Andrew Philip Witty - Chief Executive Officer Simon Dingemans - Chief Financial Officer.

James Gordon - JP Morgan Chase & Co Alexandra Hauber - UBS Investment Bank, Research Division Graham Parry - Bank of America Merrill Lynch Keyur Parekh - Goldman Sachs Dani Saurymper - Barclays Capital Matthew Weston - Credit Suisse AG Mark Clark - Deutsche Bank Andrew Kocen - Redburn Jeffrey Holford - Jefferies Florent Cespedes - Societe Generale.

Thank you. And good afternoon and welcome to the call. With me is Simon Dingemans, CFO of GSK. You'll have seen that we've released presentations from both of us on GSK's performance in 2014 and our current strategic focus and these are available on the website for you to use at your leisure.

The purpose of this call this primarily to answer your questions, but before I open up for questions, let me make a few brief points. Firstly, on our performance, as you know, 2014 was a challenging year for GSK, particularly in the US primary care market. However, we responded to this.

In financial terms, core earnings per share for 2014 were 95.4 pence, down 1% on turnover of £23 billion, down 3%, reflecting cost and financial efficiencies. Revenues grew positively in emerging markets, up 5%, Japan up 1% and HiVV up 15%.

These helped to partly offs declines in our established product portfolio, down 16% and the US business down 10%, where primary care contract and pricing dynamics continued to present a very difficult trading environment. These headwinds, particularly in the respiratory market, will continue to impact performance during 2015.

However, we are starting to see some encouraging early indications of have increased former coverage for Advair, and our new portfolio Relvar, Breo and Anoro can help us regain market share and deliver improved respiratory performance.

As we have consistently said, our strategy is to develop a diversified portfolio of respiratory products and that progression continues with several key milestones expected this year, including the launch of Incruse and Arnuity in the United States, FDA decisions for Breo for the use in asthma and IL-5 monoclonal antibody mepolizumab for severe asthma and readout of the Breo SUMMIT study for mortality and morbidity in COPD.

Outside of respiratory, new product performance in HIV was exceptional in 2014, combined sales of Tivicay and Triumeq achieving £340 million. In consumer healthcare, sales for the year were down 1%, but up 2% in the fourth quarter as the business started to recover from recent manufacturing supply issues.

These issues have now been resolved and we expect increasing benefit from the resumption of supply going forward. You will also have seen today that we have announced two important events for this year.

Following completion of the proposed three-part transaction with Novartis, we will hold an investor day, which will provide 2015 earnings guidance for the enlarged Group and profile the medium and long-term shape and opportunities for GSK.

Close of this transaction is a critical priority for us this year and we are making good progress and expect to close within half one of 2015.

This deal will transform the shape of the company significantly bolstering our consumer healthcare and vaccine operations and be a major step towards fulfilling the company's strategy of creating a simpler, stronger and more balanced platform for long-term growth.

The other event we have announced today is our intention to holding R&D investor day in October to give greater visibility to shareholders on our pharmaceutical and vaccine pipelines.

In our advanced pipeline, we see significant potential for our vaccine to prevent shingles; the closed triple combination product in COPD, sirukumab in rheumatoid arthritis, cabotegravir in HIV; losmapimod for acute coronary syndrome; and 863, our prolyl hydroxylase inhibitor for anaemia.

At our R&D day, we also intend to provide greater visibility on multiple early stage assets in therapeutic areas where we see significant opportunity. These include immuno-inflammation, immuno-oncology and cardiovascular disease, as well as a number of prophylactic and therapeutic vaccine candidates.

Finally, just note that 2015 represents is a significant year in terms of our plans for returns to shareholders, with a combination of an ordinary dividend of 80p expected and the return of £4 billion from the Novartis transaction. For last year, you'll have seen that we have declared 2014 dividend of 80p per share, which is up 3%.

With that, I'll open up to questions an remind you that I have Simon with me as well in the event you want to go into more detail on any of the numbers, which he described in his presentation on the website. We'll go to questions, please..

Thank you. [Operator Instructions] And the first question comes from the line of James Gordon from JP Morgan..

Hello, thanks for taking my questions. Three questions on the pipeline, please. One question was on the 10 phase III start, can you say how many of those could be NCEs versus potentially line extensions and whether this includes vaccines? The second pipeline question was on immuno-oncology, and I saw the three assets that you flagged.

Are these assets already in the clinic? And then the third question was just on the gene therapy asset which I see you are filing, when I look to the incidence or the prevalence of the disease, it looks quite rare, it looks like it could be maybe only five or 10 people a year in the US, but is it an underestimate? Could this be a meaningful commercial opportunity or is it quite a niche indication?.

Thanks very much, James. On the last question, it is a rare disease, but it's been, I suspect the numbers will be a little bit higher than you've described. I certainly wouldn't guide you to think it's going to be a big product.

It's a rare disease, we've got extremely encouraging data, we see this as part of a platform of four or five further diseases, which you'll see more of in October. And that, certainly you should see this really as the first proof of concept of an approach we are taking for a portfolio of diseases, which are increasingly common.

So as you go through the next disease two, three, four, you see ever increase in numbers and we think overall it's quite an interesting opportunity for that.

As you know, our rare disease portfolio, although we are not famous for being in the rare disease business, you saw good performance this year, about £400 million of business there in the portfolio of rare disease products. As far as immuno-oncology is concerned, it was a variety of programs there.

So if you look at things like the OX-40, that goes into the clinic this year. When you look through the overall portfolio of immuno-oncology assets, some are in, some are about to go in, we will give you lot more detail of that in October.

The majority of these assets are first in class or certainly at the front of that class and we are obviously excited about those.

I think I've covered your questions, so next question, please?.

Thank you. The next question comes from the line of Nicholas [indiscernible] from Morgan Stanley..

Good afternoon. Thanks for taking my questions, I have three respiratory questions actually. The first one is for the US respiratory franchise.

While the overall decline remains broadly unchanged, the volume erosion seems to abate with this incremental pricing, do you expect a similar pattern for this year and is there any upside for your minus 20 to 25 guidance? Second, as a follow-up, could you discuss the price pressure that you are seeing on the rest of your respiratory portfolio in the US ex Advair? And thirdly on a row, how would you expect soon coming new entrants like [indiscernible] the impact the market? Thank you..

Thanks very much, Nicolas. So in terms of the decline, what you need to understand is the pricing effect will flow through into 2015. What you need to recognize is in 2014 we had a shift in the external environment obviously with the willingness of plans to go to class limits.

That affected us initially through the ESI contract, but then clearly the risk existed elsewhere. The response we made was obviously to adjust our price point. The end point of all of that is good news for GSK in the sense that we now have higher access for all of our respiratory products in the US.

Advair, higher than it's ever been; Breo higher than it's ever been; Anoro higher than it's ever been. Advair, right up in the high 80s, the other two in the 70, 75 territory, very good for new products.

And compared to where we were a year ago, rather than us being excluded where actually the beneficiary of being included in a number of class limiting contracts with big payers, in fact compared to our biggest competitor in this marketplace, we have about 20 percentage point advantage of access compared to where they are today, which is a quite a big flip around from last year.

But to achieve that, the way in which the price adjustments to place and it's the reason why last year was so difficult for us to call exactly right at the beginning of the year and we obviously got it wrong, but the reason why it was so difficult to call was first of all, we had to make some price adjustments on the lead contracts not knowing how wider phenomena this would be.

Those initial price adjustments obviously reduce your revenue on those contracts, but they also triggered best price. So what that means is the federal government then automatically gets the benefit of that reduce price.

That was an effect which essentially flows through, let's say, from the first quarter through last year, some of which you'll see in the first quarter of this year.

And then as we essentially repositioned our price on a broader basis, while it didn't further reduce best price, it obviously further suppresses the potential revenue, because you are now giving that price a much broader part in the marketplace.

That phenomena had a little bit of an impact during last year, but largely comes into play on January 1, because a lot of the key contracts which we were negotiating critically for 2015 and very importantly running into 2016, those contracts only kick into gear essentially November, December, January and so what you then have is the effect of that price flowing through.

So even though we are seeing market shares go up, we're seeing share of volumes go up in what looks like a reasonably encouraging market in terms of market dynamic, there is no doubt you will see more price pressure during this year.

I think it's a reasonable expectation, I don't want to get carried away here, I think it's a reasonable expectation for you at this point in time to assume a fairly conservative view that carries on late last year, obviously what would really change that for the better is if we see the volumes and shares continue to grow more than you would necessarily anticipate.

And that's possible and that's obviously what we are focused on, but I'm not going to, I don't want to get ahead of my skies here, I'm simply signaling to you early days shares looking very encouraging, new product access looks terrific, price contracts are all locked in, but we know that price effect will flow through, the big variable is how quickly the volume comes back.

I think you were kind of just carry on for another quarter before we really call it makes sense to me. In terms of general price pressure elsewhere, nothing massive to beyond what I have just talked about. So we continue to see a good business for flow and a good business for Ventolin obviously in the US.

So I wouldn't say there was anything massive, there is price pressure in those spaces, but obviously the main story has been around Advair, Breo and Anoro.

I would say it's done really in terms of what have to happen to us, but the ripples, the consequence of the price flow through, on the bright side the consequences of the volume opportunity are also flowing through.

As far as the inbound competitors, we will see how they come in, but right now it looks like everybody is going to be twice a day, we feel like the Ellipta device is getting more and more traction, it's very interesting to watch physicians reaction, because they initially saw Ellipta just with Breo, they're now seeing it with Anoro, they're now seeing it very recently with Incruse and Arnuity.

It's beginning to become obvious to physicians that they can go through monotherapies, different combinations without having to switch to devices. I think that's increasingly going to become a key advantage for us as well is obviously the once a day nature.

And now as we move forward into this year, particularly for Breo with the asthma indication and the SUMMIT results, we've got a lot of new news coming as well.

So don't get me wrong, it's a super competitive space both in Europe and in America, but we increasingly are feeling confident that after a slow start we are beginning to get these new products entrenched.

We think every piece of new product portfolio we bring to the marketplace strengthens our overall position and we are beginning to - we certainly have got access nailed on this portfolio in the US and that's obviously the base on which we go into 2015.

Next question?.

And the next question comes from the line of Alexandra Hauber from UBS..

Good afternoon. Thank you for taking my questions. First question is a couple of moving parts on Advair in the US, it looks to me that the fourth quarter figure included about 15% stocking effect, the same as last year, it's about £80 million to £100 million stocking in the fourth quarter.

I guess that maybe see a corresponding destock in the first quarter just like in the first quarter 2014.

Now, the question I actually have is, is this destock which would contribute about 4% to 5% decline, assuming it's not the returning, is the destock part of your guidance for the Advair 20% decline that you issued previously? I know that it is too early to call the exact Advair decline [indiscernible] described on the previous question, but the number of 20% is in the room, I just would like to know whether that included the 5% destock in the first quarter and therefore volume price is 15% or is volume price based on the older number was 20%.

Second question is on, I've asked this question many times before, it's on the consumer supply situation, I just would like to get some idea which areas are still affected and what are the timelines for final resolution, that would be great.

And thirdly, sorry to ask the boring tax question, but just would like to ask whether the good tax rate in the fourth quarter, is that just a one-time thing or is it a full year, the resulting full-year tax rate, is that the outlook, the guidance, the implied outlook for 2015 or third option is the tax rate going to be reset for newco anyway and therefore it's too early to give any guideline here?.

Great, thanks Alexandra. So in terms of US Advair and the year end stock movements, yes, that is included in our view of Advair and I would reiterate we would expect Q1 to be particularly challenged, because it has a kind of concentration of price effects, destock, all of those things.

So, but yes, it's within the frame of reference that you previously heard. As far as consumer manufacture, all of the issues in the two or three product lines that we dealt with last year are dealt with, all of the factories are running, manufacturing, shipping.

The last ones to get back to absolutely full stock cover, which is different to supply, but full stock cover is the smoking cessation product line, but the factories are running and everything is going fine there.

And then on the pharmaceutical side, the only area where we've got any, at this time, we're talking like £10 million of disruption, is in the dermatology, we have one or two dermatology lines which have had some supply disruption as well. But you're talking tiny numbers. So as of today, to all intents and purposes, that issue is behind us.

I would expect consumer supply to be a tailwind for this year. I think it will be more pronounced in Q2, Q3, Q4 only because of the effect, the negative effect was largely towards the end of Q1 and then Q2, Q3. So it will be a tailwind and as we sit here today, all the plants are running very well and very busily I have to say.

And Simon, do you want to talk about tax?.

Yeah, on tax rate, Alexandra, the fourth quarter number reflects the fact that a number of the settlements we reached during the course of the year arrived in the fourth quarter, so you should look at the full year rate as more of a guide.

And for the business as it is today, looking forward around 20% is probably a reasonable estimate, although we then need to have a look at the combined business when we close on the Novartis transaction and we will give you specific guidance around the enlarged group's tax rate when we get there..

Great, thanks, Simon.

Next question?.

The next question comes from the line of Graham Parry from Bank of America..

Thanks for taking my questions.

So firstly, I understand you don't want to give 2015 guidance including the Novartis deal until they close, but could you quantify what your expected sales and operating profit growth would be without the Novartis deal? And secondly, you previously talked about a significant reset in margins in 2015 due to the headwinds from declining asset on the Novartis deal with that still being appropriate phrase to use? Thirdly, in your slides you give the latest coverage of Breo and Anoro in Medicare plans, how much of that is Tier 2 and what is the commercial coverage? And then finally on the other declines, can you break down the expectations of all the price component and back of the envelope you're seeing winning back the key contracts would leave you volumes if anything flattish, so the 20% to 25% decline in sales would all be price.

And that's greater price impact overall in 2014, hence arguably more margin impact from that as well. Thank you..

Okay. For obvious reasons, Graham, we don't break down the tier-in of access, but what we tend to look at is favorable position through all the various different contracts and types of encouragement or penalty. And as I described earlier, if you look for example at Advair in Part D, you'd look at something like 85%, 86% favorable.

If you look at Advair in commercial, you're looking at something very high 70s, up into the 80s. But right now we're probably running somewhere like 85% to 87% favorable for commercial access of Advair. If you look at Breo, Part D, your probably looking at right now somewhere around 75%, 76% and something around 68%, 70% for commercial.

And if you look at Anoro, Part D, we're now at just a tad under 70% and on commercial we are just a tad under 80%. So I think a very strong position. And as I said earlier for Advair in commercial, we are about 20 points ahead of our next biggest competitor in terms of commercial access.

The whole point of not giving you guidance, and soon after the transaction is we're not going to give you guidance and soon after that transaction, so I'll refrain from getting into any details there.

It is absolutely fair to expect that we do expect the margin to come down a bit this year, partly due to the transaction and partly due to some of the price pressures in the system, but we will obviously give you more details of that. Simon has previously given new at least a shape and a feel of that in the past.

We will firm that up as we get there, because clearly - and the reason why we are doing this, everybody, is I think pretty obvious, we're pretty close to this transaction closing. First of all, we don't want to give you a set of numbers which we - essentially all us to change very quickly afterwards is the first point.

The second point is everything to do with the Novartis transaction for both companies is based on 2013 pro forma data, now in particular in the case of the vaccine business, but also partially in the case of the consumer business, you know that's a very dynamic business at Novartis.

You also know that although we are in the process of putting these two businesses together, we are officially still competitors and by regulation we are not allowed to share all the detail of what's been going on in the companies.

You also know that in the case of Novartis, they don't publish and break out the vaccine business in exactly the way we're acquiring it, because we are not buying the flu business. And they don't break out the consumer business historically in exactly the way we're acquiring it because of the animal health inclusion in that sector.

So as a result of all of that, it would be wrong to give you guesses or even to extrapolate the 2013 pro forma when life has moved on 15, 18 months first of all and the businesses which are coming across are not reflective of what you see in that published numbers.

So we really want to take the time to get that right for you and then we will publish that with the guidance as soon as we possibly can.

Next question?.

The next question comes from the line of Keyur Parekh from Goldman Sachs..

Good afternoon. Two questions, please.

Andrew, apologies if I missed this, but I did not see an update on the press release regarding the IRR on your R&D spend, which you historically provided for us given the launches for the respiratory products would be very helpful if you can help us think about how you adjusted those numbers for 2014 and where do you think the outlook for that is given your assessment of the pipeline today? And secondly just would be great to hear some context around how you see the margin outlook for this business longer term, I realize 2015 is a transitional year, but as we think about the transaction closing kind of 2016, 2017, 2018, any flavor of that would be very helpful.

Thank you..

Thanks very much. So as far as the rate of return assessment, we do that every couple of years, so that will be done next year. We did it last year, we will do it next year. So I haven't got an update for you simply because we haven't run the numbers again.

But a lot, few puts and takes in it next year, so as you look at it, there will be one or two bigger late stage assets which failed last year, [indiscernible] MAGE-3 of course, there is a portfolio of newer products which are moving forward.

There is a shift in pricing assumption, so there will be a lot of dynamics on top of which there's been – and you will see as we run through this year pretty substantial reduction in the amount of spend in R&D. So as – all of that obviously need to feed into really calculate the number.

I would say specifically to your point on respiratory, my overall expectations of respiratory haven't moved a heck of a lot over the last year.

Remember, this is a business which thanks largely to A, obviously intellectual property, but B, manufacturing hurdles, device protection and the rest of it, this is a business which we expect to have a very, very long life attached to it.

Clearly the takeoff of these products is running a bit slower than we've historically seen, not massively slower than we'd expected, a bit slower than we'd expected. I know a lot slower than you'd expected, a bit slower than we'd expected.

We still were increasingly or I have no reason to feel that the ultimate peak opportunity of these products have changed very much at all.

And actually when I think about mepolizumab and the way it's coming forward in the pipeline and the proximity of being able to get that to the market, actually I think our respiratory business provided we can continue to convert these market share growth that we are beginning to see, not just in America, also in Japan and also in some of the lead European markets, if we can continue to keep that momentum going, then I actually think our goal of delivering our respiratory business post Advair decline, which is bigger than Advair was before we started, which is essentially what I've always strive to do, I think the probability of us achieving that is still absolutely game on.

And that's very much what we are focused to drive toward. As far as the margin outlook is concerned, we are definitely going to talk to that when we have the investor day. So I would just ask your patience for a little bit longer until the transaction is done, at which point you will get guidance not just for 2015, but over the next several years.

We are very conscious almost for the buy side in particular, we think it's probably more important almost to give you a sense of the shape of the evolution of the company over the next three years and it is to absolutely focus on the short run EPS.

Now we're going to talk about both of those things that you're going to see all of that at the investor day, so I would just ask you to bear with us on that. Next question, please..

The next question comes from the line of Dani Saurymper from Barclays..

Good afternoon. I just wanted to ask two questions. One regarding your aspiration to grow the respiratory business again in 2016, can you update us on, in terms of your line of sight on your generic competitor risk? And secondarily, I believe you do a triennial review of your R&D and I think [indiscernible] end of 2014 or beginning of this year.

In that context, can you just maybe discuss a little bit about any potential pruning of R&D areas, particularly in the context of where you spend close to $4 billion on pharmaceutical R&D? And then I just also wanted if lastly maybe Simon, given the decision you took last year to not sell some of the established product portfolio, how you're thinking about that going forward in terms of this, and maybe some more piecemeal divestments that you're anticipating in the coming years?.

Okay, great. Let me ask Simon to answer the last thing first..

Yes, I think as we said at that time, we are now going to retain the business and we will manage the products in-house. But there will be likely to be some trimming of that portfolio as part of that process. I think over the year the portfolio steadily improved its margin across the quarters demonstrating our ability to manage that portfolio.

So it's very much an internal focus, but some small scale in this space is probably in the mix over the next couple of years..

As far as generics are concerned, it's a different picture around the world. So in Europe now, as we predicted three or four years ago, we've got a kind of variety of different copies, I'm not going to call them generics, because in many situations they are not viewed to be substitutable.

So we've branded copies in a number of markets, with the exception of one or two Eastern European markets, the penetration of these products is very, very low.

It is driving a bit of price pressure, and so what you see in the European number is actually volumes are more or less the same, maybe a little down, a little down in the fourth quarter, but very marginal.

A bit more of the decline is due to price and actually so far we've done very well holding our volumes and our share of market, but we had to give on price a little bit in one or two places. So Europe is still a very fragmented situation.

Actually, the most recent information we are picking up is some of the more classic generic threats have been delayed in Europe, but again I'm not going to particularly bet on any of those things because they are not within my control, but just as we've seen many times before, generics kind of come and then recede before they reach the market.

As far as the US is concerned, I think our view remains very similar, we don't see genetic risk in the short run, obviously we see other companies talk up what they think they're going to be able to achieve [indiscernible].

[Indiscernible] or are you considering to return cash such as a special dividend? Secondly respiratory business, [indiscernible] return to growth in 2016, given on the way positioned for 2015, I want if you can comment on the outlook for the franchise group this year? And then lastly going back to the question earlier, you've highlighted up to 10 in 2015, can you tell us how many of those NMEs versus line extensions? Thank you..

Great, thanks. So the majority of the Phase III starts this year in pharma are line extensions to existing NMEs. As you look into Phase II they are – majority of the Phase II starts are NMEs. And obviously, I am just talking about pharma here.

In terms of return to growth, I would expect as we've said in the release today that global Seretide/Advair revenues I would expect to be down this year, exactly where that lands is all around this volume responsiveness to the price shift we are seeing in the US. So exactly where that looks, we have to wait and see.

It's going to be worse in the front end of the year than the back end of the year. So I would guide you it's going to be – we're going to see a bigger impact in the first quarter or two, we would then expect to see that.

I mean to me why, because a lot of the price effect start to annualize out and because you would expect the newer products to start to take more of the stray, but exactly what that does at the franchise level, there is a lot of moving parts are around that, okay, and we're obviously executing to try and get to the best performance we can get to this year and then obviously drive things forward into 2016.

Our assumption on 2016 is based on the assumption that we don't have a US AB generic in the marketplace and also given that we've already signed a whole series of contracts on pricing which carry us further forward into 2016. So those are the assumptions underpinning that judgment.

Obviously if one of those things massively changed, we talked to you about it, but as of today actually when I look at our US NRx share, I know you guys hate NBRx, but I told you a few months ago that NBRx is moving the right way, NRx is following, you all know why, because the dynamic sector of this marketplace is only about 10% or 12%.

So it takes eight or nine months for NBRx trends to reflect into NRx. NRx is moving, you can see that in the US and in Japan that we're now starting to see improvements in America of Advair and additionally Breo, driving up our total share.

And in Japan, you are seeing that Relvar is taking not just a cannibalization opportunity from Advair, but significant share from net-net GSK share going up. Obviously it's early days, but if we can maintain that and drive that kind of shift and if we can do it in more countries, then I have no reason to believe we shouldn't try to do that.

Then gradually that phenomena is going to counter the price phenomena and that's why I believe we can grow next year, subject to the couple of caveats I have just explained to you.

And the return to the 4 billion, Simon, do you want to comment on that?.

Yes. We announced when we originally agreed the transaction, as you recall the government changed the rules in the Autumn statement, we are still trying to work through how best to deliver that $4 billion to the shareholders. We will give you an update when we close the transaction. So still work in progress..

Thanks Carey.

And next question?.

And the next question comes from the line of Matthew Weston from Credit Suisse..

Thank you very much. Three questions, if I can. You highlighted in the statement that 2015 would be the trough year for respiratory revenue.

Given the increased royalties on new products and also the launch costs, can you give us an idea when you expect the trough year in profit from the respiratory business? Also I see recently in Germany, GBA declared that Anoro had no incremental benefit over existing therapies.

Can you tell us your strategy in that market, whether you follow other companies and withdraw the product in Germany? And then finally, Andrew, I see your comments at the press conference that you wouldn't commit a 2016 dividend, should we expect that you will make comments around the 2016 and medium-term dividend policy at the Q2 investor day after the Novartis transaction is closed?.

Thanks, Matthew. So no plans to withdraw Anoro from Germany and I think we will engage to try and reverse that decision obviously. I think we already have a medium, long-term dividend policy, it's in the release and it says we are committed to long-term growth of dividends. But I think it's highly unlikely that we're going to change that.

And it's up to the board whether we make a commitment in the next few months to 2016, it's a relatively unusual to do that. We've done it this year, but whether we do it again, let's wait and see when we get there.

But certainly, the dividend policy is out there, there is no mystery about what the company's dividend policy and we've got a very good track record of delivering dividend.

Obviously, given that we didn't see the growth that we'd originally anticipated last year, we've held back the dividend growth this year, because we want to make sure that the cover is rebuilt before we move back to growth.

But at this level of dividend, I think that's an entirely reasonable judgment to make and my guess is that there won't be any great fireworks around any future commentary there.

And in terms of the future shape of the business, again, we will give you a sense when we talk to you after the Novartis transaction around all of those aspects as soon as we can. Thank you.

Next question?.

The next question comes from the line of Mark Clark from Deutsche Bank..

Good afternoon, gentlemen.

Firstly, a question on China, I wondered if you could just give us an update of what's happening with the organization, there are some reports on the wire as recently about downsizing fairly significant, so what's happening for the organization there and can we look forward to, in your opinion, growth from that business? Or is it going through sort of transition period going forward for the next year or two? And secondly, a question for Simon, you mentioned in your pre-results video that the underlying margin was down about whatever, 80 or 90 bps in the year.

You also mentioned that you won't have the benefit of structural gains in 2015, which added better part of 80 plus basis points to the margin. So would you encourage us to think that the underlying margin pressure in 2015 that you signal would be significantly more than 100 basis points before the impact of Novartis? Thank you..

Great, I will ask Simon to comment in a second on that, Mark. So China business was broadly flat in 2014 versus 2013 and has broadly stabilized, which is a good. We have seen an attrition of headcount in China obviously through the disruption we had last year.

But broadly speaking, where we are today is we have the resource base in place for what we anticipate to go forward. We are going to take one step at a time, we have a lot of work to do to rebuild our position there. But actually if I think through over the next two or three years, I am quite optimistic about opportunity in China.

I think getting stabilization last year was a great first step and we continue to file new products, I continue – I personally believe this is going to be an important marketplace for us and we're going to step forward on that basis.

Simon, do you want to comment on the margin?.

Yes. So Mark, in terms of specifics on the margin, we will get to that when we do the investor day for the company post the transaction.

But as I flagged in the video that a continuing decline in Advair/Seretide revenues will put some downward pressure on the margin in the year for the existing business and obviously in the absence of the structural benefits that we've seen over the last three or four years, there is an additional drag in that.

But exactly where we expect that to go I think is something we should cover when the company comes together post the close. So we will pick it up then..

Thanks, Simon.

Next question?.

And the next question comes from Andy Kocen from Redburn..

Thanks for taking the question.

Another strategic one relating to the shape of the business, because you've sold oncology is which is fast-growing, you're talking about the partial IPO of ViiV which is another growing bit of the business and lastly you tried to sell EPB, and Bloomberg's talking about you're potentially spending out consumer and vaccine.

And I know nothing should be off the table when you consider your business, but what do you really kind of want Glaxo to look like in five years time, what's really the core of what you do?.

Thanks for the question, Andy. So where I'm at in terms of, first of all, we should take very objective decisions about how to create the best long-term value proposition from the assets that we own. I came to the very strong conclusion we were not the best owners of leukocyte business, which is why sold it.

I think it makes sense to sell the tail businesses of consumer, because it allows you to focus on big brands, that's why we sold it.

I believe that our marketed oncology products at $16 billion was an extraordinary valuation to be able to achieve versus any retained position, given my view of that market place over the next five or six years, I will come back to that in a second.

And it also allowed me to unlock what I wanted to do for a long time, which was find a way to take consumer to scale and absolutely lock in leadership position of the vaccine business.

What that leads me with, once we close the Novartis transaction, as the company out been trying to create for seven years, a balanced business, consumer 25% of the business, pharmaceuticals 60% of the business, huge vaccine platform, all built on a very substantial global footprint.

So if you look at not just the sectoral balance that we've created or will have created, but also the geographic balance, you see a shift from an overdependence on the US which clearly the US is going through a very multi-year shift in the US marketplace on pricing, so we've gone from an overdependence on the US to really a very good balance between US, Japan, Europe and emerging markets.

What that means is that we've got durable businesses in consumer, because of brand protection, durable businesses in vaccines and we've got durable businesses in our pharmaceutical portfolio, not least because of the device technologies and respiratory, and we have durable businesses in emerging markets because of the nature of those marketplaces compared to the IP-heavy Western markets.

Just put that last point into crystal clear clarity [indiscernible] we made 477 tonnes of augmenting. In 2014, with almost no sales in America, we made 894 tonnes, almost double. In Ventolin, when Ventolin went off patents in America, we were making 50 million cans a year, now we're making 160 million cans a year because of the emerging markets.

Now, of course, that business comes in a lower price, lower margin, but it's an enormous incremental opportunity. And as we've gone through over the last six or seven years, you haven't seen a lot of this because we've been burning off a lot of the old generic portfolio and most recently dealing with price on Advair.

But as you look forward and you look at that strong consumer platform, you look at that strong vaccine platform and you look at the pharma business, half of which is respiratory, which is loaded up with new products and HIV which is loaded up with new products, and the rest basically is either emerging markets established products, I've just touched on, or is going to be supported by a very substantial pipeline, you start to see how those three businesses can really drive growth going forward, particularly in an event stay back and say where is the next big patent expiration for the company.

Now clearly Advair exists as a big patent expiration, but what you're seeing partly due to price, partly due to new products, is quite quickly now Advair is not going to be the absolute be all and end all of the GSK story in the way that it dominated things for the last 10 years.

And that, as you look through that, the business looks remarkably durable. I come back to the comment I made about oncology, $16 billion allow me to get the deal done, I needed to get done and a very, very full valuation, very difficult to see how GSK could have beaten that number by retaining that business.

I believe over the next few years, we're going to see in oncology more competition, there will be price competition and as a tremendous intensity particularly around some of the areas of where we have established our business in. So it makes a lot of sense to crystallize our position now.

However, we also recognize that there is great opportunity for more significant innovation in the sector, which is why we've continued to prosecute our earlier research in epigenetics and immuno-oncology, and I think we have every opportunity to come back into that space down the road either directly or with a partner like Novartis, but I would remind you we have no obligation to partner anything to Novartis.

We have the option to offer it to them, we do not have the obligation to give it to them and we are perfectly at will to take things forward on our own.

So oncology remains, and I know to some of you this might be freaking you out, the idea that we could sell the current portfolio and still think we are in the space, the options exist very much for us for oncology to come back, we clearly have a strong position in ViiV, we clearly have a strong position in respiratory and then as you look at immuno inflammation and cardiology, we have some significant bets coming through the system.

So that's the business that we are building. We think that's a great business, we think that's the business which is got tremendous operational synergies, a really strong global platform, and engines that can drive all of these businesses going forward as we move out of a very prolonged period of headwinds on that organization.

But we shouldn't be religious about ignoring the possibility that there is more value to be created with a different corporate construct.

And I have demonstrated through the sales, through the ViiV creation, and through the Novartis transaction, I think an unusual degree of creativity in this sector to try and find ways to unlock assets without using enormous premium driven transactions to do it. And we will continue to be open-minded about that.

So absolutely the core and central plan is the business that we are creating with the Novartis transaction and the R&D portfolio that we have coming through within GSK.

But we are always going to be thoughtful about optionality and it's obvious a statement of fact that the new transaction creates more optionality than we have before and that, I hope, crafts all of this in a way where could see the consistency between being committed to what we are trying to build here, but also open-minded to the reality that if there are better options then we are always going to be thoughtful about on behalf of our shareholders.

Next question?.

The next question comes from the line of Jeffrey Holford from Jefferies..

Thank you very much for taking my question. I have a follow-on on that thing.

I think it's pretty clear that there is a strong valuation case for the company on some of the part basis, but just wondered what your view is when you're looking at the new construct, are there significant dissynergies that we can't potentially see for further separation of the businesses beyond just the IPO of ViiV? Thank you..

Thanks, Jeff. It's a great question and it is fundamentally the core question to these sorts of issues. I want to make just two or three comments.

First of all, I want to remind you all that we haven't made the definitive decision on ViiV yet, we will make that in the summer, but I want to just highlight, we've talked about a partial IPO of ViiV at least initially as the case were tested. I will remind you that we own nearly 80% of that business.

It wouldn't take a rocket scientist to figure out that even if we did a partial IPO, we would still own more than 50% of that business. And so I think anybody who is thinking of ViiV or HIV is not going to be an important part of the GSK equity story if they IPO it, think again, because that's not the scenario that we are planning, right.

The scenario we are thoughtful about is to potentially IPO a piece of that business to allow a release or to allow the ventilation of that value to shareholders properly to put into a situation where it can really drive forward as a specialist business, we don't think there are massive dissynergies there.

That's the hypothesis we're testing on the ViiV piece, but if we executed on that at least in the early years it would be a partial IPO would still be a very substantial part of the GSK equity story.

As far as the other three businesses, the question of dissynergy, so Jeff, there are really two places I think you have to be really thoughtful about and it's why this isn't just so simple as to say these three businesses could be cut and pasted any which way you want.

The first is the consumer business and its position in emerging markets compared to the pharmaceutical business and obviously the interplay between the manufacturing backbones and the R&D backbones of the two companies. Those backbones, regulators are pushing consumer companies more and more into a pharmaceutical standard of manufacture.

That's something we're very good at. Secondly, R&D from time to time will produce assets which can cross the bridge. In fact today, we're shipping Flonase OTC in America. Big switch, come along every now and again, you know that in Novartis is tiring switch in the works, that'd be terrific.

There's a consumer healthcare company that may be twice within three or four years, there are going to be significant US switch opportunities. That doesn't happen very often, but when they come, they are very big and nearly drive these businesses forward.

I would also say when you look at the top performing consumer healthcare companies, the OTC companies, they're almost all the top performers are almost all owned by pharmaceutical companies.

The companies which drive good overall consumer healthcare growth typically which are not owned by pharma are driving that growth from their FMCG healthcare portfolios, not from their OTC healthcare portfolios.

That at a very kind of 80,000 feet perspectives speak to the fact that there are potential dissynergies in the business model and I would argue for GSK, we're very careful about unraveling your emerging market platform because of the way those markets work.

So you got to watch for that, I'm not saying that is killer argument, but that's the kind of analysis you want to carefully look at. The second area to be thoughtful about is vaccines.

So vaccines at GSK clearly is a separate R&D, separate manufacturing organization, although actually the manufacturing organizations are beginning at a margin to comingle, as the pharma business moves more into biologics. But what's critical to understand is 100% of the distribution is merged together.

So on the ground, in hundred countries, it is a single pharmaceutical vaccine business and there are very substantial synergies around how you operate with governments, how you engage with the marketplace.

So again, you'd have to be very thoughtful about what you are unraveling if you were going to separate, which again is why I would reiterate that our core focus is to create this effective global business with the three platforms I have described about supported by the very strong global geographic balance.

And we are not close minded to options, we recognize our options are more than they were, but it is not simplistic in terms of how to make those choices.

And I'm not going to make those choices based on a quarter or a year, I'm going to make those choices based on what I think is right for these businesses over a 10 or 20-year time frame because the life cycles of that portfolios are obviously 10 or 20 years. So we need to make those choices on that basis.

I hope that helps, I know it's a big subject, I'm sorry the answers are long, but I think it's just important to try and show you got a clear view of our philosophy here. We're going to take the last question now..

And the last question comes from the line of Florent Cespedes from Societe Generale..

Good afternoon, gentlemen. This is Florent Cespedes from Societe Generale. Thank you very much for taking my question.

A few quick products related questions in respiratory and cardio, let's start with cardiology, losmapimod in ACS, there is a big ongoing clinical trial with the completion that's expected in 2018, could you give us a little bit more color on the design and if there will be an interim analysis in the coming quarters? And a follow-up on cardio metabolic, could you share with us some products which are in early phase pipeline in this area like you did in immuno-oncology and immuno inflammation? And second area on the respiratory, Breo, this year, it will an important year for Breo with the SUMMIT clinical trial results.

Could you remind us, could you refresh our memory on the main differences that exist between SUMMIT trial and also just a double check if this year we should have, during the second half, the final results of the trial? Thank you..

Florent, could you just say that last piece of the question again, I just missed the very last thing you said?.

Yes, the last part of my question in respiratory was on the [indiscernible] that you completed the recruitment in November last year, I would just like to double check with you if you will release, you should release the results during the second half of this year..

Okay, great. Thanks very much. The SUMMIT trial, some differences to the – mostly on risk profile of patients who come into that and so there are some subtle differences and obviously we hope we've learned some lessons from the TORCH trial.

As far as cardio metabolic is concerned, obviously you know about the ACS program with the P-38, we're going to publish the protocols for that I think pretty soon.

So I won't go into the detail of it, in fact this morning I checked with Patrick Vallance, everything is going fine on that program, but no news, but you will see a little bit more on that in the not-too-distant future.

We have the PHI program, it looks very exciting for anaemia and then we have some muscle-wasting program on iBAT type II diabetes program should be full in heart failure, and then a program in familial amyloid cardiomyopathy, this is an example of some of the early stuff going forward.

And as far as [indiscernible] is concerned, you're quite right, one of the [indiscernible] studies is completing enrolment, the other is still ongoing. My expectation at the moment is you probably won't see the first date on that until early 2016, we will update you on that as time goes by.

But it's event driven and I would just expect – I would encourage you to think about it a little bit into 2016 rather than 2015. Obviously on respiratory, we also know that we now have the outcome for Breo asthma settled, we also have the outcome for mepolizumab in the diary.

So we feel like we've got a very clear pathway on a whole series of events during this year as well as obviously the SUMMIT date, which again, I'd remind you in event driven, so I can't tell you exactly when it is going to come out, but I would anticipate it Q3, somewhere in that kind of window, that's kind of what we are right now expecting.

So I think with asthma, Breo, mepolizumab, SUMMIT data, obviously the very substantial increase in access that we have, the beginning of turns of market share not just in the US, but outside the US, that's why we're feeling respiratory is a key year for us this year, but first couple of quarters, it's going to be suppressed because of the price flow through from last year.

So that's kind of the picture on the respiratory story. With that, I think we unfortunately have come to the end of the call. Obviously, the IR team are available if you would like to follow up on anything and thank you very much for your attention..