`of medical advances like vaccination that have
`prevented or treated diseases that previously
`caused a significant number of deaths. As
`people live longer, they are more likely to
`develop diseases of ageing, leading to
`greater demand for medical treatments.
`Countries with rising populations are many
`of the same economies that are experiencing
`improved economic outlooks. As prosperity
`increases, we have seen trends towards
`more sedentary lifestyles, increased
`consumption of food, alcohol and tobacco
`and a corresponding rise in chronic, non-
`communicable diseases (NCDs) such as type
`2 diabetes and heart disease. These diseases
`already disproportionately affect low and
`middle-income countries, where nearly 80%
`of deaths from NCDs occur. In 2008, the
`WHO projected a global increase in deaths
`from NCDs of 17% by 2018, with the greatest
`increase in the African (27%) and the Eastern
`Mediterranean regions (25%).
`Governments around the globe are under
`pressure to improve healthcare provision.
`Where a strong healthcare infrastructure is
`absent, people often purchase medicines
`themselves, and households in developing
`countries spend a greater proportion of their
`income on healthcare than their counterparts
`in more developed markets. A recent Pha