Do more, feel better, live longer
`
`Annual Report 2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1116. 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 1-136 and 239-244 which includes a business
`review on pages 1 to 86. 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 1-136 and 239-244 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 78-86 of this
`Annual Report.
`
`A number of adjusted measures are used to report the
`performance of our business. These measures are defined
`on page 56.
`
`Brand names
`Brand names appearing in italics throughout this report
`are trademarks either owned by and/or licensed to
`GlaxoSmithKline or associated companies, with the
`exception of Boniva/Bonviva, a trademark of Roche,
`NicoDerm, a trademark of Johnson & Johnson, Merrell,
`Novartis, Sanofi or GlaxoSmithKline, Potiga, a trademark
`of Valeant, Prolia and Xgeva, trademarks of Amgen,
`Vesicare, a trademark of Astellas Pharmaceuticals in
`many countries and of Yamanouchi Pharmaceuticals in
`certain countries, Volibris, a trademark of Gilead, Xyzal,
`a trademark of UCB or GlaxoSmithKline and Zyrtec, a
`trademark of UCB or GlaxoSmithKline all of which are
`used in certain countries under licence by the Group.
`
`b GSK Annual Report 2012
`
`Our mission
`
`At GSK our mission is to
`improve the quality of
`human life by enabling
`people to do more, feel
`better and live longer.
`
`A child being seen by a doctor working for Brazil’s
`unified health system, which provides 95% of
`scheduled vaccinations in the country. We have a
`long-standing relationship with the government-
`funded science institution, Oswaldo Cruz Foundation,
`to manufacture vaccines for public health priorities
`in Brazil. This began with our first alliance in the
`1980s on polio vaccines and continues through to
`recent technology transfers for products like our
`pneumococcal vaccine. Brazil is one of a number of
`large emerging market countries in which we are
`present and more than a quarter of the Group’s total
`revenues are now generated in these countries.
`
`Front cover image
`
`Alex Szabzon
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1116. p. 2 of 252
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`

`

`2-54 Strategic review
`
`55-86 Financial review & risk
`
`87-136 Governance & remuneration
`
`137-223 Financial statements
`
`224-248 Investor information
`
`GSK Annual Report 2012
`
`1
`
`Strategic review
`Chairman’s statement
`CEO’s review
`Strategic review
`How we performed
`What we do, Where we do it
`Our market
`How we deliver
`Responsible business
`
`Financial review & risk
`Financial review
`Financial position and resources
`Financial review 2011
`Risk factors
`
`2
`3
`5
`6
`8
`12
`16
`49
`
`55
`66
`72
`78
`
`88
`92
`94
`95
`103
`
`Governance & remuneration
`Our Board
`Our Corporate Executive Team
`Chairman’s letter
`Board report to shareholders
`Committee reports
`Remuneration Committee
`Chairman’s letter
`Total remuneration for 2012
`Pay for performance for 2012
`Remuneration policy for 2013
`Directors’ emoluments
`127
`and total remuneration
`Directors and Senior Management 136
`
`109
`110
`111
`113
`
`Financial statements
`Directors’ statement of
`responsibilities
`138
`139
`Independent Auditors’ report
`140
`Financial statements
`Notes to the financial statements 144
`Financial statements of
`GlaxoSmithKline plc prepared
`under UK GAAP
`
`218
`
`225
`
`Investor information
`Product development pipeline
`Products, competition and
`229
`intellectual property
`232
`Quarterly trend
`236
`Five year record
`239
`Share capital and share price
`240
`Dividends
`241
`Annual General Meeting 2013
`242
`US law and regulation
`243
`Tax information for shareholders
`244
`Analysis of shareholdings
`Shareholder services and contacts 245
`Glossary of terms and index
`247
`
`Overview
`
`GSK in 2012
`
`As a global healthcare company, our
`commercial success depends on us
`creating innovative new medicines,
`vaccines and healthcare products and
`making these accessible to as many
`people who need them as possible.
`2012 was characterised by a
`challenging global economic climate.
`Despite this, we have continued to
`make good progress in our strategy
`to grow our business in a sustainable
`way, deliver new medicines and
`healthcare products that are valued
`by those who use them, and simplify
`our operations.
`All of this has allowed us to deliver
`significant returns to our shareholders.
`
`Read more at www.gsk.com
`
`Highlights
`
`£26.4bn
`
`Total Group turnover
`
`£6.3bn
`
`Returned to
`shareholders
`
`6
`
`Key medicines submitted
`for regulatory approval
`
`£8.3bn
`
`Core* operating
`profit
`
`112.7p
`
`Core* earnings
`per share
`
`1st
`
`in Access to
`Medicines Index
`
`£7.4bn
`
`Total operating
`profit
`
`92.9p
`
`Total earnings
`per share
`
`* The calculation of core results is described on page 56 and a reconciliation is provided on page 62.
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1116. p. 3 of 252
`
`

`

`2 GSK Annual Report 2012
`
`Chairman’s statement
`
`Despite a challenging environment, I believe 2012 marked another
`year of progress for GSK in the delivery of our strategy and in
`generating more sustainable returns to shareholders
`
`Over the past five years, under Sir
`Andrew’s leadership, the Group has been
`fundamentally changing to improve
`growth prospects, reduce risk and deliver
`enhanced returns to shareholders.
`The benefits of this strategy were
`evident during the year, with strong
`performances in our emerging markets,
`and other growth businesses offsetting
`much of the impact of the significantly
`worsening outlook in Europe. At the same
`time, GSK’s R&D organisation delivered
`unparalleled output with six key new
`products submitted for approval and there
`is growing evidence that we can replenish
`the late stage pipeline on a sustainable
`basis. This is clearly of critical importance
`to the longer-term prospects of the Group.
`Ultimately the aim of our strategy is to
`deliver sustainable earnings per share
`growth (EPS) and improved returns to
`shareholders. GSK delivered flat core EPS
`of 112.7p but returned £6.3 billion to
`shareholders via dividends and buybacks
`in 2012. This brings to nearly £25 billion
`the amount returned to shareholders
`since Sir Andrew joined the Board at the
`start of 2008.
`Operating in a responsible and ethical
`way is essential for the commercial
`success of GSK. As Chairman of the
`Corporate Responsibility Committee, I
`was pleased to see the continued progress
`during the year in our efforts to improve
`global access to our medicines, with
`further agreements reached to supply our
`vaccines to the world’s poorest countries
`at low prices and to encourage research
`into neglected diseases. The Group also
`took industry-leading steps to improve
`transparency of its clinical trial research.
`Oversight and management of risk
`remains a key focus for the Board.
`In July 2012, the Group successfully
`resolved a series of long-standing legal
`matters with the US Government. These
`primarily related to historical sales and
`marketing practices.
`The Board recognises that these matters
`do not reflect the company that GSK is
`today. Fundamental changes have been
`made to compliance, marketing and
`selling procedures in recent years and
`significant progress made to embed a
`culture in the company that puts
`patients first and demands integrity
`in all behaviours and activities.
`
`We continue to make changes to
`the Board as we plan for the future
`and implement proactive succession
`planning. I would like to thank both Sir
`Crispin Davis, who is standing down at
`this year’s AGM, and Larry Culp, who
`retired from the Board in September, for
`their outstanding contributions over
`recent years.
`In April, we appointed Lynn Elsenhans
`and Jing Ulrich as Non-Executive
`Directors. Respectively Lynn and Jing
`have brought experience running global
`companies and deep knowledge of
`emerging markets to Board discussions.
`Additionally in January, we announced
`that Hans Wijers, currently chairman
`designate of Heineken and previously
`CEO of Akzo Nobel, will join GSK as
`a Non-Executive Director from this
`year’s AGM.
`I would also like to thank Sir Robert
`Wilson for agreeing to remain on the
`Board for an additional year to provide
`continuity and advice as new Board
`members settle into their roles.
`We have now met our original aspiration
`to have more than 25% female
`representation on the Board by 2013, and
`we remain committed to continuing to
`improve geographic and gender diversity
`at Board level.
`In summary, while our operating
`environment remains challenging,
`it is also not without substantial
`opportunity for companies that deliver
`innovation and act with responsibility.
`The Board has every confidence in the
`strength and resilience of Sir Andrew
`and his senior management team, and
`believes the Group is taking all the
`necessary steps to build a stronger GSK
`that can generate sustainable value for
`shareholders and society.
`
`Sir Christopher Gent
`Chairman
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1116. p. 4 of 252
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`

`

`2-54 Strategic review
`
`55-86 Financial review & risk
`
`87-136 Governance & remuneration
`
`137-223 Financial statements
`
`224-248 Investor information
`
`GSK Annual Report 2012
`
`3
`
`CEO’s review
`
`We have diversified our sources of growth, our R&D productivity
`has significantly improved and our processes are simpler and more
`efficient. We are confident that our strategy is delivering
`
`The clear adverse impact to our
`performance in 2012 was weaker than
`expected sales from our European
`business, down 7%. Here, government
`austerity measures adversely impacted
`growth by approximately 6 percentage
`points during the year.
`R&D productivity provides
`platform for growth
`In R&D, the Group made significant
`progress in 2012. We now have six key
`new products under regulatory review
`and expect Phase III data on 14 assets
`in 2013 and 2014. In total, over the next
`three years, GSK has the potential to
`launch around 15 new medicines and
`vaccines globally.
`We are also confident that we can
`sustain this level of productivity and
`that we can deliver our long-term goal
`of improving returns on R&D investment
`to around 14%.
`Simplifying and changing
`our business
`We continue to make changes to simplify
`our operating model. Our Operational
`Excellence programme has now delivered
`annual savings of £2.5 billion and
`remains on track to hit the target we set
`of £2.8 billion of annual savings by 2014.
`In February 2013 we announced a new
`major change programme, which we
`expect to produce incremental annual
`cost savings of at least £1 billion by 2016.
`This programme will include a series of
`technological advances and opportunities
`to eliminate complexity, which we
`believe can transform our long-term cost
`competitiveness in both manufacturing
`and R&D. The programme will help us
`simplify our supply chain processes,
`shorten cycle times, lower inventory
`levels and reduce our carbon footprint.
`
`Five years ago we set out a strategy to
`re-shape GSK to increase growth, reduce
`risk and improve our long-term financial
`performance. We have made good
`progress and 2012 provided further
`evidence of this.
`However, there is no doubt that we
`are operating in a very challenging
`environment and in 2012 this was
`particularly evident in Europe. Despite
`this, we were able to maintain core
`earnings per share (CER), generate net
`cash inflows from operating activities of
`£7 billion (before legal settlements) and
`return over £6.3 billion to shareholders.
`We also made outstanding progress in
`research and development during the
`year to advance potential new medicines
`across multiple disease areas including
`respiratory, oncology, diabetes and HIV.
`Investment in growth markets
`Although reported sales for the year
`were down 1% (CER), sales were flat
`adjusting for the disposal of our non-
`core Consumer Healthcare brands. This
`reflects continued strong performance
`from our ‘growth’ businesses, helping
`to offset pressure in Western markets.
`In emerging markets, the benefits of
`investments made to increase our
`exposure in Pharmaceuticals and
`Vaccines, as well as Consumer Healthcare,
`were very evident. Total sales in emerging
`markets now account for 26% of our
`business and grew 10% during the
`year. At a divisional level, Consumer
`Healthcare sales were flat, but grew 5%,
`excluding divested OTC products.
`In Pharmaceutical and Vaccines, Japan’s
`sales fell 6%, reflecting the impact of the
`Cervarix vaccine sales for the catch up
`programme in the prior year. Excluding
`Cervarix, sales grew 5%. Sales in the USA
`were down 2%; this was an improvement
`over 2011 when sales declined 5%. We
`have been re-shaping our US business to
`reflect changing market dynamics and to
`prepare for the launch of multiple new
`products. We continue to view the USA
`and Japan very positively, as markets
`that reward and are willing to pay for
`healthcare innovation.
`
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`

`

`4 GSK Annual Report 2012
`
`Strategic review
`
`In addition, given the sustained shift
`we have witnessed in the European
`reimbursement and pricing environment,
`we plan to initiate further restructuring of
`our European pharmaceuticals business
`to reduce costs, improve efficiencies and
`reallocate resources to support identified
`growth opportunities in these markets.
`We are also evaluating further strategic
`options to ensure we are able to maximise
`the value of our current and future
`portfolio in Europe.
`This additional restructuring supports
`our strategy to change the shape of our
`business and deliver sustainable long-
`term growth. In the short term, it will
`also help to offset some of the pressure
`we are seeing on our margin structure
`resulting from changes in our business
`mix. We remain confident that as our
`pipeline begins to contribute from the
`end of 2013, we can drive improvement
`in the core operating margin over the
`medium term.
`Strengthening our core
`business
`Our Consumer Healthcare business
`continues to make excellent progress as
`we increase focus around a core portfolio
`of healthcare brands and emerging
`markets, where we are seeing very
`positive consumption trends and benefit
`from sales and distribution synergies
`with pharmaceuticals.
`Investments to maximise returns in these
`markets continue. Last year, we opened
`a new innovation centre in China and
`have now increased our shareholding
`in our Indian subsidiary. In line with
`this strategic focus, we have decided to
`initiate a review evaluating all strategic
`options for the Lucozade and Ribena
`drinks brands, which are primarily
`marketed in established Western markets.
`These brands are iconic and the review
`will look at the best ways to ensure their
`continued growth.
`
`Outside Consumer Healthcare, we
`continue to strengthen our core business
`through acquisitions and equity
`investments. In 2012 we completed
`three significant transactions with
`Human Genome Sciences, Shionogi and
`Theravance to increase our share of the
`economics on key future growth assets.
`At the same time, we delivered targeted
`divestments at the periphery of the
`Group to realise value for shareholders,
`divesting Vesicare, multiple non-core OTC
`brands and Australian pharmaceutical
`‘tail’ products.
`Operating with responsibility
`We remain committed to operating
`responsibly and during the year we made
`further advances on our agenda to ensure
`our behaviour and actions meet or exceed
`the expectations of society.
`For example, we have taken several steps
`to increase transparency of our clinical
`research. We already publish all our trial
`results whether positive or negative.
`We have now committed to go further
`and enable independent researchers to
`access the very detailed data that lies
`behind these results. By being more
`open, we hope to help further scientific
`understanding and research.
`We also continue to expand access to
`our medicines to people living in the
`poorest countries in the world. In 2012
`GSK was again ranked number 1 in the
`Access to Medicines (ATM) Index which
`assesses healthcare companies’ activities
`in this field. In addition, we expanded
`our efforts to tackle neglected tropical
`diseases and supply low-price vaccines to
`the GAVI alliance for use in the world’s
`poorest countries. We also received
`further data on our candidate malaria
`vaccine. While additional analysis is
`needed, this vaccine continues to have
`the potential to save the lives of hundreds
`of thousands of children in Africa.
`
`As the Chairman notes in his review,
`in July we also settled multiple
`investigations with the US Government
`and states, primarily relating to historical
`sales and marketing practices. These
`matters originated in a different era
`for the company, but we continue to
`take action at all levels to improve our
`procedures for compliance, marketing
`and selling and embed a values-based
`culture in GSK.
`Outlook
`GSK’s globally diversified sales base and
`improved R&D output provide a clear
`platform for growth, with 2013 marking
`the start of what should be a series of
`growth years for the Group.
`Specifically we expect to deliver core EPS
`growth of 3-4% CER and sales growth
`of around 1% CER during the year.*
`We also expect to deliver further strong
`cash generation in 2013 and remain
`committed to using free cash flow to
`support increasing dividends, share
`repurchases or, where returns are more
`attractive, bolt-on acquisitions.
`In closing, I would like to thank all
`our employees, partners and suppliers
`for their continued commitment and
`support. We are more confident than
`ever that GSK is well placed to succeed
`in emerging and pro-innovation markets
`and that our R&D model is working.
`This is creating clear, long-term capacity
`for GSK to deliver continued innovation
`and benefit to patients, and sustained
`performance and returns to shareholders.
`
`Sir Andrew Witty
`Chief Executive Officer
`
`* All forward looking statements are based on 2012 restated numbers adjusted for IAS 19R (EPS of 111.4p), at CER and barring unforeseen circumstances.
`See ‘Cautionary statement regarding forward-looking statements’ on the inside front cover and page 56 for an explanation of CER.
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1116. p. 6 of 252
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`

`

`2-54 Strategic review
`
`55-86 Financial review & risk
`
`87-136 Governance & remuneration
`
`137-223 Financial statements
`
`224-248 Investor information
`
`GSK Annual Report 2012
`
`5
`
`How we performed
`What we do, Where we do it
`How we create value
`Our market
`How we deliver
`Grow a diversified global business
`Deliver more products of value
`Simplify the operating model
`Responsible business
`
`
`6
`8
`10
`12
`16
`18
`30
`42
`49
`
`Strategic
`review
`
`Capital investment
`Ulverston in the Lake District in the north of England
`will be the location for our new biopharmaceutical
`manufacturing centre – the first new factory GSK
`has built in the UK for almost 40 years. This forms
`part of a series of UK investments of more than
`£500 million, made possible by the introduction
`of new patent box rules in the UK.
`
`Tom Whipps
`
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`
`

`

`6 GSK Annual Report 2012
`
`Strategic review
`
`How we performed
`We measure our performance against a number of key indicators,
`and use core results for our planning and reporting purposes
`
`Group turnover
`
`£26.4bn
`
`(1)
`–
`
`28.4
`
`(3)
`(4)
`
`(1)
`(3)
`
`Reported growth CER %
`Reported growth £ %
`
`27.4
`
`26.4
`
`How we performed
`Reported sales were down 1% but were flat
`adjusting for the disposal of our non-core OTC
`Consumer Healthcare brands. Overall, strong
`performances in EMAP and other growth
`businesses largely offset declines in USA
`and Europe.
`
`Why it’s important
`A key objective of our strategy is to deliver
`sustainable, broadly-sourced sales growth.
`
`Free cash flowb,c
`
`£2.0bn
`
`(15)
`19
`
`4.5
`
`(8)
`(14)
`
`4.1
`
`(51)
`(17)
`
`Reported growth £ %
`Growth excluding legal settlements £ %
`
`How we performed
`Free cash flow was £2.0 billion. Excluding
`legal settlements, adjusted free cash flow was
`£4.7 billion.
`
`2.0
`
`Why it’s important
`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.
`
`2010
`
`2011
`
`2012
`
`2010
`
`2011
`
`2012
`
`Core operating profit and margina
`
`Total operating profit and margin
`
`£8.3bn
`
`£7.4bn
`
`(4)
`–
`
`(6)
`(7)
`
`(3)
`(5)
`
`Reported growth CER %
`Reported growth £ %
`
`(59)
`(55)
`
`>100
`>100
`
`(3)
`(5)
`
`Reported growth CER %
`Reported growth £ %
`
`33.4%
`9.5
`
`32.1% 31.5%
`8.8
`8.3
`
`How we performed
`Core operating profit was £8.3 billion. Core
`operating margin declined 0.6 percentage
`points to 31.5%, of which 0.3 percentage
`points was due to the expected impact of
`the acquisition of Human Genome Sciences.
`
`Why it’s important
`Our objective remains to improve operating
`leverage. The margin indicates how costs are
`being managed as sales grow.
`
`13.3%
`3.8
`
`28.5%
`7.8
`
`28.0%
`7.4
`
`How we performed
`Total operating profit was £7.4 billion. Total
`operating margin declined 0.5 percentage
`points to 28.0%, of which 0.3 percentage
`points was due to the expected impact of
`the acquisition of Human Genome Sciences.
`
`2010
`
`2011
`
`2012
`
`2010
`
`2011
`
`2012
`
`Core earnings per sharea
`
`112.7p
`
`(3)
`–
`
`(7)
`(8)
`
`–
`(2)
`
`Reported growth CER %
`Reported growth £ %
`
`125.5
`
`115.5
`
`112.7
`
`How we performed
`Effective cost control and delivery of financial
`efficiencies enabled the Group to deliver core
`EPS of 112.7p
`
`Why it’s important
`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.
`
`Total earnings per share
`
`92.9p
`
`(75)
`(71)
`
`>100
`>100
`
`104.6
`
`92.9
`
`32.1
`
`(9)
`(11)
`
`Reported growth CER %
`Reported growth £ %
`
`How we performed
`Non-core items included a tax charge of
`£420 million (8.6p) arising from the
`centralisation of Pharmaceutical intellectual
`property and product inventory ownership
`in the UK. Transactions completed in 2012
`resulted in a number of significant non-cash
`accounting entries. However, these largely
`offset each other.
`
`2010
`
`2011
`
`2012
`
`2010
`
`2011
`
`2012
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1116. p. 8 of 252
`
`

`

`2-54 Strategic review
`
`55-86 Financial review & risk
`
`87-136 Governance & remuneration
`
`137-223 Financial statements
`
`224-248 Investor information
`
`GSK Annual Report 2012
`
`7
`
`Turnover in our major growth areasb
`
`New Pharmaceuticals and Vaccines product performanceb
`
`£14.3bn
`
`£1.4bn
`
`51
`
`53
`
`54 % share of total turnover
`
`36
`
`47
`
`34
`
`Reported growth CER %
`
`14.6
`
`14.4
`
`14.3
`
`How we performed
`We saw continued growth in emerging markets,
`Japan (excluding vaccines) and Consumer
`Healthcare (excluding disposals). Performance
`in Vaccines was impacted by reduced sales of
`Cervarix following the HPV vaccination
`catch-up programme in Japan in 2011.
`
`Why it’s important
`This measure focuses on our major growth
`areas: Vaccines, Consumer Healthcare, EMAP,
`Japan and dermatology.
`
`2.5
`
`1.7
`
`1.4
`
`How we performed
`Total sales of new products were £1.4 billion,
`grew 34% in the year and represented 7%
`of Pharmaceutical and Vaccines turnover.
`2012 was impacted by the roll-off of products
`more than five years old.
`
`Why it’s important
`This measure shows the delivery of sales
`from products launched in the prior five
`years and creates incentives for improved
`R&D performance.
`
`2010
`
`2011
`
`2012
`
`2010
`
`2011
`
`2012
`
`Cash returned to shareholders
`
`Relative total shareholder returnb,d
`
`31/12/07
`31/12/08
`31/12/09
`31/12/10
`31/12/11
`31/12/12
`GlaxoSmithKline Total Return
`GlaxoSmithKline Pharma Peers Return Index(cid:87)
`FTSE 100 Total Return Index
`
`Reported growth £ %
`
`How we performed
`During 2012, GSK returned £6.3 billion to
`shareholders via dividends and share
`buy- backs.
`
`Why it’s important
`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.
`
`160
`
`140
`
`120
`
`100
`
`80
`
`60
`
`£6.3bn
`
`13
`6.3
`2.5
`
`backs
`Buy-
`
`3.8
`
`Dividend
`
`75
`
`5.6
`2.2
`
`backs
`Buy-
`
`3.4
`
`Dividend
`
`7
`
`3.2
`
`Dividend
`
`2010
`
`2011
`
`2012
`
`a We use a number of adjusted measures to report the performance
`of our business. These include core results, which are used by
`management for planning and reporting purposes and may not
`be directly comparable with similarly described measures used by
`other companies. Core results exclude a number of items from total
`results. A full definition of core results can be found on page 56 and
`a reconciliation between core results and total results is provided
`on page 62.
`
`b The remuneration of our executives is linked to the marked key
`indicators. Further information on our executive pay policy can be
`found in our Remuneration report on page 109.
`c The calculation of free cash flow is described on page 56 and a
`reconciliation is provided on page 69. The calculation of CER is
`described on page 56.
`d The constituents of the Pharma Peers Return Index are listed on
`page 115.
`
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`
`

`

`8 GSK Annual Report 2012
`
`Strategic review
`
`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.
`
`£26.4bn
`
`Group turnover
`
`Pharmaceuticals
`£18.0bn
`68%
`
`Turnover
`
`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.
`
`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
`7,291
`753
`1,670
`2,431
`171
`1,247
`798
`850
`495
`70
`1,374
`846
`
`Vaccines
`£3.3bn
`
`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 2012, we distributed nearly 900
`million doses to 170 countries, of which over
`80% were supplied to developing countries.
`
`Sales by vaccine
`
`Boostrix
`Cervarix
`Fluarix, FluLaval
`Hepatitis
`Infanrix, Pediarix
`Rotarix
`Synflorix
`Other
`
`£m
`238
`270
`200
`646
`775
`360
`385
`451
`
`Consumer Healthcare
`£5.1bn
`19%
`
`Turnover
`
`of Group
`
`We develop and market a range of
`consumer health products based on
`scientific innovation. We have brands
`in four main categories: Total wellness,
`Oral care, Nutrition and Skin health.
`
`
`Sales by category
`
`Total wellness
`Oral care
`Nutrition
`Skin health
`
`£m
`2,008
`1,797
`1,050
`255
`
`Read more on page 57
`
`Read more on page 58
`
`Read more on page 59
`
`R&D
`
`Our business is sustained through investment in R&D. In 2012
`we spent £3.5 billion before non-core items*, £4.0 billion in total,
`in our search to develop new medicines, vaccines and innovative
`consumer products.
`
`During the year we saw significant delivery from our late stage
`pipeline, with six key medicines filed with regulators.
`
`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.
`
`* The calculation of core results and non-core items is set out on page 56.
`
`£3.5bn
`
`Core R&D
`expenditure
`in 2012
`
`c.30
`
`Assets in late
`stage pipeline
`
`Core R&D expenditure allocation in 2012
`
`Pharmaceuticals
`Vaccines
`Consumer Healthcare
`
`£m
`2,821
`498
`155
`
`%
`81
`14
`5
`
`Read more on page 32
`
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`

`

`GSK Annual Report 2012
`
`9
`
`2-54 Strategic review
`
`55-86 Financial review & risk
`
`87-136 Governance & remuneration
`
`137-223 Financial statements
`
`224-248 Investor information
`
`No.
`17,201
`38,788
`36,738
`3,515
`3,246
`
`£m
`8,446
`7,320
`6,780
`2,225
`1,660
`
`£bn
`7.0
`5.0
`4.7
`2.0
`1.4
`1.2
`5.1
`
`Where we do it
`Our geographic presence covers more than 100 countries
`
`Our global reach
`
`The shape of our business is shifting to capitalise on markets
`with high-growth potential including those in Asia Pacific, Latin
`America and Japan. Territories outside the USA and Europe now
`account for 40% of our total sales.
`We have a significant global manufacturing and R&D presence
`with a network of 87 manufacturing sites and large R&D centres
`in the UK, USA, Spain, Belgium and China.
`
`99,488
`
`Employees
`
`Employees by region
`
`15
`
`4
`
`2
`
`3
`
`
`
`1 USA
`2 Europe
`3 EMAP
`4 Japan
`5 Other
`
`Turnover by region
`
`5
`
`1
`
`4
`
`2
`
`3
`
`
`1 USA
`2 Europe
`3 EMAP
`4 Japan
`5 Other
`
`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, 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
`
`Read more on page 151
`
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`
`

`

`10 GSK Annual Report 2012
`
`Overview
`
`How we create value
`By delivering innovation and expanding access to our
`products we create value for society and our shareholders
`
`The context
`
`We see both opportunities and challenges in
`our operating environment. Scientific resear