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GlaxoSmithKline (GSK)

Q4 2017 Earnings Conference Call

February 6, 2017 9:00 am ET

Executives

Emma Walmsley - Chief Executive Officer

Luke Miels - President, Global Pharmaceuticals

Simon Dingemans - Chief Financial Officer

David Redfern - Chief Strategy Officer

Brian McNamara - Chief Executive Officer, Consumer Healthcare

Sarah Elton-Farr - Head of Investor Relations

Analysts

James Gordon - JP Morgan

Graham Parry - Bank of America Merrill Lynch

Steve Scala - Cowen & Co.

Andrew Baum - Citigroup

Keyur Parekh - Goldman Sachs

Kerry Holford - Exane BNP

Emmanuel Papadakis - Barclays

Presentation

Operator

Good day ladies and gentlemen and welcome to the GSK 2017 Full Year Results call. During the presentation, your lines will remain on listen-only. If you require assistance at any time, please key star, zero on your telephone and a coordinator will be happy to assist you. I’d like to advise all parties this conference is being recorded.

I’d now like to hand over to your host for today, Sarah Elton-Farr, Head of Investor Relations. Please go ahead.

Sarah Elton-Farr

Thank you. Good morning and good afternoon everyone. Thank you for joining us to discuss our full-year 2017 results, which were issued earlier today. You should have received our press release and can view the presentation on GSK’s website. For those not able to view the webcast, slides that accompany today’s call are located on the Investor section of the GSK website.

Before we begin, please refer to Slide 2 of our presentation for our cautionary statements.

Our speakers today are Chief Executive Officer, Emma Walmsley; Luke Miels, President of Global Pharmaceuticals, and Simon Dingemans, Chief Financial Officer. Following our presentation, we will open up the call to questions and answers. We request that you ask only a maximum of two questions so that everyone has a chance to participate. Joining us for Q&A are David Redfern, our Chief Strategy Officer and Chairman of ViiV; Brian McNamara, CEO of our Consumer Healthcare business; Luc Debruyne, President of Global Vaccines, and Patrick Vallance, our outgoing President of R&D. Our incoming Chief Scientific Officer, Dr. Hal Barron will be joining us on our Q1 call in April.

With that, I will hand the call over to Emma.

Emma Walmsley

Thank you, Sarah, and good afternoon to everyone. Before I begin, as this is the last quarter that Patrick is going to be representing GSK, I’d like to take the opportunity to reiterate my thanks and appreciation to him for all he has done for GSK and very importantly for the patients that we serve.

A strategic strength for GSK is our balanced business profile beyond pharma for sustainable growth, returns and cash flows. I’m pleased to say that we delivered growth across all three businesses in 2017 with sales reaching over £30 billion for the first time as well as group operating margin accretion and improved earnings and cash flows.

With growth in all three of our businesses this year, we delivered group sales growth of 3% in CER terms. In pharma, our new respiratory portfolio grew strongly at 75% and more than offset the decline in Seretide/Advair. We continue to have high expectations for growth with this new business, and Luke is going to talk you through some of the detail on that in just a moment. In HIV, we continue to deliver strong double-digit growth driven by increases in market share for both Tivicay and Triumeq. We also saw the approval of Juluca, the first of our new two-drug regimens in HIV, allowing us to establish a new paradigm in the treatment of this increasingly chronic disease.

Within vaccines, we also continue to deliver good growth with sales up 6% at CER, the key drivers being meningitis and influenza vaccines, and their strong performance was partly offset by competition and pricing on some of our established vaccines.

In consumer healthcare, we saw improving sales momentum throughout the year with strong performances in wellness and oral health offsetting the impact of a weak U.S. season and competitive pressures in allergy, as well as divestments and the implementation of GST in India. Our power brands continue to deliver strong growth above market levels, and this has helped drive the margin improvements that Simon will talk you through shortly.

At the group level, we delivered margin improvement of 40 basis points in CER terms as we improved cost and cash discipline while still investing behind our priority launches and R&D programs, including the investment in a priority review voucher to accelerate the introduction of Juluca. This has driven adjusted EPS growth of 4% and free cash flow of £3.4 billion, an improvement on 2016 of £400 million.

In July last year, I laid out my long-term priorities for the whole company: innovation, performance and trust. There are changes and new focus that we need to reach our goals and to position us for stronger growth post-2020, especially within pharma and most specifically, of course, within R&D where we’re focused on making the right choices and changes as data reads out. Innovation comes first, and we’ve made real progress here. Last year, we achieved three major new approvals in the U.S.: Shingrix, a new standard of prevention in shingles, and Luke is going to talk about that in just a moment; Trelegy, the first once-daily single inhaler triple therapy for COPD, and Juluca, the first of our new two-drug regimens in the treatment of HIV. We are ambitious for each of these launches, which are now getting underway.

We’re also advancing our pipeline and presented very encouraging data on our first-in-class VCMA asset at ASH in December, as well as exercising our opt-in rights to NY-ESO for Adaptimmune in cell and gene therapy. We’re putting new discipline into pipeline governance under new leadership.

We’ve also made progress on our performance and trust priorities. We’ve re-prioritized resources to those areas best able to deliver growth, whether product or geographies. We’re fueling this through ongoing cost, cash and capital discipline and good progress on implementation of the restructuring of supply chain in our commercial pharma business.

Read the rest of this transcript for free on seekingalpha.com