Good morning or good afternoon, ladies and gentlemen. Welcome to the GSK Q2 results call (Operator Instructions). Just to remind you all, this conference call is being recorded. I would now like to hand over to today's chairperson, Dr. J.P. Garnier. Please begin your meeting, sir.

Thank you very much and welcome. I would like to give you some headlines on the results, and I will be followed by Julian Heslop, our Chief Financial Officer, and David Stout, our President for Pharmaceuticals, and finally, John Clarke, our President for Consumer Healthcare. First of all, the EPS was a good number, plus 11% at constant foreign exchange rate. Also, our pharma sales performed well. If you exclude generics and Avandia, of course, the rest of the business is very healthy; sales up 10%. But even considering the negative effect of Avandia in the U.S., where sales were down 31%, we are still encouraged because I think that we have seen, again, a lot of evidence recently preparing for Monday's meeting. And the evidence is supportive of Avandia's risk/benefit ratio, and of its effect on cardiovascular safety. In fact, you will see the submission from the FDA and from GSK to the advisory board members in the very near future; it should be on their Web site or soon thereafter. And I encourage you to look for new data; there is some. In fact, there is a spectacular epidemiology study, spectacular because of its size. This is information on 400,000 patients treated with the usual spectrum of drugs. There's a direct comparison between Avandia, Actos, Metformin, SUs. And I think it's very interesting. So all this will be debated in public Monday, and then the FDA will make a decision. And we look to a resolution of this controversy; the earlier the better. But Avandia is not the whole story. U.S. sales of Avandia before the controversy started were representing about 5% of GSK revenues. And I have to say, the rest of the business is in very good shape. That is also why we maintained the guidance,…

Thank you, J.P., and good afternoon. You'll see the turnover in the quarter was up 3%. Pharmaceutical sales were level with last year, with strong performances from a number of our key products, offset by generic competition in the U.S. and a decrease in Avandia sales. Consumer healthcare sales were up 18% and benefited from the successful launch of Alli, the FDA-approved OTC weight loss product. Cost of goods as a percentage of turnover was 21.4%, which was broadly in line with the 2006 full-year margin. SG&A as a percentage of turnover was in line with last year, and includes significantly higher advertising and promotional spending in support of our key consumer healthcare brands, including Alli. Pharmaceutical SG&A costs, excluding legal and restructuring, were flat compared to last year. R&D expenditure was lower than last year, mainly reflecting lower asset write-offs. Other operating income of 97 million is twice last year's level, and includes a more than doubling of royalty income to GBP49 million. Operating profit growth was 9%. EPS growth of 11% was 2 percentage points above operating profit growth, reflecting the benefit from the lower tax rate and the share buyback program, partly offset by higher interest charges. You can see that the quarter was again adversely impacted by currency with a hit of 8%, and this reflects the continued strength of sterling against most major currencies, but in particular the dollar, which was $1.98 for the quarter compared with $1.83 last year. Free cash flow for the quarter was 903 million, slightly higher than last year, as a result of lower tax payments. You may recall that last year the quarter was hit with a withholding tax payment that was repaid in the fourth quarter. You can see that cash returns to shareholders comprising dividends and share buybacks amounted to over 1.4 billion, a GBP330 million increase over the previous year. Net debt was 3.3 billion at the end of the period. Finally, the Company continues to drive to increase cash returns to shareholders, firstly and most importantly through a progressive policy of dividend increases, and secondly through share repurchases. In 2006 we doubled the annual share repurchase program. We have now chosen to increase the absolute level of debt and have decided to do this through a GBP12 billion share repurchase program, which we expect to complete over a two-year period. This will take the place of the previous share repurchase program. The slide summarizes the expected phasing of the 12 billion share repurchase program compared to the previous program, which it replaces. In conclusion, we have in the quarter delivered sales growth despite significant generic competition, continued to control our costs, and as a result, generated good earnings growth. I'll now hand over to David.

Thank you very much, Julian. If you'll please turn to the page that's headed 2Q '07 pharma sales. As you can see, sales for the second quarter were GBP4.8 billion and were even with last year. Our key growth products are continuing to do very well, and just about offset both the anticipated hits that we took with the generic competition to Zofran and Wellbutrin XL, along with the unanticipated loss in sales to Avandia, which I'll talk about a little bit later in the presentation. For now, let me just give you a little more detail on the performance of our growth products. So, if you'll turn to slide two. And as you can see here, despite removing Avandia, at least for the time being, this group of growth products still represents almost 50% of our portfolio. And of course, we hope to add Avandia, which represents less than 5% of our U.S. pharmaceutical sales, back to this list in the future. I'll have more to say on Advair, vaccines and Coreg during the rest of the presentation, so let me just say a few words around the rest of the portfolio. Valtrex and Lamictal continued to deliver very solid double-digit growth. It doesn't seem that long ago that we were passing the $1 billion threshold, and now, despite the weakness in the dollar and generic competition in Europe, we're headed towards GBP1 billion in annual sales for both products. Requip is being driven by the Restless Leg Syndrome. And for the non-believers out there, I hope you have the chance to see the article in the New England Journal of Medicine last week, which really laid out the case for the disease. Avodart is continuing to expand its use in BPH, and Boniva continues to grow share with…

Thank you, David. Hello, everybody. John Clarke, President, Consumer Healthcare. As this is my first presentation to you, I thought it would be valuable before getting into the results to take a few moments to share the key points of strategic direction in the consumer business. Long-term value creation in consumer healthcare is generated through growth and strength of the brands. And so it's all about growing the top-line, and we think this maximizes the bottom-line in the short and the long run. And it also, of course, strengthens the business market share and strategic positions. Top-line growth for us has been driven through a significantly strengthened new product pipeline. We've introduced a range of new products recently and plan to continue to do so into the future. Our top-line is also being driven by a significant increase in marketing expenditure, and a determined focus on producing competitively superior communications and advertising, and we're achieving that. Key initiatives driving the strategy are a reorganized innovation model, including both our research and development and marketing teams, who now work together as one unit, and importantly, a very aggressive program to continue to drive down costs to maximize the investment behind our brands as we maintain margins. We're also heavily engaged, as J.P. mentioned, in driving our brands in the world's fast-growing economies. We have a strong global infrastructure, and we're leveraging it to optimize our global brands and the innovation pipeline. Strategically adjacent acquisitions have a clear role in our strategy, too, as evidenced by the acquisition of the CNS business, which brought the FiberChoice and BreatheRight brands into our company in 2006. This gives us the opportunity to drive double-digit growth on that business in the U.S., and expand our acquired brands, the newly acquired brands, around the world, again,…

Thank you, John. We are ready for Q&A.

(Operator Instructions) Our first question comes from Kevin Wilson. Please state your question then announce your company name and location please.

Yeah, thank you its Kevin Wilson from Citigroup in London. Three questions, if I may, J.P. Firstly, in the U.S., the 2% decline in sales in the quarter. Could you break out the volume and any price element you saw, and perhaps also comment on the fading effect of Part D (inaudible) as well? Secondly, for Julian, what's driven the change in what you consider to be acceptable interest cover, if you're now happy to have a higher level of debt on the balance sheet than in the past? And thirdly, could you also refresh us on your flu capacity for the coming season and next year, as well as perhaps give us some sense of what you think the pre-pandemic might do? Thanks.

Thank you, Kevin. Why don't we start with Julian, and then David will take on the other two questions.

Thanks. We've always believed in having a conservative balance sheet, as you know. Even if you take the 2006 actual results and take the current debt of just over 3 billion and add on the incremental 8, you're still going to have an interest cover which is well beyond 10. So I think the answer to your question is, I think, that's still very satisfactory and still very conservative. But it reflects an increased level of debt in the business which I think is now appropriate.

In terms of the U.S., the 2% growth -- I'm sorry -- decline represents, of course, a combination of factors. Especially dragging down are all the generic impacts of Wellbutrin and Zofran, of course including the 30-some% decline in the Avandia sales. Price had minimal impact. We took no price increases during the second quarter; it was just the spillover of the last price increase that we took in the last part of last year. So it's overall, I think, very good results, given especially the rebound in the performance of Advair in the quarter. Relative to the flu, we had announced previously doubling of our capacity in Dresden, Germany and in our Laval facilities for seasonal flu. We now expect by 2010 that we would be able to produce over 150 million seasonal flu doses. Of course, this is multiplied for our pre-pandemic by an infinite number. We've not been specific, but it is in the hundreds of millions of doses that we can produce on an annual basis, starting in 2008. We're still negotiating with the governments, and the only order that we've announced publicly so far is the Swiss government, along with some antigen that was bought by the U.S. Thank you, next question please.

And our next comes from Andy Cosen (ph), please state your question then announce your company name and location please.

Yes, It's Andy Cosen at Revben (ph) in London. The first question is going back to the big increase in the buyback, maybe if we ask the question differently, not in terms of interest cover but in terms of the balance sheet. You previously talked about how industry risks were quite great, and also that your shareholders didn't particularly want the move that you've done today. So in terms of your balance sheet structure, could you give us a bit of an idea of what's changed? And then the second question is just in terms of Alli. Do you think the 76 million represents stocking, or is it in any way representative of underlying demand. Thanks?

On the change, I think, to be fair, we have a dialogue with our investors on a continuous basis. And I think lately the consensus of our investors was clearly that we were too conservative. And even though there is some justification in having a pristine balance sheet, there is -- it's a matter of how much. And we looked more carefully at the leverage we could take on which would not diminish our flexibility to do deals, or for that matter to pick up a large tab for, let's say, an unexpected legal liability. Even though we don't expect that to be certainly the case today, you never know what's around the corner. So based on that analysis, we came to the conclusion that we could do this without really changing the fundamentals, changing our flexibility to do deals and to borrow large amounts of money. If you look at all the ratios, this is still, by all comparisons to other industries, a reasonable leverage. Julian, you want to add something to this?

No. I think you said it, J.P. I think we, at the end of the day, still end up with reasonable leverage levels, reasonable interest cover capacity, and we're well-positioned to face whatever the future has for us.

John, can you speculate on what part of the 70 we -- is out of the…

Certainly. By all means. Let me stress initially that what we're doing at the moment is looking to build a very long-term business, so the early numbers are not particularly indicative of that. That said, of the GBP76 million that has been sold today to the retail trade, around about 60% has gone through to the consumer. That's what we would expect. But it's very early to make a prediction on what that means as far as the long-term brand sale is concerned. Thank you.

And our next question comes from Graham Perry, please state your question and then announce your company name and location please.

Thanks for taking my question. It’s Graham Perry from Merrill Lynch. Just to start off on the gearing again, it looks (inaudible) net debt to equity you would be looking at, if you complete the buyback by around mid-'09, would be north of 100%. Just wondering, is that a ceiling for you? Is that a comfort level? Could we see you go higher? And does that ratio really matter to you? So in short, what I'm trying to get to is could we actually see you issue more debt over and above this beyond that period? Also, could you detail any UK tax benefits of the current buyback, and whether there's an annual restriction on the buyback level that you could get to this year or next year? And thirdly, a question on the upcoming Advisory Committee meeting panel on Avandia. I was just wondering whether you're concerned in any way that Takeda has not been asked to present at the AdCom at all; they're only there to answer questions, and whether we can read into that that there is no option here of a class label change, and any label changes that could come out of that recommendation would only apply to Avandia. Thanks.

I'll take the last one, if you don't mind, and then pass it on to Julian. We are not concerned about the choice of who speaks and who doesn't speak at the Advisory Committee. I think you are reading consequences which I am not reading. I know for a fact that there is a conversation going on between all the companies, including Actos sponsors with the FDA. I think there's a lot of data that is in the file concerning Actos. I think you should read some of the excerpts from the FDA submission and, for that matter, ours, that will confirm to you that there will be discussion of TZDs as a class. And therefore, I think you cannot rule anything, and I think you cannot draw any conclusion from what we have heard so far about the Advisory Committee. And therefore, I think, all options are on the table, including having TZD class labeling later on, or not. Certainly for CHF, that will be the case. But excluding CHF, which by the way is not part of the discussion on next Monday, if you look at ischemic events, I think that all the alternatives are still on the table. And we cannot deduct from anything that has been said or done where the FDA is leaning, or whether the Committee is going to rule one way or the other. I think it's too early to tell. We'll find out Monday. Julian?

In terms of your gearing point, it's a very fair question actually. I think in most businesses, the answer is it's a pretty relevant measure. But in pharmaceuticals, as you know, we take our most valuable asset, which is our pipeline, and completely write it off. So for that reason, it's not a measure that actually influences our actions. So the real key for me has always been interest cover, so that's really what I look at in terms of determining the appropriate level of gearing, rather than its relationship to the sort of net assets of the balance sheet. And in terms of tax, as we're doing it with a sort of phased share buyback program, yes, we do get full tax relief. If we were to do it in an absolute one-off, we wouldn't. So a large portion of it would be without tax relief. So it is a relevant factor, yes.

And, I think, to be fair, the 12 billion wasn't picked out of the air. We wanted to maximize our return, and there is a point of diminishing returns. If you don't get tax coverage, what's the point of increasing further the buyback? But we could have done it from purely a structure standpoint, which could have gone beyond 12, but we would not have the same kind of overall tax benefit. So 12 is the right number as far as we are concerned.

To follow up on that point, the 2.5 that you've outlined for the second half of this year, though, to go over that would likely breach that level. So we wouldn't expect to see you buy back more than the 2.5 for this year than you've currently outlined.

I think 2.5 is a very good call for the rest of this year.

That's correct.

Thanks.

Next.

And our next question comes from Steve Scala, please state your question, then announce your company name and location please. Steve Scala - Cowen & Company: Thank you. Cowen & Company in Boston. I have three questions. What does your EPS guidance for 2007 assume for Avandia in the second half of the year? Does it assume a continued decline, and if so, at the existing rate or moderation? Does it assume a flattening or a rebound? Secondly, on Synflorix, has there been any progress on figuring out the U.S. clinical trial requirements, or will Glaxo simply not participate in the U.S. opportunity? And then lastly, I'm just curious as to whether the 400,000-patient epidemiologic study to be revealed on Monday includes any data on Januvia and its side-effect profile relative to the other agents, and if it does, if you'd like to share with us the findings.

Thank you very much, Steve. I always look forward to your questions because they are to the point. Starting with the EPS and the speculation on Avandia, whether we expect it to come back or get worse over the second part of the year, I'd rather pass on this. Because frankly, again, Avandia U.S. sales constitute 5% of our business. There are lots of other moving parts which we look at carefully when we talk about guidance. As I have said before, pretty much everything is ahead of our own internal plan, except for Avandia, which allows us to maintain the guidance. Otherwise -- clearly, we didn't expect Avandia to lose 40% of its sales, in effect, in the U.S. So we're going to just maintain the guidance. If some things go much better or much worse than expected, which is very unlikely, on Monday and, more importantly, beyond, because what really matters is when the FDA speaks, then we will modify our guidance accordingly. But short of that, we're going to leave it the way it is. And we don't detail all the moving parts, and I have no reason, therefore, to do it this time. Sorry. On the Synflorix, David, you want to --?

Steve, again, for competitive reasons, we're still not commenting on our U.S. strategy. But again, remind you that our biggest market opportunity, we think still, is in the EU, where the market is way underdeveloped. And we intend to file Synflorix at the end of this year.

And then Januvia is not included in the large epidemiology study.

And our next question comes from Andrew Baum, please state your question, then announce your company name and location please.

Three questions, if I may. Firstly, just going back to the dialogue that J.P. referred to with investors, obviously, the industry and Glaxo is under pressure to create value for shareholders. You obviously doubled your share buyback. You have now geared your balance sheet, or will gear your balance sheet. Your payout ratio is already fairly high, moving up. Having done all this, are there any additional levers left to pull, having excluded the divestments of over-the-counter, particularly in regards to additional cost savings on top of your operational excellence programs? That's the first question. Second question is for the consumer health business. Obviously, there are a number of smaller assets which potentially could be acquired, and I'm talking companies rather than products. Should we anticipate any move by GSK in that direction, given your comments on the strategic fit within the Company? The final question, perhaps a little bit more color on the Coreg CR/Avandia sales force dynamic. Perhaps you could outline for us what percentage of the Coreg CR sales force effort was actively involved in promoting Avandia as well?

Andrew, first of all, other measures to increase shareholders value -- well, first of all, we continue to have a policy of increasing our dividends every year. And even though we have a very good yield right now, we expect that to continue. And we'll have to wait and see what happens at the end of the year. But that's traditional at the time when we make announcements about our dividends. As far as the business is concerned, I think we have lots of opportunities to once again beat the analyst forecasts. We have done that pretty much for seven years in a row. I have some -- we have some big plans to help out '08, and of course '09 and '10 should be very good years because we have fewer generic losses. And beyond, I continue to say that the way Advair will come to its sunset is affecting the analyst consensus on the sales line, because many of them are predicting that there will be a cliff effect in Advair. I remind you the regulation in the U.S. market on the inhaled medicines is unlikely to -- well, highly unlikely to produce an AB rated generic. There'll be generics, but they won't be AB rated, which means that we will have a far softer landing, and that changes dramatically the projection of our sales growth over the next five years. It's here and there. In terms of smaller assets, we look at our business all the time, and we look at smaller assets as well as big assets. We have said why consumer healthcare makes sense strategically for the long run, and I'll keep those comments to that. And then finally, on CHF sales force --

Because of the overlap in the target audience, it was the exact same sales forces that were selling Coreg CR as selling Avandia. So you can't just change that overnight. But I think, again, it shows the flexibility we have in our sales forces that within a four-week, five-week period, we've been able to bring on board 2000 reps now that will be able to promote Coreg CR in a first position.

Just one follow-up to Julian from J.P.'s answer. I was specifically trying to address the cost element in terms of improving the operating margin structure, either by outsourcing some of your maturing products ahead of patent expiration to improve gross margin, or a number of parts within the P&L. How much more is there to come (inaudible) the big plans that J.P. mentioned to you just a second ago?

Julian can answer, but it's the same answer, Andrew. We will talk about our plans when it's time to talk about the guidance for 2008. We have said all along that we continue to believe there are opportunities to operate a large pharma business on a lower cost basis -- and we continue to strive in that direction -- without depriving the key engines of the business, which is drug development, and also marketing and sales. We don't want to cut our nose despite our face and reduce our sales growth. If you look at our schedule of new product launches within the next years, '07, '08, '09, we're talking about up to 25 launches. Clearly, we need to have the resources to do that effectively. We are growing our pipeline. Our late-stage pipeline has 33 assets. That costs money, but we have made significant progress. We're able to do more with less, frankly, and it's not surprising. If you -- we're outsourcing up to 40% of our clinical trials. Every trial we outsource is -- the cost is reduced by roughly 80%. This is huge money saving for the Company. So we're very comfortable that we will be able to continue in the future. Whether there will be an above and beyond restructuring plan, we'll discuss that when our plan is ready. We are considering all options.

And our next question comes from Craig Maxwell, please state your question, then announce your company name and location please.

Hi it’s Craig Maxwell from J. P. Morgan in London. Just A couple of (inaudible) questions. On Synflorix, is that Europe only, or is it maybe some other countries outside of Europe and the rest of the world? I know it's not U.S. But just how broad do we define Europe? And how does that stack up against the current Prevnar product, and then potentially against the 13 (inaudible) Prevnar product that's coming along in a couple years' time? And if possible, what are some of the strategic issues of breaking into a European vaccine market where there's already one major player? Obviously, it was different from small molecules, those different buying points and so on. How do you just in essence go about doing that? And possibly if you could extend how you could possibly do that for maybe Cervarix against Gardasil as well. And then lastly on consumer, some of the retail brands -- Lucozade, (inaudible), Horlicks, oral care -- how do they fit into the OTC strategy?

Let me first take the Synflorix question. It's primarily Europe, but there are several international markets we'll be filing as well. But the real bulk of the opportunity is in Europe. There are some very fine differences in the antigen mix between Synflorix and Prevnar. We think there's a couple key antigens, however, that are the key drivers of hospitalization that will be a key differentiator for us. So that's a very important element of the Synflorix file and the Synflorix marketing plan. So that's very important. Relative to how do you break into a market, whether it's Europe, Cervarix, U.S., Synflorix, unfortunately we have way too much experience coming second in the markets with vaccines, and we've continued to do very well. So often in the vaccine marketplace, this isn't like statins, where you may be the fifth or sixth one in; there are typically one, two and, in some rare cases, three competitors. And it's often very straight. There's a lot of tendering as well. But we have a lot of experience doing that and we'll continue to draw on that experience.

Just to add to what David said, the big difference is, being first in vaccine, it has the advantage of generating revenues earlier. Not to be underestimated, but you don't build a marketing anchor as with a drug for chronic use. Because drug for chronic use, while you capture patients who stay on the drug and renew their pact with you over the years -- so you have guaranteed book of business, so to speak, when number two comes on the market. And he has to steal it from you, which is always hard. Well, in the case of vaccine, that's not the case, because your customer you only get once. It's, sadly, like the funeral home parlor business; the customer only shows up once. And once you have had that sale, you're not going to get it again. So everybody, the clock starts to zero every 1st of January, and the whole market is for grabs -- is up for grabs. But again, I want to stress that in the case of Cervarix, all this really doesn't matter, because the size of the opportunity is what is important in the marketing thrust. It's not whether consumers are going to use Gardasil or Cervarix; that's a secondary question. The primary question is how many women are going to realize that they need to do this, that this is a must, and this simple intervention will avoid for them the risk of a deadly disease? That's what is of interest. Because I agree that Gardasil is doing well. But they're just scratching the surface in terms of market penetration. We're talking a single-digit percentage of the opportunity has been captured. We have a long way to go. So I think it's in everybody's interest, Gardasil and Cervarix, to really clinch that…

Our last question comes from David Adlington (ph), please state your question then announce your company name and location please.

Hi James, thanks for taking the question. Just going back to the share buyback, just wondered if you'd give a little bit more insight into how you got to that 12 billion figure. And particularly, in terms of what headroom it does give you for acquisitions and licensing. Presumably you'll be retaining your investment-grade status and that sort of level of gearing as well.

Let me just repeat that this changed nothing to our ability to in-license significant assets or buy significant companies. We can raise a significant amount of money even with this kind of leverage on our balance sheet. I think it's -- we have many banks that are knocking on our door. And if we needed to raise a substantial amount of money for a transaction, we would be able to do so. So we haven't lost any flexibility. Now, back to the gearing and so forth. Julian, you want to comment?

One more thing to add. You're absolutely right; we retained, clearly, our investment-grade. S&P have reviewed the credit rating and left it unchanged at AA. Obviously, we're waiting to hear from Moody's as to what their assessment is. But, no; we still have financial capacity for something with added value to the shareholders.

On that note, I want to thank you all for being with us today. We look forward to talk to you very soon, I suppose. Bye bye.