Annual Report 2016
`2016 saw good sales momentum
`across Pharmaceuticals, Vaccines
`and Consumer Healthcare
`and further pipeline progress
`
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`

`

`We are a global science-led
`healthcare company.
`Our three world-leading businesses
`research and deliver innovative
`medicines, vaccines and consumer
`healthcare products.
`
`Front cover case study
`
`Arthur works at our Upper Providence R&D lab
`
`At GSK, innovation underpins each of our three businesses
`We are using next generation technology
`return on R&D investment and accelerate
`to develop new approaches to disease
`the development of new products that can
`management and control. In addition to
`improve patients’ lives.
`our own research and development,
`We have an active pipeline of innovative
`we gain insights through our network of
`products across six core areas: respiratory,
`collaborations with biotechs, other
`HIV and infectious diseases, vaccines,
`companies and academic institutions.
`immuno-inflammation, oncology and
`This enables more efficient trial design
`rare diseases.
`and greater use of software, analytics and
`new technology, all of which is helping to
`increase our productivity, maximise our
`
`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. Other than in accordance with its legal or regulatory
`obligations (including under the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Conduct Authority), the Group undertakes no obligation to update
`any forward-looking statements, whether as a result of new information, future events or otherwise.
`The reader should, however, consult any additional disclosures that the Group may make in any documents which it publishes and/or files with the SEC. All readers, wherever
`located, should take note of these disclosures. Accordingly, no assurance can be given that any particular expectation will be met and shareholders and investors are cautioned
`not to place undue reliance on the forward-looking statements.
`Forward-looking statements are subject to assumptions, inherent risks and uncertainties, many of which relate to factors that are beyond the Group’s control or precise
`estimate. The Group cautions investors that a number of important factors, including those in this document, could cause actual results to differ materially from those expressed
`or implied in any forward-looking statement. Such factors include, but are not limited to, those discussed under ‘Principal risks and uncertainties’ on pages 253-262 of this
`Annual Report. Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made and are based upon the knowledge of and
`information available to the Directors on the date of this Annual Report.
`All expectations and targets regarding future performance should also be read together with ‘Assumptions related to 2016-2020 outlook’ on the inside back cover of this
`document.
`A number of adjusted measures are used to report the performance of our business. These measures are defined on page 57 and a reconciliation of core results to total results
`is set out on page 66.
`
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`

`

`02
`04
`05
`06
`08
`12
`14
`16
`18
`20
`28
`34
`40
`52
`
`80
`82
`86
`88
`94
`97
`97
`107
`
`108
`
`01 GSK Annual Report 2016
`
`Strategic report
`
`Governance and remuneration
`
`Financial statements
`
`Investor information
`
`2016 performance summary
`
`£27.9bn
`
`Group turnover
`(up 17% AER; 6% CER;
`5% pro-forma CER)a
`
`£2.6bn
`
`Total operating profit
`(down 75% AER; 86% CER)a,c
`
`18.8p
`
`Total earnings per share
`(down 89% AER; 99% CER)a,c
`
`£6.5bn
`
`Net cash inflow from
`operating activities
`
`£3.9bn
`
`Dividends declared
`for 2016
`
`£4.5bn
`
`New Pharmaceutical
`and Vaccine salesb
`(up >100% AER; >100% CER)a
`
`£7.8bn
`
`Core operating profit
`(up 36% AER; 14% CER;
`17% pro-forma CER)a
`
`102.4p
`
`Core earnings per share
`(up 35% AER; 12% CER)a
`
`£3.1bn
`
`Free cash flowa
`
`20-30
`
`Assets with data expected
`by end of 2018
`
`Delivering sustainable performance
`
`
`
` 1st in the Access
`to Medicine Index
`since launch in 2008
`
`3rd in the
`pharmaceutical sector
`for Dow Jones Sustainability Index
`
`Footnotes
`a AER growth rates represent growth at actual exchange rates. We use a number of adjusted, non-IFRS,
`measures to report the performance of our business, as described on page 57, including core results,
`free cash flow and CER and pro-forma growth rates. These measures 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 and are presented as management
`believes that core results allow the key trends and factors driving that performance to be more easily
`and clearly identified by shareholders. Non-IFRS measures may be considered in addition to, but not
`as a substitute for or superior to, information presented in accordance with IFRS. A reconciliation
`of total results to core results is set out on page 66.
`b New products defined as:
`Pharmaceuticals: Relvar/Breo Ellipta, Incruse Ellipta, Anoro Ellipta, Arnuity Ellipta, Eperzan/Tanzeum,
`Nucala, Tivicay, Triumeq.
`Vaccines: Menveo, Bexsero, Shingrix (not yet approved).
`c Primarily reflecting impact of £9.2 billion profit in 2015 from disposal of Oncology business.
`
`Strategic report
`About us
`Chairman’s statement
`CEO’s statement
`Our integrated approach
`The market in which we operate
`Our business model
`A clear strategy for growth
`How we measure success
`How we manage risks
`Pharmaceuticals
`Vaccines
`Consumer Healthcare
`Responsible business
`Group financial review
`Governance and remuneration
`Chairman's Governance statement
`Our Board
`Our Corporate Executive Team
`Leadership and effectiveness
`Nominations Committee report
`Accountability
`Audit & Risk Committee report
`Relations with shareholders
`Corporate Responsibility
`Committee report
`Remuneration report
`Chairman’s annual statement
`Annual report on remuneration
`Remuneration policy summary
`Remuneration policy report
`Financial statements
`Directors’ statement of responsibilities 148
`Independent Auditors' report
`149
`Financial statements
`158
`Notes to the financial statements
`162
`Financial statements of GlaxoSmithKline
`plc prepared under UK GAAP
`232
`Investor information
`Quarterly trend
`Five year record
`Product development pipeline
`Product, competition and
`intellectual property
`Principal risks and uncertainties
`Share capital and share price
`Dividends
`Financial calendar
`Annual General Meeting 2017
`Tax information for shareholders
`Shareholder services and contacts
`US law and regulation
`Group companies
`Glossary of terms
`
`112
`115
`137
`138
`
`240
`244
`247
`
`250
`253
`263
`265
`265
`266
`266
`268
`270
`272
`283
`
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`

`

`02 GSK Annual Report 2016
`
`About us
`
`At GSK, our mission
`is to improve the
`quality of human life
`by enabling people
`to do more, feel better
`and live longer.
`
`Three world-leading businesses
`
`Our Pharmaceuticals, Vaccines and Consumer Healthcare
`businesses generated combined turnover of £27.9 billion in 2016.
`Each business benefits from our global commercial infrastructure,
`integrated supply networks and innovative R&D.
`
` 99,300
`
`Number of employees
`
` 150+
`
`Number of markets
`
` 87
`
`Manufacturing sites
`
`R&D innovation underpins each of our businesses
`
`In 2016, we invested £3.6 billion in R&D across our three
`businesses. External partnerships and collaborations
`enable us to develop and access knowledge, and increase
`our understanding in new areas of science.
`We focus our research across six core areas and are using
`next generation technology to develop new approaches
`to disease management and control.
`
`Respiratory diseases
`
`HIV/infectious diseases
`
`Vaccines
`
`Immuno-inflammation
`
`Oncology
`
`Rare diseases
`
`Efficient global operating model
`
`We are focused on optimising our operations through restructuring,
`investment and modernisation to improve profitability and efficiency.
`
`Footnote
`a We use a number of adjusted, non-IFRS, measures to
`report the performance of our business, as described on
`page 57, including core results, free cash flow and CER
`and pro-forma growth rates. Non-IFRS measures may be
`considered in addition to, but not as a substitute for or
`superior to, information presented in accordance with IFRS.
`
`£1.4bn
`
`Incremental annual
`savings delivered in 2016
`(including £0.2 billion
`currency benefit)
`
`9.3%
`
`27.9%
`
`Total operating profit
`margin in 2016
`
`Core operating profit
`margin in 2016a
`
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`

`

`03 GSK Annual Report 2016
`
`Strategic report
`
`Governance and remuneration
`
`Financial statements
`
`Investor information
`
`Pharmaceuticals
`
`Vaccines
`
`Our Pharmaceuticals business
`discovers, develops and
`commercialises medicines to
`treat a range of acute and chronic
`diseases. We have a broad portfolio
`of innovative and established
`medicines in respiratory and HIV,
`in which we are global leaders.
`We focus our research across
`respiratory, HIV and infectious
`diseases, immuno-inflammation,
`oncology and rare diseases.
`
`Read more on pages 20 to 27
`
`Our Vaccines business has the
`broadest portfolio of any company,
`with vaccines for people of all
`ages – from babies and adolescents
`to adults and older people. We
`deliver over two million vaccine
`doses per day to people living
`in over 160 countries.
`
`Read more on pages 28 to 33
`
`Top three categories by sales
`Respiratory
`HIV
`Established products
`
`£m
`6,510
`3,556
`2,541
`
`Top three categories by sales
`Infanrix/Pediarix
`Hepatitis
`Meningitis
`
`£m
`769
`602
`592
`
`£16.1bn
`
`Turnover
`
`£4.6bn
`
`Turnover
`
`Consumer
`Healthcare
`
`Our Consumer Healthcare business
`develops and markets products
`in Wellness, Oral health, Nutrition
`and Skin health categories. Our
`seven global power brands – Otrivin,
`Panadol, parodontax, Poligrip,
`Sensodyne, Theraflu and Voltaren,
`include some of the most trusted
`and best-selling brands in the world.
`
`Read more on pages 34 to 39
`
`£m
`3,726
`2,223
`674
`570
`
`Sales by category
`Wellness
`Oral health
`Nutrition
`Skin health
`
`£7.2bn
`
`Turnover
`
`% of Group turnover
`
`% of Group turnover
`
`% of Group turnover
`
`58%
`
`16%
`
`2bn
`
`packs of medicines
`produced in 2016
`
`833m
`
`vaccines delivered
`in 2016
`
`26%
`
`5bn
`
`Consumer Healthcare products
`produced in 2016
`
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`
`

`

`04 GSK Annual Report 2016
`
`Chairman’s statement
`
`GSK made further
`progress during 2016.
`Operating performance
`significantly improved
`and there was continued
`progress in the R&D
`pipeline.
`
`Read more
`
`See page 80
`
`See page 112
`
`Governance report
`Our Corporate Governance report sets out our
`corporate governance practices and includes the
`reports of our Board Committees.
`Remuneration
`Our Remuneration report sets out our
`remuneration arrangements for Executive and
`Non-Executive Directors and includes our new
`Remuneration policy for 2017.
`Diversity statement
`Our Board’s Diversity policy, including gender,
`sets out measurable objectives which our
`Nominations Committee monitors and reports
`progress towards their achievement.
`Viability statement
`Our Viability statement sets out our assessment of
`the prospects of the Group over the next
`three years.
`
`See page 96
`
`See page 56
`
`I am pleased to report that GSK made
`further good progress during 2016.
`Operating performance significantly
`improved in our three businesses and there
`was continued progress in the late and early
`stage R&D pipeline. In every important area,
`it has been a year of solid achievement.
`2016 performance
`Management continues to make strong
`progress in driving the sales and cost
`benefits from the integration of the Novartis
`businesses in Vaccines and Consumer
`Healthcare. These businesses have been
`transformed through the transaction and are
`now true global leaders in their respective
`markets, well positioned strategically and
`improving financially.
`In Pharmaceuticals, new product sales
`have shown very good momentum,
`particularly in HIV and Respiratory. New
`products now make up around a quarter of
`total pharmaceutical sales. This is important
`given the pricing pressure faced generally by
`pharmaceutical companies and the potential
`introduction of generic competition to Advair
`– for many years the Group’s biggest single
`source of profits – in the US during 2017.
`The Group’s improved operational
`performance also contributed to markedly
`increased cash generation. Operational
`cash flow also benefited strongly from
`the devaluation of Sterling following the
`Brexit vote in June, although the value
`of non-sterling liabilities for debt funding
`and contingent consideration, has also
`increased.
`Ordinary dividends of 80p per share have
`been declared for 2016, the same level as
`2015. The company expects to maintain the
`same payment in 2017, in accordance with
`the statements made in 2015. This level of
`distribution still exceeds the free cash flow
`generated by the business despite the
`material improvement in cash generated
`in 2016 referred to above. Given that 2017
`is the last year of the three year dividend
`commitment made in 2015, the Board will
`be considering the appropriate dividend
`policy for 2018 and beyond during the
`course of the year.
`CEO succession
`A key area of focus for the Board through
`2016 has been to manage the CEO
`succession as Sir Andrew steps down
`after 33 years with the company and into
`a tenth year as CEO. The Board conducted
`a thorough, global search for a successor,
`which included internal and external
`candidates.
`
`The Board was unanimous in its decision to
`appoint Emma Walmsley, previously Head
`of GSK’s Consumer Healthcare business,
`as the new CEO. Emma has very strong
`leadership skills and a clear track record of
`delivery on performance. The Board believe
`Emma will bring new thinking to how the
`Group operates in today’s healthcare
`environment, whilst at the same time
`harnessing the momentum evident in
`current performance.
`I want to thank Sir Andrew again for his
`dedicated service to GSK. Through his
`commitment and leadership GSK has built
`a balanced set of businesses with fine
`prospects and delivered very significant
`rewards to shareholders with substantial
`cash returns. He has also led efforts to
`address the most pressing concerns the
`industry faces, ranging from reforming our
`commercial model, increasing transparency
`of trial results, and ensuring medicines are
`priced more fairly and made more accessible
`to patients worldwide. He will be much
`missed within GSK and we wish him well in
`his future endeavours.
`Board changes during the year
`We continue to refresh the Board. In 2016
`we welcomed two new Non-Executive
`Directors: Dr Jesse Goodman and
`Dr Vivienne Cox. Jesse is Professor of
`Medicine at Georgetown University and a
`leader in public health, and Vivienne brings
`many years experience in complex global
`manufacturing organisations. Meanwhile,
`Stacey Cartwright stepped down from the
`Board at the end of December. My thanks go
`to Stacey for nearly six years of dedicated
`service to the Board.
`As we enter a critical period of pipeline
`activity, we have reflected this on the Board
`with the creation of a new Board Science
`Committee, chaired by Dr Goodman. In
`addition, Dr Patrick Vallance, President R&D,
`has joined the Board. Later this year, Moncef
`Slaoui will step down from the Board after
`28 years with the company. Moncef is a
`scientist of global repute and has been a
`remarkable presence at GSK, particularly
`in the Vaccines business. We wish him,
`too, well in the future.
`In closing, I would like to thank all GSK’s
`employees and partners for their hard
`work and dedication. The business has
`outstanding people and they have made
`2016 a very successful year.
`
`Philip Hampton
`Chairman
`
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`

`

`05 GSK Annual Report 2016
`
`CEO’s statement
`
`Strategic report
`
`Governance and remuneration
`
`Financial statements
`
`Investor information
`
`GSK performed strongly
`in 2016, with good sales
`growth across all three
`businesses, excellent new
`product momentum and
`further pipeline progress.
`
`The Group executed strongly in 2016,
`delivering sales growth across all three
`businesses, remaining disciplined on
`costs and progressing our pipeline of
`innovative products.
`Trading performance
`Group sales rose 17% at actual rates,
`6% CER (5% pro-forma) to £27.9 billion,
`despite the uncertainty and volatility
`experienced globally in 2016. Total earnings
`per share was 18.8p (down 89% at actual
`rates, 99% CER), primarily reflecting
`comparisons with the £9.2 billion profit
`in 2015 from the disposal of the marketed
`Oncology assets. Core earnings per share
`was 102.4pa – a 12% CER increase – and
`at the top end of our guidance for the year.
`We saw growth across all three of
`the Group’s businesses in 2016, with
`a particular contribution from new
`Pharmaceuticals and Vaccine products.
`Sales from this portfolio more than doubled
`to £4.5 billion and in Pharmaceuticals,
`new products accounted for 24% of sales.
`HIV products, Tivicay and Triumeq, continued
`to be the standout products with sales of
`£2.7 billion, while our new respiratory
`products – Relvar/Breo, Anoro, Incruse,
`Arnuity and Nucala – also grew strongly
`as did our meningitis vaccines, Bexsero and
`Menveo. We expect the momentum in this
`group of products to continue through 2017.
`Our Consumer Healthcare business
`performed strongly, with sales up 19%
`at actual rates, 9% CER (5% pro-forma)
`to £7.2 billion, driven by power brands
`such as Sensodyne, Voltaren and Panadol
`as well as growth from Flonase which
`we switched from prescription to
`over-the-counter.
`Strong R&D innovation pipeline
`We filed four assets with regulators in
`2016 which, if approved, have the potential
`to drive further growth in the business,
`including Shingrix, our candidate vaccine
`for shingles and our once-daily Closed
`Triple therapy for COPD. In addition, we
`also started a number of phase III trials for
`assets in HIV, respiratory and anaemia.
`
`Investment in our R&D organisation
`continues to deliver significant innovation.
`For example, 2016 saw the European
`approval of Strimvelis, our first of its kind
`gene therapy for children with the very rare
`condition ADA-SCID. This remarkable
`technology has the potential to be a platform
`for a number of other gene therapies.
`The next two years will be an exciting time
`for our R&D organisation, with key research
`data on 20-30 assets due by the end
`of 2018.
`Delivering performance responsibly
`GSK has a strong commitment to operating
`responsibly and playing our part in meeting
`some of society’s biggest healthcare
`challenges.
`In 2016, we took further industry-leading
`steps by stopping all payments to healthcare
`professionals to speak about our medicines
`to other prescribers, and offered essential
`vaccines at our lowest price to organisations
`supporting refugees in acute need. We
`also introduced a new approach to filing
`and enforcing patents and IP based on a
`country's economic maturity, and are working
`with partners to help the world better prepare
`for future epidemics such as Ebola and Zika.
`I was very pleased that our efforts to
`operate as a values-based company
`were recognised when we came first
`in the Access to Medicine Index for the
`fifth consecutive time.
`Outlook
`The progress in 2016 highlights the
`investments we have made in the Group
`over the last several years to build scale
`and sustainability as well as develop new
`products. I expect the Group to make
`continued progress in 2017 and, as we
`enter a new period of leadership for the
`company, I believe GSK is well positioned
`to deliver long-term performance for
`shareholders.
`Finally, as this is my last annual report
`before I retire, I would like to thank all our
`employees, partners and shareholders
`for their support during my time as CEO.
`GSK is a very special company that touches
`people’s lives across the world and which
`I have been enormously privileged to lead.
`
`Footnote
`a We use a number of adjusted, non-IFRS, measures to
`report the performance of our business, as described on
`page 57, including core results, free cash flow and CER
`and pro-forma growth rates. Non-IFRS measures may be
`considered in addition to, but not as a substitute for or
`superior to, information presented in accordance with IFRS.
`
`Sir Andrew Witty
`Chief Executive Officer
`
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`

`

`
`
`06 GSK Annual Report 201606 GSK Annual Report 2016
`
`Our integrated approach
`
`By understanding our operating environment and having
`a clear strategy, against which we measure performance
`and manage risks, we deliver long-term value for
`shareholders and society.
`
`The market in which we operate
`
`Our business model
`
`We operate in a growing marketplace and our strategy
`is designed to respond to the challenges and opportunities
`in our sector.
`
`R&D underpins our three businesses and we prioritise our investments
`to where we see the most potential to develop innovative products for
`unmet medical needs.
`
`R&D
`
`Pharmaceuticals
`
`Vaccines
`
`Consumer Healthcare
`
`Manufacturing
`
`Commercialisation
`and distribution
`
`Demographic
`change
`
`Changing political
`landscape
`
`Increasing payer
`emphasis on cost,
`value and access
`
`Increased
`expectations
`of businesses
`
`Technological
`and scientific
`advances
`
`Read more on page 8
`
`Read more on page 12
`
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`

`

`
`
`07 GSK Annual Report 201607 GSK Annual Report 2016
`
`
`
`Strategic reportStrategic report
`
`
`
`Governance and remunerationGovernance and remuneration
`
`
`
`Financial statementsFinancial statements
`
`
`
`Investor informationInvestor information
`
`A clear strategy for growth
`
`How we measure success
`
`How we manage risks
`
`Our strategic priorities provide a framework
`to create long-term value for shareholders
`and society.
`
`We assess our performance against
`a set of financial and non-financial
`measures, many of which form the
`basis of our executive remuneration.
`
`We manage a number of current and
`emerging risks. Below, our Principal Risks
`are mapped against the primary strategic
`priority they are most likely to impact.
`
`Grow
`
`Grow a balanced business and
`product portfolio, centred on our
`three global businesses.
`
`Deliver
`
`Deliver more products of value to
`offer improved treatment for patients,
`consumers and healthcare providers.
`
`Simplify
`
`Simplify the way we operate to reduce
`complexity, increase efficiency and free
`up resources to reinvest in the business
`or return to shareholders, wherever we
`see the most attractive returns.
`
`Responsible business
`
`Being a responsible business,
`as how we deliver success is as
`important as the results we achieve.
`
` – Turnover growth
` – Growth of earnings per share
`
`Intellectual property
`Commercialisation
`
` – New Pharmaceuticals and Vaccines
`product performance
`
`Product quality
`Research practices
`Supply continuity and crisis management
`
` – Operating profit and margin
` – Free cash flow
` – Dividends declared
` – Net debt
`
`Financial control and reporting
`Information protection
`
` – Access to Medicine Index
` – Dow Jones Sustainability Index
`
`Patient safety
`Anti-bribery and Corruption
`Environment, Health and Safety
`and Sustainability
`
`Read more on page 14
`
`Read more on page 16
`
`Read more on page 18
`
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`

`

`08 GSK Annual Report 2016
`
`We operate in a growing marketplace and
`our strategy is designed to respond to the
`challenges and opportunities we face.
`
`The market in which we operate
`
`1.4bn
`
`By 2030, the world’s
`population of people
`aged 60+ will be 1.4 billiona
`
`60%
`
`of the world’s population will
`live in urban areas
`by 2030f
`
`75%
`
`of the global population has
`access to a mobile phone f
`
`90%
`
`of global youth resides in
`developing countries f
`
`Future State 2030: The global megatrends shaping government. KPMG
`
`66%
`
`of the global middle class
`will reside in Asia-Pacific
`by 2030 f
`
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`

`

`09 GSK Annual Report 2016
`
`Strategic report
`
`Governance and remuneration
`
`Financial statements
`
`Investor information
`
`Our business model
`
`A clear strategy for growth
`
`How we measure success
`
`How we manage risks
`
`In 2016, the global
`healthcare market
`continued to grow
`against a backdrop
`of a challenging global
`economic environment.
`
`Global pharmaceutical sales were
`£648 billion on a 12 month rolling
`basis (September 2015-2016), up from
`£605 billion during the equivalent period
`(September 2014-2015). North America
`remained the largest pharmaceuticals
`market with a 50% share of global sales.
`Europe represented 21%, Asia Pacific
`(including Japan) was 21% and emerging
`markets was 8%.b
`Global vaccine sales totalled ~£18 billion
`in 2016 and are expected to grow 5%
`annually by 2022.c
`The consumer healthcare markets in which
`GSK operates account for approximately
`$70 billion, and are projected to grow
`3-4% annually over the next five years.d
`Societal trends supported market growth,
`but are also contributing to challenges in
`the healthcare sector, particularly on price
`and affordability.
`Demographic change
`The world population continues to grow
`and, according to the United Nations,
`is predicted to reach 8.5 billion by 2030.
`The proportion of elderly people is growing
`and the number of people over the age
`of 60 is expected to reach 1.4 billion by
`2030.e At the same time, developing
`countries are experiencing growth in their
`middle classes, and by 2030 it is expected
`that 60% of the world’s population will be
`middle class.f
`In emerging markets, long-term economic
`growth, increasing expectations of
`healthcare provision, and changing diets
`and lifestyles are increasing demand for
`healthcare products, especially to treat
`chronic conditions including respiratory
`and cardiovascular disease. This demand
`is expected to grow significantly faster in
`these markets over the coming years than
`in more mature economies.
`
`In developed economies, demand for
`healthcare provision continues to remain
`high, although the dynamics are becoming
`more complex. Trends such as higher life
`expectancy are contributing towards the
`increasing proportion of elderly people,
`and along with improvements in medical
`technology, are putting pressure on
`healthcare budgets.
`The changing global political landscape
`Shifting attitudes to globalisation and
`free trade, wage stagnation for many and
`concerns about inequality are causing
`significant volatility and uncertainty in
`western markets.
`2016 was characterised by political
`uncertainty and this was exemplified
`by the vote to leave the EU in the UK and
`the result of the US Presidential Election.
`Political uncertainty in Europe is expected
`to continue in 2017 with national elections
`in France and Germany.
`In the US there is also uncertainty as
`to how the new administration will shape
`healthcare, particularly with respect to
`repealing and replacing the Affordable
`Care Act, prescription drug pricing and
`regulation. This is coupled with questions
`over the impact of the new administration’s
`economic, tax and trade policies.
`In the UK, it remains unclear how Brexit
`will affect the country’s trading relationships,
`corporate taxation policy, the movement
`of people, and regulatory affairs.
`
`b
`c
`
`d
`
`Footnotes
`a
` World Population Ageing 2015 Highlights.
`United Nations.
`IMS data (latest available at time of publishing).
` Internal data and EvaluatePharma, World
`Preview 2016.
` Internal forecasts based on Nicholas Hall
`and Euromonitor.
` World Population Ageing 2015 Highlights.
`United Nations.
` Future State 2030: The global megatrends
`shaping government. KPMG.
`
`e
`
`f
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1118, p. 11 of 288
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`

`

`10 GSK Annual Report 2016
`
`The market in which we operate continued
`
`Our strategy to create
`a balanced business
`and product portfolio
`positions us well for
`the changes in our
`marketplace.
`
`Increasing payer emphasis on cost,
`value and access
`Demographic changes are contributing
`to increased demand for healthcare and
`in turn putting pressure on government
`budgets and payers. This has led to
`continued focus on, and public debate
`about, the industry’s approach to drug
`pricing across all key markets.
`In the US the ultimately unsuccessful
`Proposition 61 vote, which called for
`medicine price controls in California,
`was the first of several drug pricing ballot
`initiatives expected in the US. There has
`also been increasing use of healthcare
`technology assessments to consider
`value for money as well as medical efficacy,
`by government-appointed bodies like the
`UK’s National Institute for Health and Care
`Excellence and Australia’s Pharmaceutical
`Benefits Advisory Committee.
`As demand for healthcare in emerging
`markets rises, governments are continuing
`to reform healthcare systems to support
`access. In China, the government continues
`to work to realise the goals set out in the
`Healthy China 2030 plan, with significant
`measures taken during the year to reduce
`pharmaceutical prices through the National
`Price Negotiations.
`During the year, the UN’s High-Level Panel
`on Access to Medicines report, reiterated
`the rights of countries to issue compulsory
`licences to access cheaper supplies of
`generic drugs.
`We expect the political and public scrutiny
`on pricing to continue.
`
`Technological and scientific advances
`Key advances in the understanding of
`human biology and genomics are leading
`to fundamental changes in how we research
`diseases, and the pharmaceutical industry’s
`ability to develop treatments specifically
`to tackle them with innovative treatment
`approaches has increased substantially
`in recent years. Alongside these scientific
`advances, digital technology and data
`analytics are enabling researchers to explore
`and interpret larger volumes of biological
`data from genomics and disease biology
`than ever before. This is providing
`opportunities to increase the speed and
`efficiency of drug discovery and the
`development of novel therapies that could
`transform how diseases are managed.
`Increasing expectations of companies
`Beyond our sector-specific context, where
`value, cost and affordability are so important,
`society has increasing and changing
`expectations of companies, particularly
`of large global companies. Stakeholders
`– from employees to consumers to policy
`makers and influencers – expect companies
`to behave with integrity and fairness; operate
`transparently; be connected to their local
`communities; and play their part in
`addressing global challenges from health
`epidemics to climate change. Responding
`to this requires strong partnership and
`connectivity between public and private
`sector organisations.
`
`WATSON LABORATORIES, INC. , IPR2017-01622, Ex. 1118, p. 12 of 288
`
`

`

`11 GSK Annual Report 2016
`
`Strategic report
`
`Governance and remuneration
`
`Financial statements
`
`Investor information
`
`Our business model
`
`A clear strategy for growth
`
`How we measure success
`
`How we manage risks
`
`Our strategic response
`
`Three world-leading
`businesses,
`underpinned
`by innovative R&D
`
`GSK is well positioned to take advantage of d