Good day, ladies and gentlemen, and welcome to the GSK investor/analyst call, Q2 quarterly results hosted by Sir Andrew Witty, CEO. My name is Sue, and I'm your event manager. During the presentation, your lines will remain on listen only. I would like to advise all parties that this conference is being recorded for replay purposes. And now I'd like to hand over to Sir Andrew Witty, CEO. Please go ahead.

Good afternoon, and welcome to this second quarter call, everybody. It's the first full quarter since the closure of our three-part transaction with Novartis, and so far performance is quite encouraging and very much on track with our expectations. Reported sales for the group grew 7% on a CER basis to £5.9 billion, and that's up 2% on a pro forma basis. Core earnings per share for the quarter were flat at 17.3p, again on a constant-currency basis. We've also today reiterated our earnings guidance for 2015 and the outlook for return to earnings growth in 2016. All of this represents early but positive signals of the benefits the transaction is delivering for GSK in terms of performance and how it's reshaping the group and strengthening our Vaccine and Consumer Healthcare businesses. Following the transaction, today we have three world-leading businesses, which enable the group to access the fast-growing global demand for healthcare and to balance our exposure to future changes in the industry, price, and environment. Turning first to our Pharmaceutical business. Reported sales declined 6% but grew 2% adjusting for the impact of the transaction. The growth was driven by impressive rates of growth for HIV products, partially offset by anticipated declines in respiratory and established products. In Vaccines, reported sales grew 11%, but declined 5% on pro forma basis versus a strong Q2 last year. This business will inevitably see significant swings quarter to quarter, not least due to the timing of tenders. We're very confident in the prospects going forward as we integrate post the transaction with Novartis and roll out new vaccines across multiple therapy areas. In Consumer, sales grew 51% reported and 6% pro forma. The switch of Flonase to OTC continues to be a great example of the combined strength of the company,…

Thanks, Andrew. Although it's early days, overall we see the first full quarter since we acquired the Vaccines and Consumer businesses from Novartis as an encouraging start for the company in its new shape. In particular, performance from the acquired Vaccines and Consumer businesses has been in line with our original expectations. We're on track with delivery from both the Pharmaceuticals restructuring and the Novartis integration programs. And we've made further progress in the renewal of our pharmaceutical portfolio, with particularly strong performances from our newly launched HIV products, but also continue to build from other launches, including Benlysta and our new Respiratory products. Growth in new pharmaceutical products, including HIV, is now starting to offset the declines we are seeing in Advair. Pricing pressures continue to impact Advair/Seretide in the quarter, as contracting changes continue in the U.S. and generic competition increases in Europe and international. We expect Advair/Seretide to continue to decline at similar rates in the second half as we progress the transition of our Respiratory portfolio to newer products around the world. The transition is inevitably going to be lumpy quarter to quarter, but we remain on track with our plans, and continue to expect to deliver our guidance for 2015 of a constant-currency percentage decline in EPS in the high teens, reflecting also the dilution in the year of the Novartis transaction. Following this transition year, we continue to expect to return the group to growth in earnings per share at rates that, in 2016, should reach double-digit levels, again, on a constant-currency basis. Turning to the details of the quarter, before getting into that, we should – on a CER basis, I should point out that currency has been a more significant headwind to the reported results this quarter than in Q1. Currency movements…

Thank you very much, Simon, and I'm very happy to open up the call for Q&A. So if we could ask the operator to introduce the first question, please.

And your first question comes from the line of Graham Parry, Bank of America. Please go ahead.

Great, thanks for taking the questions. First one is on ViiV and the 76.5% margin, obviously driven by strong Tivicay/Triumeq performance in the U.S. Could you just give us a feel for the sustainability of that margin going forwards, any mix effects from launching in new countries or cabotegravir R&D impact on that margin? Secondly, on Consumer margin, that was still only 8.5%, even after we add back in the one-off in China. So again, could you just talk through the moving parts in that margin and expectations for the remainder of the year? And then finally, if you could just help us understand the key challenges with Anoro and what is your long-term strategy to overcome this. And KOLs were always quite keen on Anoro and earlier and more aggressive treatment for COPD, so I'm just trying to understand a little bit better where you're coming up with the strongest resistance. Thanks.

Thanks very much, Graham. So Simon's going to pick up the HIV margin in a second. On Anoro, so really what's happening here is the market is, I think, quite well – well, very well – entrenched into two groups of physicians, those who essentially start with a product like Spiriva, and then progress and potentially add in other products – so, for example, like Advair – or those who start with Advair or products like Advair and then potentially add in a Spiriva. And I think what everybody – so what we're seeing is no – this new category of the double bronchodilator is not really opening up yet as a category. It's not simply an Anoro issue. And what we need to work through with the physicians is a much clearer understanding of how they can insert the double bronchodilator in the pathway of care and really obviously create another alternative. Now, from where we sit, we think there's a very compelling argument, given the very strong head-to-head data we have for Anoro versus the market leader in the anticholinergic space. I think it'll be quite interesting as Boehringer themselves actually start to move into this category, how that will potentially also help develop the category. There's been no doubt, though, we needed to tighten up some of our commercial promotional message, which we've done over the last three or four months, and we also needed to upweight our promotional share of voice, which we've also done, essentially effective as of about three weeks ago. So we're doing it – there's a number of things we need to do tactically; we've done those. But the reality is it's about creating a new category. We feel pretty optimistic about how that plays out over the next couple of years,…

Yeah, thanks, Graham. So in terms of overall trend, clearly the quarter is above trend at 74%. That's really reflecting the leverage from the top line growth and the SG&A behind that. I think what we haven't got in the P&L at the moment is some of the R&D that we expect to start putting back into the P&L as the pipeline progresses. So I think overall – and I know we've had a number of questions on this – if you think of a trend of around 70%, you're probably in the right place, and clearly the margin quarter to quarter is going to move around that depending on where we are in the development of current and future products.

Thanks, Simon. Next question, please.

Thank you. Your next question comes from James Gordon, JPMorgan.

Hello. Thanks for taking my questions. One question was on European Advair. I saw sales were down 16% this quarter. Just wondering how much of that is price versus volume? Is this a new run rate due to generic competition, or are there some one-off factors we should think about? The second question was on mepolizumab and the PDUFA coming up – I think it's November. Assuming we do get a timely approval, is this a product that could have an Anoro-like launch, or could this be a lot quicker? And if you do get just an adult approval, would you do then an adolescent study, and how long would that take? And then the third question was just on the R&D day. Should we think that we get Phase III go decisions announced at this event for products like cabotegravir and the Hiff (24:32), or do you need more work and more data before you can make that decision and announce it?

Okay, James, just on the last part, I won't prejudge what you're going to see. You are going to see a mix of data, so you – but what you're going to see is data on the programs, which we, a), think are important and b), the programs which are going to potentially be file-able in the next five or six years. So you're going to see – and of the 40 NMEs, we'd say roughly 20 to 25 of those are potentially file-able and approvable in the next five years or so. So, now, some of those you're going to see very advanced data, some of those you're going to see data which is about to trigger Phase III, some of those you're going to see earlier data, but in programs which go much more quickly. So, for example, oncology. There's some very interesting, very early stuff in oncology, and some of new targets – obviously, as you know better than anybody, they can go very quickly once they start moving. So at R&D day, you're going to see a mix. It's not going to be a particularly one-size-fits-all type of approach. I think you'll – well, I think if you look in the page we've put in here, you can see about 80% of the programs we've listed in the book are first in class, or potentially capable of being first in class, and of course there will be some more which we touch on at the R&D day, which is not in the list. In terms of mepolizumab, you're right, the PDUFA date is November. And in terms of launch, I think – I think our expectation is that it will be a mixed kind of experience, because clearly there is already somewhat of a market definition…

Thank you. Your next question comes from Keyur Parekh, Goldman Sachs. Please go ahead.

Good afternoon. I've got two set of questions, please. First, just on the consumer margin, I realize it's a trough (29:01) quarter, but, Andrew-son (29:02), if you can just help us think through how we should think about it kind of on a 2015 basis, what do you expect the exit rate for that margin to be when you're exiting 2015, adjusting for the cost savings versus the currency hit with the Consumer margins? That's one. And secondly, Andrew, just in sense of the broader healthcare environment around you, a lot has changed this year, even if it's look at since what's happened on the M&A side since May. There's been a lot of reshaping of companies. Do any of those things change your view on what Glaxo's strategy should be going forward, and if so, how? Thank you.

Great, thanks, Keyur. Let me ask Simon to answer the first question.

Yeah. So thanks, Keyur. I think, as we touched a bit on at Q1, Q2 and Q3 are going to have a lot of disruption from the transaction, but overall for the year as a whole, I think, if you took the sort of levels you were seeing in Q1 and a bit of improvement, you'd probably be in broadly the right place.

Thanks, Simon. As far as the broader healthcare environment, it's not just in the last three months. We've seen, I think, really over the last two, two and a half years, a kind of building dynamic within the environment, which frankly, what we're seeing at the moment is a re-emergence of government anxiety around pricing and affordability in Europe. But not – I wouldn't say a new behavior, but a re-emergence of noise that's been quiet for the last few years. Obviously, with the Affordable Care Act and other market activity, which has happened coincidental to the Affordable Care Act, we're seeing very dramatic changes in the way the U.S. market operates, in terms of the vertical consolidation from payer through to provider and through the horizontal consolidation of sectors, most notably with the insurance sector. That is having very significant, but admittedly patchy impacts on the procurement environment that we deal with in the United States. And obviously that hit us last year, it hit diabetes. You know better than me what some of the big payers are saying about where their next target areas to go are. It is not obvious to me that there is any safe haven, and I think frankly it's overly optimistic to believe there is a safe haven in terms of areas coming under pricing pressure. That analysis has very much driven the long-term strategy and the strategy over the last seven or eight years of GSK, to first of all renew its innovation and pharmaceutical portfolio, because notwithstanding everything I've just said, we still believe the pharma business is a higher margin opportunity than any of the other businesses. Great business to be in, but just perhaps not as great as it used to be. So we need to renew that. We…

Thank you. Your next question comes from Andrew Baum, Citi. (35:28) Please go ahead.

Hi, it's Andrew Baum from Citi. Three questions, please. The first one -

Andrew, could you speak up? It's a bit hard to hear you.

Yeah, can you hear me okay now?

Thank you.

The first one is, we've heard you speak before about GSK asking itself constantly what are the best owners for any individual asset. And you've obviously done that with ViiV and more recently with your former oncology business. The first question is has the Novartis transaction opened the doors further to driving that process across the pipeline? You've mentioned your plans to externalize your preterm labor drug. Are other orphan drugs also up for alternative monetizations through spin or licensing? Number one. Number two, perhaps you could talk about your new oncology business. Is GSK committed to taking all these products to market themselves through clinical development, or should we assume licensing at an earlier stage with a cash inflow? And to what extent can this alleviate some of the balance sheet pressure and increase optionality? And then finally, there is obviously – you cite some issues in manufacturing, and I think there's also still some in Consumer. Could you just give me a summary of where we're at in terms of resolution of the manufacturing supply chain issues in both those two areas? Many thanks.

Thanks, Andrew. So on supply, the vast majority – well, really our supply issues are broadly behind us. We have a small number of derm SKUs which are out of stock, though they account for almost no sales. A minimal amount of sales. It's on the margin in the emerging markets, essentially. Those will be fully back to health by the end of this year, but it's frankly not a material number in the company. Supply is a tailwind for the company this year, rather than headwind. Our Consumer business has never had higher OTIF deliveries in either the Novartis or the GSK legacy businesses, so both businesses had significant supply issues last year. Both businesses have got very material increases. In fact, to give you just a sense in Q2, supply was a 3% tailwind for the Consumer business in Q2. So it gives you kind of a sense of some energy that's flowing through there. Where we do have some issues, as Simon rightly highlights, is we have a number of products where we are maxing out our current capacity. So it's not a supply issue in terms of disruption; it's a maximum capacity, and we're waiting for new capacity to come on stream. Those tend to be in areas like antibiotics, they tend to be in one or two areas like Ventolin, where we have enormous capacity, but frankly, just give you an idea, in 2003, when Augmentin went off patent, we sold 400 tons of Augmentin. I think last year we sold 1,200 [tons]. Similar story in Vaccines, where the step increases in capacity come in, in reasonable – but they take a long time to come on stream. We've got a number of vaccines where we're selling every dose we can. Now, what we've done…

Thank you. Your next question comes from Alexandra Hauber, UBS. Please go ahead.

Good afternoon. Thank you for taking my questions. Just two simple questions. On the cost line, the COGS of 30.2% were better than in the first quarter at 30.7%, despite the negative mix effect you had from the transaction. So I was just wondering whether there were any special effects that really benefited COGS this quarter, or is this sort of below-31% rate is really the run rate for the company? And also on R&D, that actually declined sequentially. Is that just phasing of studies, or is R&D spend of the new co lower than what you had previously? And then another question on – the last question – on Advair, you have reported now for the first time a 2% volume decline in the U.S., but IMS scripts is suggesting that number is closer to 5% or 6%. Can you perhaps explain the discrepancy between your number and the IMS numbers? And also, do you have already any feel whether you will be able to retain the exclusive status with CVS Caremark and whether you – are you in a position to give us any idea whether next year's Advair price declines will be again double digit, or more like single digit, more normalizing? Thank you.

Okay, Alexandra, I'm going to ask Simon to cover off the COGS. I think R&D, you should expect R&D to be lower. And that is a consequence of the exit of the oncology R&D cost base, and you will see, as we roll through the rest of the year, the benefit of further restructuring of the R&D organization. And I've indicated that numerous times, that people, I think, are underestimating our ability to deliver. Frankly, we're delivering more experiments than we've ever done in the history of the company. We've got more products in the clinic than we've had, and we can do it by spending less, and I think you will continue to see that flow through. So that's absolutely right. In terms of Advair pricing, I'm not going to make a specific comment on a specific contract, but suffice to say, our visibility for next year is pretty good. We feel pretty robust around our plans for next year. I would expect to see some continued Advair price for next year, but I wouldn't expect it to be in the same rate as we've seen this year. And, more importantly, I do expect both U.S. Respiratory total and Global Respiratory total to grow again next year. So because – not least because of a – less price pressure in the U.S. than we saw this year, and because of the new products flowing through. In the IMS data, a couple of things to say. First of all, you may or may not know, but IMS have just restated their NBRx database, which actually bumped Advair up quite a lot. I'm not quite sure why they had to do that, but they did. And secondly, the IMS TRx data that you're looking at excludes the Department of Defense contract which GSK holds, and it represents about 3% of the scripts. So I'm guessing that the delta is largely the – it sounds exactly like the delta between your number and the rest. So, with that, I'll hand over to Simon on the CGS.

Okay, thanks, Alexandra. On COGS, the quarter did benefit from a favorable mix, as I highlighted in my comments earlier, with ViiV accelerating very rapidly during the course of the quarter and some phasing of some of the lower margin parts of the business to the second half. So that basically neutralized itself, leaving the benefits from the Pharma restructuring program to flow through in the SG&A and R&D line, so that's why COGS is broadly flat quarter on last year. But I think overall for the year, it's probably above the trend.

Great. Thanks, Simon. Next question.

Thank you. Your next question comes from Tim Anderson, Bernstein. Please go ahead. Timothy M. Anderson - Sanford C. Bernstein & Co. LLC: Thank you. I have one simple question and a little more complex question. The simple one is, on the SUMMIT trial, I think we're supposed to see results soon. Are we likely to see that as a top line release, first, and can you narrow down the timing of seeing a potential top line release? And do you think that realistically makes a big difference with the Breo outlook? My second question is, kind of going back to your commentary, when you describe optionality in the future for Glaxo, investors occasionally raise the theoretical possibility that Glaxo could be combined with another big company. You also continue to paint a picture of difficult fundamentals, at least on the drug side, which could be a reason to join forces. I'm hoping you can give us your perspective here – would Glaxo ever realistically consider pairing up with another company in a major way? Are you happy with the current structure and the long-term outlook? Plus that you're (47:27) highly likely to remain an independent company.

Tim, thanks very much. So as far as SUMMIT's concerned, there will be a release on SUMMIT, and if I were you, I'd expect it somewhere in the September/October timeframe. I can't give you the precise – any more precise than that. But you should anticipate it somewhere in that kind of timeframe. I personally believe it would be inappropriate for people to view this as anything other than a Breo phenomenon. It may well be that other drugs could demonstrate the same thing, but nobody else has been able to do that so far. The trial has been designed, I think, in a very thoughtful way, in terms of thinking about patients with COPD and cardiovascular risk. I think certainly, when you talk to physicians who are involved in the space, particularly actually the cardio physicians in the space, I think they would not take the view there's a reason to believe a class effect. So I – and of course if it's positive, and I don't know yet whether it is or is not positive, but if it's positive, we will be moving forward to gain a claim on our file, and we will be making it a very central part of the profile of Breo, and I think it will be a very defining point. And the reality is, let's be honest, if we get this claim, only we can promote it; anybody else who wants to say their product has the same attribute, a), has no data and b), it would be illegal for them to promote and make that claim. And I think also from a payer physician point of view, if you want to then give your patient a product with the claim, you have to give them Breo. So I don't buy this…

Thank you. Your next question comes from the line of Richard Parkes, Deutsche Bank. Please go ahead.

Hi, great. Thanks for taking my questions. Just got a couple. Firstly, I just wondered ahead of the mepolizumab launch whether you've had much interaction with payers? Obviously payer restrictions limit use of Xolair in many markets, and I'm thinking Europe in particular. I wondered if you thought you could be more successful and how you might be thinking around factoring in NCFL (52:46) cut-off levels into pricing discussions in your decisions there? And then secondly, I know that you talked about the Investor Day changes in the sales force structure supporting Anoro and Breo. I think you were moving to two separate sales forces there, and I'm just wondering what the reception to that has been. I don't know whether it's too early yet, but just if there's any feedback there.

Yeah, thanks a lot, Richard. So as far as mepo, yes, we have had engagement with pricing authorities where we're able to. I think we feel pretty good here because the profile of the drug's very strong. We've got quite a lot of room for maneuver because as you probably know, Xolair is dosed on per-kg basis, and so actually – and this is particularly true in the U.S. – some of the prices for patient are very significant because of the varying weight of the patients involved. Mepo is not – mepo is a same dose for everybody. That gives us very, I think, significant opportunity to capture a great value proposition against the backdrop of what already exists, first of all. Secondly, I'd encourage you to look at the success we've had in getting Breo and increasing Anoro covered in Europe. And I think we're really seeing some tremendous, rapid access for Breo in places like Italy and Spain – normally very difficult. We've also just got it in France – normally very, very difficult. And I think that shows that we're able to crack that problem pretty well. So I'm not particularly – I'm not super anxious about that, actually. As far as the shift in sales force, yes, I think we've seen some early benefit. First of all, our sales force is telling us things are much better and much more motivated. We've seen a very substantial step up in the NBRx shares of Breo since we made the change, so it's gone up by about 30%, 35% in the last eight to 10 weeks. So we're now seeing NBRx shares up in the 9%, 10% territory. Actually, for pulmonologists, we're up in nearly 20%. You would expect that the NBRx shares would translate to NRx and then TRx shares over about an 18-month period. Remember, NBRx focuses just on the dynamic segment. It takes about 14 to 18 months in Respiratory for the dynamic segment to reflect in the NRx share. So actually we've seen a big jump in NBRx for Breo. Anoro less so, but actually we've only just deployed the increase of share of voice. And that, as I said earlier on the call, has just happened. So we'd like to see a bit more there. In Europe, we're seeing very strong performance of Breo. Slow start for Anoro, but for exactly the same reasons that I think I addressed when I answered Graham's question at the beginning of the call. Next question.

Thank you. Your next question comes from Matthew Weston, Credit Suisse. Please go ahead. Matthew J. Weston - Credit Suisse Securities (Europe) Ltd.: Thank you. Two questions left, please. The first is on your experience with Anoro and the fact that you've been struggling to persuade clinicians to take patients off Spiriva. Doesn't that raise a significant risk when you move to the closed triple that you're going to experience a similar reticence and therefore very low adoption of that project? And then secondly, I've seen it reported that you'll move rilpivirine plus cabotegravir in a long-acting formulation into Phase III. Can you confirm that, and can you confirm what the commercial relationship is between ViiV and J&J with that development program? And actually, I'll sneak in a third, a follow-on to the reference to the U.S. selling infrastructure. Can you let us know whether now, with the change in leadership in the U.S., there's been a reevaluation of the actual selling strategy rather than just redirecting head count and whether or not you were perhaps overzealous in interpreting the CIA previously and now relaxed your approaches?

So on the last one, we haven't relaxed our approaches. We have simplified the way we measure the sales force. So – and this is – honestly, I've seen there's an awful lot of ill-informed amateur comment on what we do or don't do in the U.S., if I may say so, Matthew. We have seen no evidence that the shift in the way – fundamental shift in what we did in the U.S. – which I remind you we volunteered to do before the CIA, and we would sustain even when the CIA finishes – that we don't believe has caused any problem. The sales force give us strong feedback that they appreciate that. We get tremendous feedback from physicians on it, as we are doing as we roll out the same culture across the rest of the world. Where we did, I think, have an issue in the U.S., Matthew, is that around that there was a supplementary measurement system put in place to try and ensure we had good measurement of sales representatives, that we were monitoring the right things. That was cumbersome, frankly, and it was getting in the way. And we have streamlined that. That made a big difference. So it's nothing to do with what you think it's to do with. It's to do with the unnecessary clunkiness. Now, a couple of things I'll tell you. First of all, we're seeing a very, very dramatic and positive jump up in morale of our U.S. sales force, really substantial. We're seeing a great level of commitment from that team, and we're seeing the shares start to move, as I just said, Breo most notably. But I don't think it's worth missing that we're generating a Tanzeum share close to Trulicity when in fact you've got Lilly as one of the two diabetes powerhouses, and yet here we are with Tanzeum basically going neck to neck with them in terms of the performance. On that one, I'm really not too concerned about that. In terms of the dolutegravir/rilpivirine, it is in Phase III, but not cabotegravir. So it's a dolutegravir combination program that's already in Phase III. The cabotegravir program is in Phase II. And of course we have a relationship with J&J, but I'm not going to go into the details of that. Next question, please.

Thank you. Your next question comes from Nicolas Guyon, Morgan Stanley. Please go ahead. Nicolas Guyon-Gellin - Morgan Stanley & Co. International Plc: Good afternoon, and thanks for taking my questions. I have two quick ones, please. The first one is on U.S. Advair generics. The latest of data on the ClinicalTrials.gov still mentions June 2015 for the completion of the bioequivalence file on the (58:50). So based on your competitivity reasons, do you have any reason to believe that it may or may not be delayed? Any thoughts on this would be great. And the second is just a currency-related question. I think you mentioned that you expect 6% negative FX impact on EPS for the full year. So is that correct? And does that mean that your guidance of high teens EPS, declined that's translating to low 20% EPS decline reported? Thank you.

So on the currency, yes, the release does says 6% is our current estimate if rates at the end of the quarter maintain for the balance of the year. Clearly we can't predict currencies, and how they will actually perform, so that's why we give our guidance in constant-currency terms. And I'll leave you to take a view as to what adjustment we make over the period, but that's the current assumption.

And I have no special insight other than what some of the generic companies have been saying at conferences. I think the most recent one I saw was a May comment where the company involved was talking about a potential filing at end of this year or the beginning of 2016. What we know is typically generic files take 18 months or so to review, depends how complex or simple they are. The complex ones take longer than that, the simple ones sometimes go a bit quicker. I don't know if you take a view on this being a simple or a complex one. And we also know that every other generic so far has failed. So that's what we know. Now, we can't guarantee that this will fail; we can't guarantee there won't be generic, and that's why we've given you guidance medium-term shape of the business incorporating an assumption for generic Advair in the U.S. And even with the generic Advair in the U.S., we believe that the business as currently configured post the transaction with the pipeline we've launched can deliver the numbers in the shape we showed you on the May 6 date. And Q2 shows we're absolutely on track for delivery of that.

I'm afraid we're out of time, so with that, I'd like to thank everybody for their questions, and of course the IR team is available at GSK to you to follow up. And for those of you who couldn't get to the question, I apologize, and please do give the team here a call. Thanks very much.

Thank you. Ladies and gentlemen, that concludes your conference call for today. And you may now disconnect. Thank you for joining, and have a very good day.