GlaxoSmithKline PLC GSK 3rd Quarter Results

  GlaxoSmithKline PLC (GSK) - 3rd Quarter Results

RNS Number : 9603P
GlaxoSmithKline PLC
31 October 2012




Issued: Wednesday, 31 October 2012, London, U.K.

Results Announcement for the third quarter 2012



GSK delivers  Q3  core  EPS  of  26.5p and dividend
of  18p



Core results*
                        Q3 2012             9 months
                                                2012
                             £m CER%   £%         £m CER%  £%
Turnover                 6,527  (5)  (8)   19,629  (2) (4)
Core operating profit    1,970 (13) (15)    6,043  (6) (8)
Core earnings per share   26.5p (11) (13)     80.2p  (3) (5)



Total results
                   Q3 2012             9 months
                                           2012
                        £m CER%   £%         £m CER%  £%
Turnover            6,527  (5)  (8)   19,629  (2) (4)
Operating profit    1,679 (18) (21)    5,452  (6) (8)
Earnings per share   22.9p (14) (17)     75.0p  (4) (6)



Summary
■ Group  sales (-5%) impacted  by  expected demanding prior  year  comparisons
  and  continued weakness  in European  markets; strong  performance evident
  in key  investment  businesses:
 - Excluding prior year comparisons related to sales of Cervarix in Japan and
    US flu vaccines (3 percentage points), and product disposals of OTC brands
    and Vesicare (2 percentage points), sales for the quarter broadly in line
    with last year.
 - Europe  -9%  reflecting  additional  austerity  measures
 - US  -6%  reflecting  genericisation  and  discontinuation  of  certain 
    products (+2% excluding these items)
 - EMAP  +11%;  Consumer  Healthcare  +5%  (excluding  divestments);  Japan 
    +6%  (excluding  Cervarix)
 - 2012  sales (CER) now expected  to be  broadly  in  line  with  2011,
    absent a further deterioration in Europe
 
■ Further successful R&D  delivery:  phase  III programmes  completed  for  6 
  novel  medicines  in 2012:
 - BRAF, MEK,  Relvar/Breo  filed;  albiglutide, dolutegravir,  LABA/LAMA 
    expected  to  file  around  end  of  year
 - ViiV Healthcare acquires exclusive global rights to HIV integrase
    portfolio including dolutegravir
  
■ Focus  on  delivery  of  cost  improvements  and  financial  efficiencies
  maintained:
 - Q3 combined core SG&A and R&D expenditure flat, reflecting efficiency
    gains offset by pipeline and growth investments
 - Additional cost reductions and phasing of operating expenses expected to
    benefit Q4 relative to Q3
 - Full year core tax  rate  now  expected  to  be approximately 25%;  two 
    years  ahead  of original target
 - 2012 core operating margin expected to be broadly in line with last year
 
■ Continued strong cash generation and returns to shareholders:
 - Adjusted  net  cash  inflows  from operating  activities  £1.8  billion
 - £4.8 billion  of cash  distributed  to  shareholders  year  to  date  (+9%
    versus  2011);  continue  to  expect total  share  repurchases  in  2012 
    of  £2-£2.5  billion
 - Further  dividend  growth:  Q3  18p +6%





The full results are presented under 'Income Statement' on page 28 and Core
results reconciliations are presented on pages 43 to 46.

* For explanations of the measures 'Core results' and 'CER', see page 26.





GSK's strategic priorities



We have focused our business around the delivery of three strategic
priorities, which aim to increase growth, reduce risk and improve our long
term financial performance:
                    
·                    Grow a diversified global business
·                    Deliver more products of value
·                    Simplify the operating model



Chief Executive Officer's review
We continue to make progress on our strategy, particularly through increasing
our sales exposure to growth businesses, notably emerging markets, and
delivering a step-change in output from R&D. As expected, reported sales
performance this quarter of -5% was impacted by demanding prior year
comparisons, product disposals and continuing weakness in the European
environment for Pharmaceuticals and Vaccines. Excluding the prior year
comparisons, related to sales of Cervarix in Japan and US flu vaccines (3
percentage points), and product disposals of OTC brands and Vesicare (2
percentage points), sales for the quarter were broadly in line with last year.



Looking at our revenue base, many businesses continue to perform strongly.
Consumer Healthcare sales grew 5% excluding the recently divested non-core
OTC brands. In EMAP, pharmaceuticals and vaccines sales grew in all major
markets (Middle East/Africa +16%, Latin America +11%, China +15%, and India
9%). In Japan, sales of key products were robust; and in the US, excluding
the impact of genericisation and discontinued products, sales grew 2% with
good performances seen particularly in respiratory and oncology products.



In Europe, sales declined 9% in the quarter, with the decline reflecting an
adverse pricing effect of 7% and a 2% decline in volumes. It is clear that
the European market is facing a prolonged period of significant economic
pressure. In this context we are reviewing our current business and assessing
how best to respond to this environment and meet the increasingly diverse
needs of European governments.



Despite these challenges, we expect to see sales grow in the fourth quarter,
in particular with further momentum in EMAP including anticipated completion
of multiple pre-ordered vaccine tenders. On this basis, and absent a further
deterioration in Europe, we now expect sales for the year to be broadly in
line with 2011 on a constant currency basis.



Sustained efforts to manage our cost base and to deliver financial
efficiencies also continue. We expect additional cost reductions and phasing
of operating expenses to benefit earnings in the fourth quarter relative to
Q3. Assuming we deliver our sales expectations for the year, we continue to
expect the core operating margin in 2012 to be broadly in line with last year.



Progress in our late stage pipeline this year has been exceptional with output
better than in any previous period for the company. We have now completed six
Phase III programmes and initiated global regulatory submissions for several
potential new medicines. Since June, we have completed filings for two
oncology treatments (MEK and BRAF inhibitors) and for a new respiratory
medicine, Relvar/Breo. We expect to commence global regulatory filings for a
further respiratory medicine (LAMA/LABA for COPD), a new HIV treatment
(dolutegravir) and a new medicine for type II diabetes (albiglutide) around
the end of the year. We plan to review the progress we have made with our
Phase III assets at an event with investors on 3 December.



Clearly, our goal is to maximise the potential return of our pipeline. For
many of the advanced assets we have existing capabilities and infrastructure
in place. We will also make investments, as necessary, to improve returns. 



Our acquisition of HGS and the new structure agreed between ViiV Healthcare
and Shionogi, for the development of HIV integrase inhibitors, also represent
actions to simplify operations and improve returns. Whilst in the short-term,
these transactions will have a small dilutive effect on EPS as we take full
accountability for all of the operating expenses, both these transactions
substantially increase our share of the economics on key assets and, we
believe, create long-term shareholder value.



With sales contributions from new products, together with further cost
discipline, we remain confident that we can drive improvements in core
operating margin over the next few years. As we have said previously, the
rate and the extent of this will depend on the precise mix of our businesses
and the delivery rate of our pipeline. It is also worth recognising here that
as we introduce new products over the next few years, they will contribute to
the volatility we already see in our performance on a quarter-to-quarter
basis. This variability is inherent in our business given a proportion of our
revenues are tender driven and that ongoing delivery of operational and
financial efficiencies is unevenly phased.



The Group continues to be highly cash generative. Adjusting for legal
settlements, net cash inflow from operating activities was £1.8 billion. This
quarter there were significant cash outflows related to the purchase of HGS
and payments of previously provided for legal settlements. However, these
have been funded by improving balance sheet efficiency and increases in net
debt.



As a result, we have been able to continue to increase cash distributions to
shareholders. Today, we have confirmed a 6% increase in the Q3 dividend to
18p. £1.9 billion of shares have been repurchased in the year to date and we
continue to expect total share repurchases this year to be £2-£2.5 billion.
Overall, we have distributed £4.8 billion to shareholders so far this year,
an increase of 9% compared with last year.



In conclusion, our focus is to continue to deliver on our strategy to maximise
growth opportunities and actively prepare for the roll-out of multiple new
products. We remain confident that these new products, combined with our
strengthened businesses in emerging markets and consumer healthcare and
further execution of our financial strategy, provide GSK with clear
opportunities to deliver sustained improvement in long-term financial
performance and overall returns to shareholders.





Sir Andrew Witty

Chief Executive Officer


A video interview with CFO, Simon Dingemans discussing today's results is
available on www.gsk.com





Contents                                                                  Page
                                                                            
Q3 results summary                                                           1
Chief Executive Officer's review                                             2
Group performance                                                            5
Divisional performance                                                      15
Research and development                                                    23
Definitions                                                                 26
Contacts                                                                    27
                                                                            
Income statements                                                           28
Statement of comprehensive income                                           29
Pharmaceuticals and Vaccines turnover - three months ended 30 September     30
2012
Pharmaceuticals and Vaccines turnover - nine months ended 30 September      31
2012
ViiV Healthcare turnover - three months and nine months ended 30            32
September 2012
Balance sheet                                                               33
Statement of changes in equity                                              34
Cash flow statement - nine months ended 30 September 2012                   35
Segment information                                                         36
Legal matters                                                               39
Taxation                                                                    39
Additional information                                                      40
Reconciliation of cash flow to movements in net debt                        42
Core results reconciliations                                                43
Auditor's review report                                                     47





Group performance



Group turnover by division, geographic region and segment



Group turnover
by division                                 Q3 2012                       9 months 2012
                ----------------------------------- -----------------------------------
                                             Growth                              Growth
                               £m              CER%                £m              CER%
                     ------------      ------------      ------------      ------------
Pharmaceuticals             4,319               (4)            13,307               (2)
Vaccines                      940              (14)             2,461               (6)
                     ------------      ------------      ------------      ------------
Pharmaceuticals             5,259               (6)            15,768               (2)
and Vaccines
Consumer                    1,268               (2)             3,861                -
Healthcare
                     ------------      ------------      ------------      ------------
                           6,527               (5)            19,629               (2)
                     ------------      ------------      ------------      ------------






Group
turnover
by
geographic
region                                 Q3 2012                       9 months 2012
           ----------------------------------- -----------------------------------
                                        Growth                              Growth
                          £m              CER%                £m              CER%
                ------------      ------------      ------------      ------------
USA                    2,144               (8)             6,298               (4)
Europe                 1,717               (9)             5,440               (7)
EMAP                   1,744               10             5,004                8
Japan                    506              (22)             1,665               (5)
Other                    416               (4)             1,222               (5)
                ------------      ------------      ------------      ------------
                      6,527               (5)            19,629               (2)
                ------------      ------------      ------------      ------------
Group
turnover               2,666                -             7,891                3
outside US
and Europe
                ------------      ------------      ------------      ------------






Group turnover by
segment                                       Q3 2012                       9 months 2012
                  ----------------------------------- -----------------------------------
                                               Growth                              Growth
                                 £m              CER%                £m              CER%
                       ------------      ------------      ------------      ------------
Pharmaceuticals                                                                      
and Vaccines
- USA                         1,788               (6)             5,234               (1)
- Europe                      1,159               (9)             3,690               (8)
- EMAP                        1,203               11             3,424                7
- Japan                         440              (25)             1,473               (7)
- ViiV Healthcare               356              (15)             1,036               (9)
  Other trading
- and unallocated               313               (3)               911               (5)
  pharmaceuticals
                       ------------      ------------      ------------      ------------
Pharmaceuticals               5,259               (6)            15,768               (2)
and Vaccines
Consumer                      1,268               (2)             3,861                -
Healthcare
                       ------------      ------------      ------------      ------------
                             6,527               (5)            19,629               (2)
                       ------------      ------------      ------------      ------------




Turnover - Q3 2012



Total Group turnover for Q3 2012 decreased 5% to £6,527 million.
Pharmaceuticals and Vaccines turnover was down 6%. As anticipated, turnover
in the quarter declined compared with a relatively strong Q3 2011 driven by
the performances of Cervarix and seasonal flu vaccines. The impact of these
strong comparatives was compounded by the effect of a number of prior
disposals as well as sustained pressure in our European markets for
Pharmaceuticals and Vaccines, where government austerity measures have
remained severe. By contrast, emerging markets saw strong growth with EMAP
Pharmaceuticals and Vaccines turnover up 11% in the quarter and Consumer
Healthcare growth of 5%, also driven strongly by Rest of World sales (+12%).



Pharmaceuticals turnover declined 4% and Vaccines turnover fell 14%. Reported
Consumer Healthcare turnover declined 2% to £1,268 million, but excluding the
non-core OTC brands that were divested in H1 2012, turnover increased 5%.



Human Genome Sciences (HGS) was acquired on 3 August 2012 and its results have
been consolidated from that date. The inclusion of HGS contributed sales of
£23 million in the quarter post-acquisition.



In the US, Pharmaceuticals and Vaccines turnover declined 6%, with
Pharmaceuticals down 5% and Vaccines down 9%. US Pharmaceuticals turnover
reflected the loss of sales of Vesicare following the conclusion of the
co-promotion agreement in Q1 2012, together with sales declines of Avandia and
a number of older products, particularly Arixtra and Valtrex. Excluding the
impact of genericisation and discontinued products, Pharmaceuticals and
Vaccines sales grew 2%. Total Respiratory sales grew 7% as market growth
improved in the quarter, Benlysta contributed £19 million of sales and the
newer oncology products Promacta and Votrient also showed strong growth in the
quarter. In Q3 2011, there were some adjustments (both positive and negative)
to previous accruals for returns and rebates that impacted reported sales
growth for certain products in Q3 2012. The net effect of these adjustments
was broadly offset by the net impact of wholesaler stocking patterns. Sales
of Vaccines in the US were down 9%, primarily reflecting a 28% decline in flu
vaccine sales.



Europe Pharmaceuticals and Vaccines markets faced sustained weakness as
additional government austerity measures were implemented. Price reductions
of 7% were compounded by increased mandatory generic substitution contributing
to a 2% volume decline as Pharmaceuticals and Vaccines turnover declined by 9%
to £1,159 million. Pharmaceuticals turnover declined 10% to £910 million,
while vaccines sales were down 4% to £249 million, also due in part to lower
tender sales of flu vaccines.



EMAP Pharmaceuticals and Vaccines sales rose 11% with growth generated across
a number of markets, primarily Latin America (up 11% to £332 million), the
Middle East and Africa (up 16% to £307 million) and China (up 15% to £209
million). Pharmaceuticals grew 10% primarily reflecting strong growth in
Respiratory products and Augmentin. Vaccines grew 13%, primarily as a result
of the benefit of tender shipments for Rotarix, Infanrix/Pediarix and flu
vaccines.



Japan Pharmaceuticals and Vaccines turnover fell 25% in the quarter to £440
million reflecting an adverse comparison with strong Cervarix sales in Q3 2011
which benefited from the HPV vaccination catch-up programme, now largely
complete. Excluding Cervarix, Japan Pharmaceuticals and Vaccines turnover
increased 6% in the quarter. The Pharmaceuticals business grew 2% despite the
impact of the mandatory biennial price cuts and generic competition to Paxil
(down 35% to £44 million). The Respiratory portfolio grew 12% to £130 million
and there were strong contributions from a number of recently launched
products, including Lamictal and Avodart.



ViiV Healthcare turnover declined by 15% primarily due to the continued effect
of generic competition in the US to Combivir and Epivir and tender phasing in
EMAP, which more than offset growth of Epzicom and Selzentry.



Consumer Healthcare turnover, excluding the sales of the non-core OTC brands
that were divested in H1 2012, increased by 5%. This reflected consistent
contributions from Oral care, Nutrition and Wellness, while sales in Skin
health were flat. On a regional basis, ongoing growth was driven by the Rest
of World markets (up 12%), particularly India, the Middle East and China.
Europe reported flat sales in the face of continued economic pressures and the
adverse impact of alli. The US declined 2%, largely as a result of
promotional phasing and retailer stock movements. Reported Consumer
Healthcare turnover declined 2% to £1,268 million.



Turnover - 9 months 2012



Total Group turnover for the nine months fell 2%, with a 2% decline in
Pharmaceuticals and Vaccines turnover and flat reported turnover of Consumer
Healthcare. Despite improved momentum in EMAP, Pharmaceuticals turnover was
down 2%, largely as a result of the increasing pressure from austerity
measures in Europe. Vaccines turnover declined 6% due to lower sales of
Cervarix in Japan (9 months 2012: £125 million; 9 months 2011: £289 million).
Excluding Cervarix, Vaccines turnover increased 1%. Reported Consumer
Healthcare turnover was flat at £3,861 million, but excluding the non-core OTC
brands divested in H1 2012, Consumer Healthcare turnover grew 5%.



US Pharmaceuticals and Vaccines turnover declined 1%. Pharmaceuticals
turnover fell 1%, with declines in Metabolic, Anti-virals, Dermatology and
Anti-bacterials largely offset by growth in Respiratory, Oncology and CNS
products. Turnover also benefited from the net effect of the incremental
revenue from the conclusion of the Vesicare co-promotion agreement in Q1 2012,
but no sales thereafter. There were sales declines for Avandia and a number
of older products including Arixtra and Valtrex, but an encouraging
performance from new products, particularly in Oncology, which grew 17%.
Excluding the impact of discontinued products and genericisation,
Pharmaceuticals and Vaccines sales grew 3%. Vaccines sales fell 6% as lower
flu vaccines sales and adverse comparisons for Hepatitis and Rotarix with
2011, which benefited from significant CDC stockpile purchases, more than
offset the growth in sales of Infanrix/Pediarix and Boostrix.



Europe Pharmaceuticals and Vaccines turnover declined 8% in the nine months
primarily driven by the worsening effects of various ongoing government
austerity measures on prices and generic substitution. This decline resulted
from adverse pricing effects of 7% and a 1% volume decline. Pharmaceuticals
sales declined 8% and Vaccines sales declined 4%.



EMAP Pharmaceuticals and Vaccines turnover increased 7% as strong growth in
China (up 18% to £549 million), India (up 11% to £227 million) and Latin
America (up 7% to £936 million) was tempered by the effect of price reductions
in a number of markets, including Turkey. Pharmaceuticals turnover increased
8%, while the Vaccines business, where volatility is often driven by tender
sales, grew 7% with strong growth in many developing countries being partly
offset by lower tender sales in Latin America.



Japan Pharmaceuticals and Vaccines turnover fell 7% reflecting an adverse
comparison with strong Cervarix sales in 2011 which benefited from the HPV
vaccination catch-up programme, now largely complete. Excluding Cervarix,
Japan Pharmaceuticals and Vaccines turnover increased 5%. Pharmaceuticals
turnover grew 3%, despite the impact of the mandatory biennial price cuts,
which impacted growth by approximately three percentage points, and generic
competition to Paxil, with strong growth from the recently launched products,
Lamictal, Avodart and Volibris. The Respiratory portfolio grew 4%, driven by
a strong performance from Xyzal, offsetting declines in Flixonase and Zyrtec.
In Vaccines, the recently launched Rotarix contributed sales of £33 million.



ViiV Healthcare turnover declined by 9% primarily reflecting generic
competition in the US to Combivir and Epivir offsetting growth generated by
Epzicom and Selzentry.



Consumer Healthcare turnover, excluding the sales of the non-core OTC brands
that were divested in H1 2012, increased 5%. This reflected continued growth
in Oral care, Nutrition and Wellness, partly offset by a decline in Skin
health. On a regional basis, US sales were flat and Europe declined 1%, both
impacted by continuing economic pressures and the drag from alli. The Rest of
World markets, particularly India, the Middle East and China, continued to
make a strong contribution and grew 11%. Reported turnover for Consumer
Healthcare was flat at £3,861 million.





Core operating profit and margin



Core operating
profit                                                         Q3 2012                                           9 months 2012
               ------------------------------------------------------- -------------------------------------------------------
                                                % of            Growth                                  % of            Growth
                               £m           turnover             CER %                 £m           turnover             CER %
                     ------------       ------------      ------------       ------------       ------------      ------------
Turnover                   6,527             100.0               (5)            19,629             100.0               (2)
                                                                                                                       
Cost of sales             (1,847)             (28.3)               (2)            (5,248)             (26.7)                1
Selling,
general and               (1,934)             (29.6)                2            (5,928)             (30.2)                -
administration
Research and                (868)             (13.3)               (5)            (2,640)             (13.4)               (1)
development
Royalty income                92               1.4               12               230               1.1                7
                     ------------       ------------      ------------       ------------       ------------      ------------
Core operating             1,970              30.2              (13)             6,043              30.8               (6)
profit
                     ------------       ------------      ------------       ------------       ------------      ------------
                                                                                                                       
Core profit                1,801                                (14)             5,532                                 (7)
before tax
Core profit                1,364                                (12)             4,136                                 (5)
after tax
Core profit
attributable               1,300                                (13)             3,959                                 (6)
to
shareholders
Core earnings               26.5p                                (11)              80.2p                                 (3)
per share
                     ------------                         ------------       ------------                         ------------
                                                                                                                       





Core operating
profit by
division                                                        Q3 2012                                           9 months 2012
                ------------------------------------------------------- -------------------------------------------------------
                                                 % of            Growth                                                  Growth
                                £m           turnover             CER %                 £m           Margin %             CER %
                      ------------       ------------      ------------       ------------       ------------      ------------
Pharmaceuticals             1,534              35.5               (8)             4,933              37.1               (5)
Vaccines                      356              37.9              (23)               889              36.1              (12)
                      ------------       ------------      ------------       ------------       ------------      ------------
Pharmaceuticals             1,890              35.9              (11)             5,822              36.9               (7)
and Vaccines
Consumer                      243              19.2              (21)               701              18.2              (10)
Healthcare
                      ------------       ------------      ------------       ------------       ------------      ------------
                           2,133              32.7              (12)             6,523              33.2               (7)
Corporate &
other
unallocated
costs                        (163)                                  4              (480)                                (14)
                      ------------       ------------      ------------       ------------       ------------      ------------
Core operating              1,970              30.2              (13)             6,043              30.8               (6)
profit
                      ------------       ------------      ------------       ------------       ------------      ------------
                                                                                                                        





Core operating
profit by segment                                                 Q3 2012                                           9 months 2012
                  ------------------------------------------------------- -------------------------------------------------------
                                                                   Growth                                                  Growth
                                  £m           Margin %             CER %                    £m         Margin %            CER %
                        ------------       ------------      ------------          ------------     ------------     ------------
Pharmaceuticals                                                                                                               
and Vaccines                                                                                                 
- USA                         1,197              66.9               (7)           3,577                 68.3               2
- Europe                        613              52.9              (11)           1,938                 52.5             (11)
- EMAP                          394              32.8               15           1,081                 31.6               5
- Japan                         256              58.2              (29)             877                 59.5             (10)
- ViiV Healthcare               224              62.9               (7)             669                 64.6               3
- Pharmaceutical               (680)                                 (2)                                      
  R&D                                                                              (2,068)                                     1
- Other trading
  and unallocated

  
  pharmaceuticals              (114)             (36.4)               10            (252)                (27.7)            >100
                        ------------       ------------      ------------     ------------          ------------     ------------
Pharmaceuticals               1,890              35.9              (11)           5,822                 36.9              (7)
and Vaccines
Consumer                        243              19.2              (21)             701                 18.2             (10)
Healthcare
                        ------------       ------------      ------------     ------------          ------------     ------------
                             2,133              32.7              (12)           6,523                 33.2              (7)
Corporate & other
unallocated costs              (163)                                  4            (480)                                  (14)
                        ------------       ------------      ------------     ------------          ------------     ------------
Core operating                1,970              30.2              (13)           6,043                 30.8              (6)
profit
                        ------------       ------------      ------------     ------------          ------------     ------------
                                                                                                                          



Core operating profit - Q3 2012

Core operating profit was £1,970 million, a 13% decrease in CER terms on a
turnover decline of 5%. The operating margin declined by 2.6 percentage
points to 30.2% compared with Q3 2011 primarily reflecting lower turnover and
an increase in SG&A during the quarter as a result of the phasing of
investments in growth markets, particularly Consumer Healthcare and additional
costs from HGS which impacted the operating margin by 0.6 percentage points in
the quarter. The phasing of the benefits of offsetting cost reduction efforts
was lower in Q3 than is expected in Q4.



Cost of sales was 28.3% of turnover compared with 27.8% in Q3 2011, reflecting
higher stock write-offs and volume under-recoveries as well as the acquisition
of HGS.



SG&A costs as a percentage of sales were 29.6% compared with 27.6% in Q3 2011,
as SG&A costs grew 2% on a turnover decline of 5%. Investments in growth
businesses, particularly in Consumer Healthcare, HGS costs and new product
launches were partially funded by ongoing cost management.



R&D expenditure declined 5% to £868 million (13.3% of turnover) compared with
£921 million in Q3 2011 (13.0% of turnover). Ongoing cost management more
than funded the additional HGS costs and increased investment in the
late-stage pipeline.



Core operating profit - 9 months to September 2012

Core operating profit was £6,043 million, a 6% decrease in CER terms on a
turnover decline of 2%. The operating margin declined by 1.2 percentage
points to 30.8% compared with the 9 months to September 2011, predominantly
reflecting lower turnover and a lower reduction in SG&A. Cost savings and a
number of one-off adjustments booked in H1 2012, including a one-off pension
adjustment, were sufficient to fund the continued investments in R&D, new
product launches and ongoing growth businesses but not sufficient to offset
the reduction in sales.



Cost of sales increased to 26.7% of turnover (2011: 26.4%). This primarily
reflected the impact of lower sales, partially offset by one-off royalty and
pension adjustments and ongoing cost management.



SG&A costs as a percentage of sales were 30.2% compared with 29.5% in the 9
months to September 2011 reflecting flat costs on a turnover decline of 2%.
Investments in growth businesses and new product launches as well as
additional HGS costs were funded by ongoing cost management and a one-off
pension adjustment.



R&D expenditure declined 1% to £2,640 million (13.4% of turnover) compared
with £2,683 million in the 9 months to September 2011 (13.1% of turnover).
Ongoing cost management more than funded the additional HGS costs and
increased investment in the late-stage pipeline.



Core net income and core earnings per share - Q3 2012

Net finance expense was broadly flat at £178 million. Net debt in the quarter
increased by £4.2 billion due to payments of £1.9 billion to settle the
Group's most significant ongoing US federal government investigations, within
the existing provisions and the £2.0 billion cash cost of the HGS acquisition.
Despite this, the Group's strong cash generation enabled the financing of
share repurchases of £776 million and an increased dividend payment.



Tax on core profit amounted to £437 million and represented an effective tax
rate of 24.3% (Q3 2011: 25.9%).



Core EPS of 26.5p declined 11% in CER and 13% at actual rate terms. The
currency impact reflected the strengthening of Sterling against the Euro and a
number of other international currencies.



Core net income and core earnings per share - 9 months to September 2012

Net finance expense was broadly flat at £530 million. Net debt increased by
£4.9 billion in the nine months primarily due to payments of £1.9 billion to
settle the Group's most significant ongoing US federal government
investigations, within existing provisions and the £2.0 billion cash cost of
the acquisition of HGS. Despite this, the Group's strong cash generation
together with the proceeds from the disposal of the Consumer Healthcare OTC
brands enabled the financing of share repurchases of £1,843 million and
increased dividend payments.



Tax on core profit amounted to £1,396 million and represented an effective tax
rate of 25.2% (2011: 26.6%), reflecting continued progress towards the target
rate of 25%. GSK is now targeting a core tax rate of around 25% for the full
year 2012, two years ahead of the original target date.



Core EPS of 80.2p declined 3% in CER terms and 5% at actual rates. The
currency impact reflected the strengthening of Sterling against the Euro and a
number of international currencies, partially offset by the weakness of
Sterling against the US Dollar and Japanese Yen.



Currency impact

The Q3 2012 results are based on average exchange rates, principally £1/$1.58,
£1/€1.25 and £1/Yen 125. Comparative exchange rates are given on page 40.
The period end exchange rates were £1/$1.61, £1/€1.26 and £1/Yen 126. If
exchange rates were to hold at these period end rates for the rest of 2012,
the estimated adverse impact on 2012 sterling turnover would be around 2%, and
if there were no further exchange gains or losses, the estimated adverse
impact on 2012 sterling core EPS would be around 2%.



Restructuring programme

The Operational Excellence restructuring programme has delivered approximately
£2.5 billion of annual savings and remains on track to deliver £2.8 billion of
annual savings by 2014. Costs of £88 million were charged in the quarter (Q3
2011: £65 million) and £223 million in the 9 months to September 2012 (2011:
£391 million). In addition, restructuring charges of £89 million were booked
in the quarter related to the acquisition of HGS. Total restructuring charges
related to HGS are expected to be £233 million, of which most is expected to
be a cash cost. The majority of the HGS restructuring charges will be booked
in 2012 and 2013.



Acquisition of HGS

HGS was acquired on 3 August 2012 and reported sales of £23 million from that
date, including £16 million of Benlysta sales in the US. It had a negative
impact on the core operating margin of 0.6 percentage points and on core
earnings of 0.6p in the period since acquisition. The full year impacts on
core operating margin and core earnings in 2012 are expected to be
approximately 0.3 percentage points and approximately 1p, respectively. The
integration is progressing well and potential cost savings of up to $250
million have now been identified. The early emphasis has been on realising
synergies in the commercial organisation. A number of additional
opportunities within manufacturing have also now been identified and may
rephase some of the synergy delivery. As a result, the acquisition is now
expected to have a neutral effect on core earnings in 2013 and to be accretive
thereafter.



The restructuring charges and the acquisition accounting adjustments will be
reported as non-core items in GSK's income statement.



Post balance sheet event



ViiV Healthcare - new agreement

On 28 October 2012, GSK announced that ViiV Healthcare has acquired the 50% of
the Shionogi-ViiV Healthcare Holdings joint venture previously held by
Shionogi. As a result, GSK will record 100% of the sales of the products
formerly held by the joint venture and Shionogi will take an additional
non-controlling interest in ViiV Healthcare. As all of the development costs
of the previous joint venture will now be fully consolidated, the acquisition
is expected to be marginally dilutive to core EPS by up to 1p in each of 2013
and 2014 and accretive thereafter reflecting full consolidation of R&D costs.
A non-core, non-cash gain arising on the existing equity holding will be
recognised in Q4 2012.





Core adjustments

The adjustments that reconcile core operating profit, profit after tax and
earnings per share to total results are as follows:



                                                                   Q3 2012                                                      Q3 2011
              ------------------------------------------------------------ ------------------------------------------------------------
                         Operating              Profit                                Operating              Profit
                            profit           after tax                 EPS               profit           after tax                 EPS
                                £m                  £m                   p                   £m                  £m                   p
                      ------------        ------------        ------------         ------------        ------------        ------------
Core results                1,970              1,364               26.5               2,328              1,596               30.6
                                                                                                                                
 Intangible
asset                        (126)                (84)               (1.7)                (118)                (81)               (1.6)
amortisation
 Intangible
asset                        (140)               (109)               (2.2)                 (17)                (11)               (0.2)
impairment
 Major
restructuring                (177)               (141)               (3.1)                 (64)                (48)               (0.9)
costs
 Legal                     (115)                (95)               (1.9)                 (20)                (17)               (0.3)
costs
 Other
operating                     297                291                5.9                   6                  4                  -
income/asset
disposals

Acquisition                   (30)                (30)               (0.6)                   -                  -                  -
adjustments
                      ------------        ------------        ------------         ------------        ------------        ------------
                            (291)               (168)               (3.6)                (213)               (153)               (3.0)
                      ------------        ------------        ------------         ------------        ------------        ------------
Total results               1,679              1,196               22.9               2,115              1,443               27.6
                      ------------        ------------        ------------         ------------        ------------        ------------





                                                             9 months 2012                                                9 months 2011
              ------------------------------------------------------------ ------------------------------------------------------------
                         Operating              Profit                                Operating              Profit
                            profit           after tax                 EPS               profit           after tax                 EPS
                                £m                  £m                   p                   £m                  £m                   p
                      ------------        ------------        ------------         ------------        ------------        ------------
Core results                6,043              4,136               80.2               6,539              4,425               84.4
                                                                                                                                
 Intangible                (346)               (241)               (4.9)                                    (234)
asset                                                                                     (341)                                   (4.6)
amortisation
 Intangible                (400)               (281)               (5.7)                                     (35)
asset                                                                                      (51)                                   (0.7)
impairment
 Major                     (312)               (246)               (5.2)                                    (323)
restructuring                                                                             (390)                                   (6.4)
costs
 Legal                     (345)               (192)               (3.8)                 (81)                (69)               (1.4)
costs
 Other                      842                759               15.0                                     410
operating                                                                                  252                                    8.1
income/asset
disposals
                            (30)                (30)               (0.6)                                       -
Acquisition                                                                                  -                                      -
adjustments
                      ------------        ------------        ------------         ------------        ------------        ------------
                            (591)               (231)               (5.2)                (611)               (251)               (5.0)
                      ------------        ------------        ------------         ------------        ------------        ------------
Total results               5,452              3,905               75.0               5,928              4,174               79.4
                      ------------        ------------        ------------         ------------        ------------        ------------



Full reconciliations between core results and total results are set out on
pages 43 to 46 and the definition of core results is set out on page 26.





Total operating profit and total earnings per share - Q3 2012

Total operating profit was £1,679 million compared with £2,115 million in Q3
2011. The non-core items totalled £291 million in the quarter (Q3 2011: £213
million).



The intangible asset amortisation of £126 million (Q3 2011: £118 million)
included £16 million related to the amortisation of the Benlysta intangible
asset acquired as part of the HGS acquisition.



Intangible asset impairment charges of £140 million (Q3 2011: £17 million)
included £103 million related to the impairment of Horizant.



Major restructuring charges of £177 million (Q3 2011: £64 million) included
£89 million related to the acquisition of HGS. All restructuring costs
related to this acquisition will be reported as non-core items.



Legal charges of £115 million (Q3 2011: £20 million), principally relating to
refinements to provisions for existing product liability matters.



Other operating income of £297 million (Q3 2011: £6 million) included a gain
of £233 million arising on the revaluation of pre-existing collaborations as
part of the HGS acquisition in the quarter.



Acquisition accounting adjustments of £30 million (Q3 2011: £nil) relate to
the acquisition of HGS. All acquisition accounting related adjustments
related to this acquisition will be reported as non-core items.



The charge for taxation on total profits amounted to £314 million and
represented a total effective tax rate of 20.8% (Q3 2011: 25.7%), reflecting
the differing tax effects of the various non-core items. Total EPS was 22.9p
compared with 27.6p in Q3 2011.



Total operating profit and total earnings per share - 9 months to September
2012

Total operating profit was £5,452 million compared with £5,928 million in the
9 months to September 2011.

The non-core items totalled £591 million in the nine months (2011: £611
million).



The intangible asset amortisation of £346 million (2011: £341 million)
included £16 million related to the amortisation of the Benlysta intangible
asset acquired as part of the HGS acquisition.



Intangible asset impairment charges of £400 million (2011: £51 million)
included the impairments of Horizant and alli totalling £236 million.



Major restructuring charges of £312 million (2011: £390 million) included £89
million related to the acquisition of HGS. All restructuring costs related to
this acquisition will be reported as non-core items.



Legal charges were £345 million (2011: £81 million). Various Federal
government investigations were resolved in Q2 2012 within the existing pre-tax
provision and the after tax cost was approximately $150 million lower than
provided. As a result, a credit was recorded as a non-core tax charge in Q2
2012. However, due to the evolving state litigation environment, GSK utilised
the tax benefit arising in recording an offsetting additional pre-tax
provision of approximately $180 million (equating to an after tax cost of $150
million) related to these matters. This was recorded as a non-core legal
charge in SG&A in Q2 2012. The net effect of these movements on total
earnings was neutral.



Other operating income of £842 million (2011: £252 million) included the
profit on disposal of the non-core OTC brands of £581 million and the gain of
£233 million arising on the settlement of pre-existing collaborations as part
of the HGS acquisition.



Acquisition accounting adjustments of £30 million (2011: £nil) relate to the
acquisition of HGS. All acquisition accounting related adjustments related to
this acquisition will be reported as non-core items.



The charge for taxation on total profits amounted to £1,036 million and
represented a total effective tax rate of 21.0% (2011: 30.4%), reflecting the
differing tax effects of the various non-core items. Total EPS was 75.0p
compared with 79.4p in the 9 months to September 2011.





Cash generation and conversion



Cash flow and net debt



                                                      9 months        9 months
                                       Q3 2012            2012            2011
                                  ------------    ------------    ------------
Net cash (outflow)/inflow from           (288)          2,461          4,104
operating activities (£m)
Adjusted net cash inflow from           1,797          4,935          5,358
operating activities* (£m)
Free cash flow* (£m)                     (670)          1,003          2,775
Adjusted free cash flow* (£m)           1,415          3,477          4,029
Free cash flow growth (%)              >(100)%           (64)%           (26)%
Free cash flow conversion* (%)            116%             89%             99%
Net debt (£m)                          13,867         13,867          9,497
                                  ------------    ------------    ------------
* Adjusted net cash inflow from operating activities, free cash flow,
adjusted free cash flow and free cash flow conversion are defined on page 26.



In the quarter, net cash outflow from operating activities was £288 million
(Q3 2011: £1,828 million inflow). Excluding legal settlements of £2,085
million (Q3 2011: £490 million), the adjusted net cash inflow from operating
activities was £1,797 million, £521 million lower than in Q3 2011. This
primarily reflected the impact of a reduced operating profit and higher tax
payments.



The legal settlements of £2,085 million include the previously announced
payments to the US Government of £1.9 billion ($3 billion) in settlement of
certain investigations.



The net cash inflow from operating activities for the nine months was £2,461
million (2011: £4,104 million). Excluding legal settlements of £2,474 million
(2011: £1,254 million), the adjusted net cash inflow from operating activities
was £4,935 million, £423 million lower than in the nine months 2011. This
primarily reflected the impact of a reduced operating profit.



Free cash flow was £1,003 million for the nine months. Excluding legal
settlements, adjusted free cash flow was £3,477 million (2011: £4,029
million), the decline primarily reflecting the impact of a reduced operating
profit.



The adjusted free cash flow for the nine months, together with proceeds of
£904 million from the disposal of the non-core OTC brands amounted to £4,385
million and enabled the Group to pay dividends (including distributions to
non-controlling interests) of £3,152 million and spend £1,843 million on
repurchasing shares.



At 30 September 2012, net debt was £13.9 billion, compared with £9.0 billion
at 31 December 2011, comprising gross debt of £17.5 billion and cash and
liquid investments of £3.6 billion. The previously anticipated net debt
increase reflected the acquisition of HGS for £2,031 million, net of cash
acquired, together with the legal settlements in the quarter. At 30 September
2012, GSK had short-term borrowings (including overdrafts) repayable within 12
months of £4,155 million with loans of £990 million repayable in the
subsequent year.



Working capital



             30 September      30 June     31 March  31 December  30 September
                     2012         2012         2012         2011          2011
             ------------ ------------ ------------ ------------  ------------
Working
capital
conversion            213          212          215          210           227
cycle*
(days)
Working
capital
percentage             23           22           22           21            24
of turnover
(%)
             ------------ ------------ ------------ ------------  ------------
* Working capital conversion cycle is defined on page 26.              



Working capital increased by £135 million in the quarter compared with an
increase of £62 million in Q3 2011. In the quarter, the working capital
conversion cycle increased to 213 days, including an estimated four day
increase arising from the acquisition of HGS. Excluding HGS, the improvement
primarily reflected enhanced inventory management. For the nine months, the
working capital conversion cycle increased by three days from 31 December 2011
as a result of the acquisition of HGS, partly offset by enhanced inventory
management. Working capital increased by £332 million in the nine months.





Returns to shareholders



GSK's commitment is to use free cash flow to support increasing dividends,
undertake share repurchases or, where returns are more attractive, reinvest in
the business, including bolt-on acquisitions.



Quarterly dividends

The Board has declared a third interim dividend of 18 pence per share (Q3
2011: 17 pence per share).



Payment of dividends

The equivalent interim dividend receivable by ADR holders is 57.8952 cents per
ADS based on an exchange rate of £1/$1.6082. The ex-dividend date will be 14
November 2012, with a record date of 16 November and a payment date of 3
January 2013.



                        Paid/    Pence per
                      payable        share           £m
                 ------------ ------------ ------------
2012                                                
First interim     5 July 2012           17          846
Second interim 4 October 2012           17          830
Third interim  3 January 2013           18          875
                              ------------ ------------
                                                   
2011                                                
First interim     7 July 2011           16          814
Second interim 6 October 2011           16          809
Third interim  5 January 2012           17          847
Fourth interim  12 April 2012           21        1,043
                              ------------ ------------
                                      70        3,513
Supplemental    12 April 2012            5          248
                              ------------ ------------
                                      75        3,761
                              ------------ ------------



Share repurchases

During the quarter, GSK repurchased 54.3 million shares (£787 million),
bringing the total for the year to date to 131.5 million shares (£1,895
million) including a quarter-end settlement accrual of £52 million. GSK
intends to make total repurchases of £2.0-£2.5 billion during 2012 where this
use of funds delivers an attractive return. The company issued 8.3 million
shares under employee share schemes amounting to £80 million (Q3 2011: £49
million).



The weighted average number of shares for Q3 2012 was 4,897 million, compared
with 5,001 million in Q3 2011.



The weighted average number of shares for 9 months 2012 was 4,935 million,
compared with 5,050 million in the 9 months 2011.





Divisional performance



Pharmaceutical sales summary



                                                 Q3 2012                        9 months 2012
                    ------------------------------------ ------------------------------------
                                    £m              CER%                 £m              CER%
                          ------------      ------------       ------------      ------------
Respiratory                      1,733                3              5,388                1
Anti-virals                        169              (18)                550              (16)
Central nervous
system                             399              (11)              1,247               (2)
Cardiovascular and
urogenital                         560               (9)              1,860                3
Metabolic                           45              (39)                123              (47)
Anti-bacterials                    289               (6)                910               (8)
Oncology and emesis                204                8                579               17
Dermatology                        201              (12)                624               (5)
Rare diseases                      137               20                353                5
Immuno-inflammation                 20             >100                 41             >100
ViiV Healthcare
(HIV)                              356              (15)              1,036               (9)
Other                              206                1                596              (11)
                          ------------      ------------       ------------      ------------
                                4,319               (4)             13,307               (2)
                          ------------      ------------       ------------      ------------



Respiratory



Q3 2012 (£1,733 million; +3%)

In the quarter, Respiratory sales increased 3%, with growth in the US, EMAP
and Japan offset by a decline in Europe. Total sales of Seretide/Advair grew
2% to £1,216 million, Ventolin sales increased 15% to £152 million and
Flixotide/Flovent sales grew 2% to £185 million. Xyzal sales, almost
exclusively in Japan, reached £25 million.



In the US, as the clear market leaders in their respective categories, Advair
(ICS/LABA combination) and Flovent (single agent ICS) have both benefited from
overall prescription volume growth in the controller market (LABA, ICS and
anti-cholinergic products) which grew 4% in the quarter. Reported sales of
Advair grew 5% to £627 million. On an underlying basis, sales for the quarter
grew approximately 4% (3% volume decline offset by 7% positive impact of price
and mix). This represents the fifth consecutive quarter of improvement in the
estimated underlying growth of Advair. (All market growth and share data
based on weekly IMS Health data).



Flovent, the leading single agent inhaled corticosteroid in the US market,
grew 11% to £112 million with an estimated underlying growth of 7% (6% volume
increase and a 1% positive impact of price and mix). The four percentage
point difference between reported and underlying growth primarily arose from
unfavourable adjustments to accruals for returns and rebates in Q3 2011.
Ventolin reported sales in the US of £72 million, up 31%, primarily reflecting
estimated underlying growth of approximately 10% and the impact of a
favourable adjustment recorded in Q3 2012 to previous accruals for returns and
rebates.



European Respiratory sales were down 7% in the quarter reflecting the impact
of ongoing austerity measures. Seretide returned to volume growth from June
(Source: IMS Health). In the quarter sales were down 6% to £334 million, as
price cuts more than offset volume growth of approximately 1%.



In EMAP, Respiratory sales grew 15% in the quarter, with growth across most
products in the portfolio. Seretide grew 16% to £101 million with strong
growth in China and Latin America offsetting the impact of some price
reductions, principally in Turkey. Ventolin sales increased 11% to £39
million.



9 months 2012 (£5,388 million; +1%)

Respiratory sales in the nine months grew 1% to £5,388 million, as growth in
the US, EMAP and Japan offset a decline in Europe. Seretide/Advair sales grew
1%, led by a 4% increase in the US to £1,898 million. Flixotide/Flovent sales
fell 1% to £573 million, but Xyzal sales more than doubled to £93 million.
Ventolin sales grew 6% to £454 million.



US respiratory sales increased 4% as growth in Advair (up 4%), Flovent (up 4%)
and Ventolin (up 16%) offset declines in Serevent and Veramyst.



European Respiratory sales were down 6% reflecting the impact of ongoing
austerity measures. Seretide sales were down 4% to £1,073 million, as price
cuts more than offset volume growth.



Respiratory sales in EMAP grew 11%. Seretide grew 9% to £299 million with
strong growth in China and Latin America and Ventolin sales increased 10% to
£124 million.



Anti-virals



Q3 2012 (£169 million; -18%)

Valtrex sales continued to decline (down 38% to £52 million), principally as a
result of generic competition in the US and Europe and price cuts in Japan.



9 months 2012 (£550 million; -16%)

The 16% decline in Anti-virals sales largely resulted from generic competition
to Valtrex (down 32% to £181 million).



Central nervous system



Q3 2012 (£399 million; -11%)

The 11% decline in CNS sales was largely attributed to declines in a number of
older products, primarily Seroxat/Paxil, particularly in Japan, and Requip,
impacted by both generic competition and price cuts. Sales of Lamictal were
flat.



In the US, the Lamictal franchise fell 9% to £81 million. Strong growth of
Lamictal XR, the once a day extended release product for epilepsy was offset
by the impact of generic competition to the immediate release (twice a day)
formulation and a difficult comparison with Q3 2011 where there were
favourable adjustments to accruals for returns and rebates. In Japan, sales
of Lamictal IR doubled to £20 million, in part due to sales for the recently
launched bipolar indication. Lamictal is now the market leading epilepsy
treatment in Japan by value (Source: IMS Health).



9 months 2012 (£1,247 million; -2%)

Declines in Requip sales of 20% to £129 million, primarily as a result of
generic competition in both the US and Europe, and Seroxat/Paxil sales of 12%
to £283 million, were only partially offset by the 13% growth of Lamictal to
£446 million.



Cardiovascular and urogenital



Q3 2012 (£560 million; -9%)

The 9% sales decline primarily reflected the 30% fall in Arixtra sales to £47
million following generic competition in the US which began in Q3 2011 and the
loss of sales of Vesicare following the conclusion of the co-promotion
agreement in Q1 2012.



The Avodart franchise grew 9% to £199 million in the quarter with growth
driven by strong contributions from the recent launches of the combination
product Duodart/Jalyn in Europe and of Avodart in Japan. In the US, the
decline in Avodart sales was offset by growth in Jalyn and combined sales grew
1% as improved price realisation and some benefit from wholesaler stocking
patterns helped offset lower prescription volume of Avodart, in part due to
the impact of labelling changes implemented in 2011 and the availability of a
generic competitor in the same class.



Lovaza grew 9% to £151 million primarily reflecting the benefit of improved
pricing. Lovaza continues to hold broadly flat market share in a market which
has declined approximately 6% compared to Q3 2011 as economic pressures have
resulted in fewer doctor visits and reduced testing for asymptomatic
conditions such as very high triglycerides.



Levitra sales in the US fell 26% to £34 million primarily due to the decision
to withdraw from a large government contract that would have required
discounts resulting in returns below acceptable levels.



9 months 2012 (£1,860 million; +3%)

The net benefit of the conclusion of the Vesicare co-promotion agreement
combined with growth in sales of Avodart and Lovaza led to the 3% growth in
the category. These gains were partly offset by the impact of generic
competition to Arixtra.



Metabolic



Q3 2012 (£45 million; -39%)

The decline in Metabolic product sales continued to reflect the loss of sales
of Avandia, and the impact of declining sales of Bonviva in Europe following
the change in the deal structure.



9 months 2012 (£123 million; -47%)

The decline in Metabolic product sales continued to reflect the loss of sales
of Avandia, and the impact of declining sales of Bonviva in Europe following
the change in the deal structure.



Anti-bacterials



Q3 2012 (£289 million; -6%)

Anti-bacterials sales reported growth of 9% in EMAP, primarily from Augmentin,
where growth benefited from a temporary supply issue in Q3 2011. However,
this was more than offset by the impact of new austerity measures in Europe
which encourage pharmacy level generic substitution, and generic competition
in both Europe and the US.



9 months 2012 (£910 million; -8%)

Anti-bacterial sales growth in EMAP (+6%) was offset by the impact of
austerity measures in Europe and generic competition in both Europe and the
US.



Oncology and emesis



Q3 2012 (£204 million; +8%)

Three new products, Votrient (up 70% to £49 million), Promacta (up 59% to £35
million) and Arzerra (up 58% to £19 million) all continued to grow in the US,
Europe and EMAP. Tykerb/Tyverb fell 2% to £57 million, with growth in EMAP
and Japan only partly offsetting declines in the US and Europe. Hycamtin
continued to be adversely affected by generic competition in Europe.



In the US, Votrient (up 50% to £26 million) benefited from the launch of a new
indication for use in advanced soft-tissue sarcoma. Sales of Promacta grew
50% to £15 million, reflecting the continued effect of longer-term use data
that was added to the label in 2011.



9 months 2012 (£579 million; +17%)

Growth in the category in the nine months was driven by new products Votrient
(up 80% to £121 million), Promacta (up 80% to £92 million) and Arzerra (up 44%
to £46 million). Hycamtin sales fell 29% to £31 million as a result of
generic competition in Europe.



Dermatology



Q3 2012 (£201 million; -12%)

Sales declined 12% to £201 million in the quarter, primarily as a result of
the decline in the US (down 35% to £49 million) which suffered from the
ongoing impact of generic competition to Evoclin, Extina and to Duac from Q2
2012. European sales (up 4% to £40 million) benefited from an additional £5
million of sales from the acquisition of Toctino. EMAP sales (up 1% to £93
million) benefited from growth in the promoted brands of Dermovate and
Bactroban, but were held back by a number of supply issues.



9 months 2012 (£624 million; -5%)

Sales were down 5% in the nine months as growth in EMAP (up 6% to £284
million) was offset by a decline in the US (down 17% to £167 million).



Rare diseases



Q3 2012 (£137 million; +20%)

Reported Mepron sales increased 65% to £33 million, primarily as a result of
favourable adjustments to US accruals for returns and rebates in the quarter.
Volibris grew 40% to £33 million in part as a result of a strong performance
in Japan, offsetting the decline in Flolan sales (down 26% to £31 million),
largely as a result of the biennial price reduction in Japan.



9 months 2012 (£353 million; +5%)

Volibris sales grew 38% to £92 million, while Flolan sales declined 26% to
£101 million.



Immuno-inflammation



Q3 2012 (£20 million; >100%)

Reported Benlysta turnover was £20 million in the quarter, representing £16
million of sales in the US after the acquisition of HGS, £3 million of
turnover in the US prior to acquisition, which represented the Group's share
of gross profit, and £1 million of sales in Europe. Total in-market sales of
Benlysta in the US in Q3 2012 were £27 million.



9 months 2012 (£41 million; >100%)

Reported Benlysta turnover for the nine months was £41 million, of which £38
million arose in the US. Total in-market sales of Benlysta in the US for the
nine months were £71 million.



ViiV Healthcare (HIV)



Q3 2012 (£356 million; -15%)

ViiV Healthcare sales declined by 15%, with the US down 27%, Europe down 4%,
and EMAP down 9%. Sales growth in Epzicom/Kivexa (up 13% to £174 million) and
Selzentry (up 11% to £30 million) were more than offset by a 35% decline in
the mature portfolio, primarily as a result of generic competition in the US
to Combivir and Epivir.



Reported growth rates in the US for Q3 2012 were negatively impacted by
favourable adjustments to accruals for returns and rebates in Q3 2011. Sales
growth of Combivir in EMAP was adversely impacted by a significant tender sale
made in Q3 2011, which was repeated in Q2 2012.



9 months 2012 (£1,036 million; -9%)

Sales in the nine months fell 9%, with the US down 21%, Europe down 3% and
EMAP up 9%, Epzicom grew 14% to £499 million and Selzentry grew 19% to £90
million, but the mature portfolio declined 29%.





Vaccines sales



                                      Q3 2012                        9 months 2012
         ------------------------------------ ------------------------------------
                         £m              CER%                 £m              CER%
               ------------      ------------       ------------      ------------
Total
Vaccines                940              (14)              2,461               (6)
sales
               ------------      ------------       ------------      ------------



Q3 2012 (£940 million; -14%)

The 14% decline in Vaccines sales was primarily attributable to the adverse
comparison with strong Cervarix sales in Q3 2011, which benefited from the HPV
vaccination catch-up programme in Japan which is now largely complete and a
particularly strong flu campaign in 2011. Cervarix sales declined 79% to £45
million. Excluding Cervarix, Vaccines sales increased by 3%.



Infanrix/Pediarix sales increased 11% to £200 million, primarily reflecting
strong growth in EMAP, as a result of phasing of tender shipments. In the US,
market share gains from Pediarix were not sufficient to offset the adverse
comparison with Q3 2011, which benefited from a significant CDC stockpile
purchase.



Sales of hepatitis vaccines in the US were down 10% (to £75 million) compared
with Q3 2011, reflecting the impact of the return to the market of a
competitor and reduced government funding. In Europe sales were down 5% to
£47 million and sales in EMAP grew 10% to £34 million.



Fluarix/Flulaval sales were down 13% to £138 million, reflecting a reduction
in the number of doses sold in the US in Q3 2012 (approximately 19 million
doses) compared with Q3 2011(approximately 34 million doses) and the loss of a
tender in Europe, outweighing growth in EMAP. The majority of sales for the
northern hemisphere flu season have now been booked.



Synflorix sales increased 8% to £106 million, largely reflecting continued
growth in EMAP.



Rotarix sales grew 39% to £103 million, with strong sales growth throughout
EMAP as well as initial launch sales in Japan. In the US sales were flat,
despite increase in market share gains, due in part to comparison with a very
strong Q3 2011, when sales grew 47%.



Boostrix sales increased 27% to £78 million, driven by the US where the
product continues to benefit from the expanded indication for use in adults of
65 and older.



The previously announced Japanese Vaccines joint venture between GSK and
Daiichi Sankyo Co., Ltd started operations on 2 July. The JV will hold the
development and commercial rights for already existing preventative vaccines
from both parent companies. GSK sells vaccines into the JV at an agreed upon
price, and this is reflected in turnover for the quarter. Both companies have
an equal stake in the joint venture and share the profits equally.



9 months 2012 (£2,461 million; -6%)

Vaccines sales declined 6%, primarily due to the adverse comparison with 2011
on Cervarix in Japan. Excluding Cervarix, Vaccines sales increased 1%.



Infanrix/Pediarix sales increased 10% to £540 million, with growth in the US,
Europe and EMAP. Hepatitis vaccines fell 6% to £486 million, primarily as a
result of the adverse comparison with 2011 in the US. Rotarix grew 21%, led
by EMAP and Japan, and Boostrix grew 26%, largely driven by a strong US
performance, which continues to benefit from the expanded indication for use
in adults of 65 and older.





Sales from new pharmaceutical and vaccine launches



                                            Q3 2012                        9 months 2012
               ------------------------------------ ------------------------------------
                               £m              CER%                 £m              CER%
                     ------------      ------------       ------------      ------------
Arzerra                        19               58                 46               44
Benlysta                       20             >100                 41             >100
Duodart/Jalyn                  42               52                113               65
Lamictal XR                    39               32                110               40
Nimenrix                        1             >100                  1             >100
Potiga/Trobalt                  2              100                  4             >100
Prolia                          6             >100                 17             >100
Promacta                       35               59                 92               80
Requip XL                      19              (43)                 71              (31)
Synflorix                     106                8                280                6
Treximet                       13               (7)                 38              (12)
Volibris                       33               40                 92               38
Votrient                       49               70                121               80
Dermatology                     2              (46)                  5              (20)
                     ------------      ------------       ------------      ------------
                             386               27              1,031               29
                     ------------      ------------       ------------      ------------



New products are those launched in the last five years (2008 to 2012
inclusive). Total sales of new products were £386 million, grew 27% in Q3
2012 and represented 7% of Pharmaceuticals and Vaccines turnover.



MenHibrix, a combination vaccine to help prevent meningococcal serogroups C
and Y and Hib disease, was approved by the FDA in June 2012. In October 2012,
the Advisory Committee on Immunization Practices of the Centers for Disease
Control and Prevention voted for a limited recommendation for immunisation of
infants at an increased risk for meningococcal disease.



Nimenrix was approved by the European Medicines Agency in April 2012 for
active immunization against invasive meningococcal disease caused by Neisseria
meningitides serogroups A,C, W-135 and Y. Launches are now underway in
several countries throughout Europe including the UK, Germany and the
Netherlands.





Consumer Healthcare



                                                                           Q3 2012                                                            9 months 2012
          ------------------------------------------------------------------------ ------------------------------------------------------------------------
                                                     Growth excluding non-core OTC                                            Growth excluding non-core OTC
Turnover                                                                  products                                                                 products
                          £m               CER%                               CER%                 £m               CER%                               CER%
                ------------       ------------                       ------------       ------------       ------------                       ------------
Total                    479               (12)                                 5              1,504               (10)                                 2
wellness
Oral care                450                 6                                 6              1,352                 8                                 8
Nutrition                275                 6                                 6                815                 7                                 7
Skin                      64                 -                                 -                190                (3)                                (3)
health
                ------------       ------------                       ------------       ------------       ------------                       ------------
Total                  1,268                (2)                                 5              3,861                 -                                 5
                ------------       ------------                       ------------       ------------       ------------                       ------------





                                                                          Q3 2012                                                            9 months 2012
         ------------------------------------------------------------------------ ------------------------------------------------------------------------
                                                    Growth excluding non-core OTC                                            Growth excluding non-core OTC
Turnover                                                                 products                                                                 products
                         £m               CER%                               CER%                 £m               CER%                               CER%
               ------------       ------------                       ------------       ------------       ------------                       ------------
USA                     227               (13)                                (2)                676               (10)                                 -
Europe                  432                (9)                                 -              1,356                (6)                                (1)
Rest of                 609                 9                                12              1,829                 9                                11
World
               ------------       ------------                       ------------       ------------       ------------                       ------------
Total                 1,268                (2)                                 5              3,861                 -                                 5
               ------------       ------------                       ------------       ------------       ------------                       ------------



Q3 2012 (£1,268 million; -2%)

Consumer Healthcare turnover declined 2% in the quarter. Excluding the
non-core OTC brands that were divested in H1 2012, turnover grew 5%, in line
with estimated market growth.



Wellness sales were down 12% to £479 million, but excluding the non-core
brands divested in H1 2012, the category delivered growth of 5%. The Pain
Management business grew 12%, led by Panadol (up 16%), which reported strong
growth in emerging markets. The Gastro-intestinal business grew 11%, led by
Eno in emerging markets. The Smoking Reduction and Cessation franchise fell
1% with small declines in the US and Rest of World just outweighing growth in
Europe.



Oral care sales were up 6% to £450 million. The Sensodyne Sensitivity and
Acid Erosion business, up 14% to £183 million, continued its strong growth
across all markets, driven by Sensodyne Repair and Protect and Sensodyne
Pronamel. Strong results on Denture care products also helped to offset a
decline in Aquafresh sales (down 6% to £111 million).



Nutrition sales grew 6% to £275 million. The category performance was driven
by strong growth in Rest of World markets (up 15% to £151 million) with the
Horlicks family nutrition business growing 15% in India to £85 million.
Lucozade sales declined 3% to £99 million, as growth in Rest of World markets
was offset by a decline in Europe, due to challenging market conditions.



Skin health sales were flat as growth in China, particularly Bactroban OTC,
was offset by a decline in Latin America, where the business was impacted by
aggressive price competition.



Excluding the non-core OTC brands divested in H1 2012, the US Consumer
Healthcare business reported a sales decline of 2% in the quarter, primarily
driven by sales phasing and retail stocking patterns. In Europe, sales
excluding the non-core OTC brands were flat as strong performances from
Southern Europe and Central and Eastern Europe offset declines elsewhere. The
Rest of World markets grew 12% excluding the non-core OTC brands, with broadly
based growth.



9 months 2012 (£3,861 million; flat)

In the nine months, Consumer Healthcare turnover was flat. Excluding the
non-core brands that were divested in H1 2012, turnover grew 5%.



Wellness sales declined 10%, but excluding the non-core OTC brands divested in
H1 2012, sales grew 2% to £1,395 million. The Pain Management business grew
7%, Gastrointestinal products grew 10% and the Smoking Reduction and Cessation
franchise grew 4%. Sales of alli, which was out of supply during H1 2012,
declined 84% to £13 million.



Strong growth in Oral care brand sales continued (up 8% to £1,352 million),
led by the growth of the Sensodyne franchise up 15% to £534 million.



Nutrition sales grew 7% to £815 million as strong growth in Rest of World
markets, led by Horlicks in India and Lucozade in Latin America, offset a
small decline in Europe.



Skin health sales fell 3% to £190 million as declines in Europe and Latin
America more than offset growth in the US and China.



Excluding the non-core OTC brands, US sales were flat as growth in Sensodyne
and the Smoking Reduction and Cessation franchise was offset by the decline in
alli sales. European sales declined 1% excluding the non-core OTC brands,
reflecting a decline in the UK only partly offset by strong growth in Southern
Europe and Central and Eastern Europe. The declines in Wellness, Nutrition
and Skin Health in Europe offset growth in Oral care. The Rest of World
markets grew 11%, excluding the non-core OTC brands.





Research and development



GSK remains focused on delivering an improved return on its investment in R&D.
Sales contribution, reduced attrition and cost reduction are all important
drivers of an improving internal rate of return. R&D expenditure is not
determined as a percentage of sales but instead capital is allocated using
strict returns based criteria depending on the pipeline opportunities
available.



The operations of Pharmaceuticals R&D are broadly split into Discovery
activities (up to the completion of Phase IIa trials) and Development work
(from Phase IIb onwards) each supported by specific and common infrastructure
and other shared services where appropriate. R&D expenditure for nine months
2012 is analysed below.



                                                     9 months     9 months
                                                         2012         2011
                                                           £m           £m
                                                 ------------ ------------
Discovery                                                 589          601
Development                                             1,209        1,170
Facilities and central support functions                  352          386
                                                 ------------ ------------
                                                       2,150        2,157
Vaccines                                                  375          413
Consumer Healthcare                                       115          113
                                                 ------------ ------------
Core R&D                                                2,640        2,683
                                                 ------------ ------------
Amortisation and impairment of intangible assets          179          130
Major restructuring costs                                   8          101
                                                 ------------ ------------
Total R&D                                               2,827        2,914
                                                 ------------ ------------





GSK's Phase III/Registration Pharmaceuticals and Vaccines pipeline
The table below is provided as part of our quarterly update to show events and
changes to the late-stage pipeline during the quarter and up to the date of
this announcement. There were several news events for late-stage pipeline
assets in this quarter and these are listed in the table below. Horizant and
Menhibrix were approved in Q2 and have been removed from the table. Sirukumab
(co-development with Janssen Biologics (Ireland) and mepolizumab commenced
Phase III during the quarter and have been added to the table.



In February 2011, the following 15 assets were listed as expected to deliver
Phase III data by the end of 2012: albiglutide, dabrafenib (BRAF, 2118436),
dolutegravir, drisapersen (2402968), IPX066, MAGE-A3 (event driven),
migalastat HCl, Mosquirix (RTS,S), otelixizumab, Promacta, Relvar/Breo 
(previously known as Relovair), trametinib (MEK, 1120212), Tykerb, UMEC/VI
(LAMA/LABA), Votrient.



Phase III data were announced during 2011 and H1 2012 from studies on IPX066,
otelixizumab, Votrient, Promacta, Relvar/Breo, Mosquirix, Tykerb, albiglutide,
trametinib, dabrafenib, dolutegravir and UMEC/VI.



Since Q2 2012, the following pipeline milestones have been achieved:
             
·             filing of trametinib for melanoma in US;
·             filing of dabrafenib for melanoma in US & EU;
·             EMA and Japanese approvals of Votrient for sarcoma;
·             start of Phase III studies for sirukumab in rheumatoid
              arthritis;
·             completion of UMEC/VI Phase III programme (also supports filing
              of UMEC mono in 2013);
·             presentation of Phase IIb data on the combination use of
              trametinib and dabrafenib and presentation of Votrient
              head-to-head data versus Sutent at ESMO;
·             receipt of data from Phase III VIKING-3 and SAILING studies
              required for completion of initial clinical registration package
              for dolutegravir;
·             presentation of Phase III data for Relvar/Breo at ERS;
·             completion of enrolment into Phase III study for drisapersen for
              Duchenne muscular dystrophy;
·             presentation of Phase III data for 2 candidate quadrivalent flu
              vaccines at Influenza Vaccines for the World & Infectious
              Diseases week;
·             start of Phase III studies for mepolizumab in severe asthma.
             
Of the 15 assets with Phase III data expected by the end of 2012, 12 have now
reported some or all of their Phase III data. Eight of the 15 assets have
either filed or have sufficient data to file:
             
·             Votrient sarcoma (approved in US, Europe & Japan);
·             Relvar/Breo (asthma and COPD) (filed);
·             Promacta/Revolade Hepatitis C thrombocytopenia (filed);
·             trametinib (MEK) (filed in US);
·             dabrafenib (BRAF) (filed);
·             albiglutide (clinical registration programme now complete;
              filing expected in Q1 2013);
·             UMEC/VI COPD (clinical registration programme now complete;
              commence filings from the end of 2012);
·             dolutegravir (completion of initial clinical registration
              package; commence filings before end 2012).

Overall, by the end of 2012, GSK expects further key read-outs on another
three of the ongoing Phase III assets (migalastat, Mosquirix and
drisapersen). The MAGE-A3 studies are event driven and data are expected in
2013.



Following investor events to describe Phase III data presented at ASCO (MEK,
BRAF), ADA (albiglutide), IAC (dolutegravir), ESMO (Oncology portfolio) and
ERS (Respiratory portfolio), GSK has scheduled a Phase III pipeline update on
3 December.



                                                                 News update
Biopharmaceuticals                      US        EU             in the
                                                                 quarter
Arzerra              CLL (first line &  Ph III    Ph III
                     relapsed)
(ofatumumab)         NHL (FL)           Ph III    Ph III
                     NHL (DLBCL)        Ph III    Ph III
Benlysta (s.c.)      Systemic lupus     Ph III    Ph III
                     erythematosus
albiglutide          Type 2 diabetes    Ph III    Ph III
                                                                 Announced
                                                                 start of
                     Rheumatoid                                  Phase III
sirukumab            arthritis          Ph III    Ph III         studies on

                                                                 23 August
                                                                 2012.
                                                                 Announced
                                                                 start of
                                                                 Phase III
mepolizumab          Severe asthma      Ph III    Ph III         studies on

                                                                 29 October
                                                                 2012.
                                                                 News update
Cardiovascular & Metabolic              US        EU             in the
                                                                 quarter
darapladib           Atherosclerosis    Ph III    Ph III
                                                                 News update
Neurosciences                           US        EU             in the
                                                                 quarter
                     Parkinson's                                 EU filing
IPX066               disease            n/a       Ph III         strategy
                                                                 under review.
                                                                 News update
Oncology                                US        EU             in the
                                                                 quarter
                                        Filed     Filed
Promacta/Revolade    Hepatitis C
                                        May 2012  May 2012
Votrient                                Approved  Approved       Approved by
                     Sarcoma                                     EMA on 7
(pazopanib)                             Apr 2012  Aug 2012       August 2012.
                     Ovarian            Ph III    Ph III
                     Metastatic breast            Filed
                     cancer - dual      Ph III
                     blockade                     Feb 2012
Tykerb/Tyverb        Adjuvant breast    Ph III    Ph III
                     cancer
                     Head & neck cancer Ph III    Ph III
                     Gastric cancer     Ph III    Ph III
trametinib (1120212, Metastatic         Filed                    Filed in US
                     melanoma                     Ph III         on 2 August
MEK inhibitor)                          Aug 2012                 2012.
                                        Filed     Filed          Filed in EU
dabrafenib (2118436, Metastatic                                  on 25 July
BRAF inhibitor)      melanoma           July 2012 July 2012      2012 & US on
                                                                 30 July 2012.
                                                                 Phase IIb
trametinib +         Metastatic                                  data
dabrafenib in        melanoma           Ph III    Ph III         presented at
combination use                                                  ESMO in
                                                                 October.
                                                                 News update
Respiratory & Immuno-inflammation       US        EU             in the
                                                                 quarter
                                                                 Phase III
                                        Filed     Filed          COPD data
                     COPD                                        presented at
                                        July 2012 June 2012      ERS in
                                                                 September.
Relvar/Breo (FF/VI)                               The story has
                                                  been
                                                  truncated,
                     Asthma             Ph III   
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