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

Timothy Anderson - Bernstein James Gordon - J.P. Morgan Steve Scala - Cowen Graham Parry - Bank of America Seamus Fernandez - Leerink Richard Parkes - Deutsche Bank Jo Walton - Credit Suisse Alexandra Hauber - UBS

Good day, ladies and gentlemen, and welcome to the GSK Investment Analysts Call to 15 Q3 2015 Results Call. My name is Brett and I am the call manager. [Operator Instructions] I would like to advise all parties today's conference is being recorded. And now I would like to hand the call over to Sir Andrew Witty.

Thank you very much. Good afternoon, everybody, and thanks for joining this Q3 2015 results call. We've made further progress during this quarter to deliver the benefits of our recent transaction with Novartis and successfully execute our strategy. Our integration and restructuring programs are on track and sales are benefiting from recent new product introductions and those products recently acquired. All of this is providing us with confidence in our ability to meet our guidance for 2015 and for a return to significant earnings growth in 2016. For the quarter, group sales were up 11% on a reported basis and 5% on a pro forma basis, both at CER. Earnings per share for the quarter was 23 pence at CER, and reflected a decline of 13%. The decline reflects the short-term dilution from the transaction offset by good sales progress, cost control, and accelerated delivery of our integration and restructuring programs. It's also worth noting that earnings in Q3 reflect a tough comparator with Q3 2014 where we recognized a structural SG&A benefit of £290 million. Pro-forma sales grew across all three businesses. Vaccines were at £1.2 billion, up 13%, reflecting continued progress of our new meningitis franchise and a strong performance in the U.S., which also benefited from sales of flu vaccine. With sales of £1.6 billion, Consumer Healthcare grew 7% driven by continued strong sales of Flonase OTC, a product we switched from RX status earlier in the year, as well as strong growth in key priority brands such as Sensodyne. I'm also very pleased to see sales benefiting from the re-launch of newly-acquired brands such as Excedrin and Theraflu. As we've previously said, we're also very focused on driving improvement in the core operating margin in Consumer Healthcare, and I'm pleased to report that we are starting to make progress on this with the margin increasing to 13.3% this quarter, which is 1.9 percentage points higher on a CER and pro-forma basis than in Q3 2014. It's probably worth noting that in a current currency basis, it would have been another point-and-a-half higher still. Pharmaceutical sales also grew 1% to £3.3 billion despite the continued decline in Seretide Advair sales and some headwinds in emerging markets, which are partly the product of macroeconomic factors, but also the short-term impact of some disruption following our restructuring of some of our emerging market footprint. Offsetting this, HIV product sales grew strongly and now represent just under 20% of our overall pharmaceutical turnover. Very importantly, total sales of our new pharma and vaccine products, which of course include HIV medicines, continued to show very good momentum with sales of £591 million in the quarter. This is an increase of £411 million compared to Q3 2014, and is more than double the sales decline in Advair Seretide of 182 in the quarter. Clearly, this represents positive progress as we transform our portfolio with the introduction of the new products. We'll profile more of GSK's innovation at our investor event in New York next week. This will include several critical late-stage assets such as our shingles vaccine, SHINGRIX, which we published more data on yesterday, our new treatment for severe [indiscernible], for which we anticipate action from the FDA in the next few days, the (IL)-6 sirukumab for rheumatoid arthritis, and our new long-acting HIV medicine, cabotegravir. We will also highlight promising new development opportunities in oncology, immuno-inflammation [indiscernible] and infectious disease. In total, we plan to profile around 40 potential new medicines and vaccines during the event. Of these, we estimate around 80% are potentially first in class with novel mechanisms of action. Finally, we've also declared a dividend of 19 pence for the quarter and reaffirmed our expectation of a full-year dividend of 80 pence. I would now like to hand over to Simon to give you a little bit more detail on the quarter.

Thanks, Andrew. As you can see from the announcements we've made today, we're encouraged by the progress we've made during the quarter in executing on our restructuring and integration plans and in building momentum across the group, with all three of our businesses contributing to the pro-forma growth of 5%. Progress is evident in a number of areas, including our new launches, where we're seeing stronger momentum supported by additional resources that we've freed up through the pharmaceutical restructuring program; in our supply chains, particularly Vaccines and Consumer, where the investments we've made to improve capacity and reliability allowed us to move early on the important seasonal businesses of flu vaccines and cough and cold in Consumer, creating the opportunity to take share and improve pricing, delivering a significant step-up in profitability and growth as a result; and then most obviously, in our cost base, where we're on track or slightly ahead of our plans and have delivered total incremental savings in the first nine months of this year of over £700 million compared to the same period last year, £300 million of that in the third quarter alone. These savings are most evident in the reductions in R&D and SG&A in the quarter, once you strip out the comparator effect of last year's structural savings, more than offsetting the significant investments we're making behind new launch activity and seasonal sales. These examples highlight the extent of the change that we're making to the group through the Novartis transaction and our restructuring of the Pharmaceuticals business, but also more importantly, they demonstrate the growing momentum in the business and why remain confident in our 2016 outlook of returning to growth in core EPS at rates that we expect to reach double-digits on the CER basis. In the short term, we have always expected that the transition of the business post-Novartis would create some quarterly volatility in 2015 given some of the uncertainty around the timing of the delivery of transaction benefits and some of the material quarter-to- quarter drag factors. Q4 will be no exception, with the biggest quarter of last year for oncology sales dropping out along with Avodart going generic in the U.S. at the start of Q4 as well as the usual lumpy comparisons for vaccine sales depending on the timing of tenders. We also expect continued growth in the minority interest given the increasing contributions from HIV sales in the consumer joint venture and a much higher tax rate that in Q4 last year. We still expect the effective tax rate for 2015 as a whole to be around 20%. Offsetting this issues, we expect continued improvements in new launch products, further transitioning our Asperity portfolio and growing contributions from our costs restructuring programs which underpin our confidence and deliver the guidance for 2015 that we gave back in May that we have reiterated today for a percentage decline in core EPS in the high teens, again, on a constant currency basis. Our 2015 guidance does not include any contribution from the proposed divestment of our remaining rights to Novartis which we announced back in August. While the timing of the closing is still under certain and we could still slip into 2016, we've also taken the opportunity to review again our policy as to how to treat such transactions given that we may well have others come out of R&D in the future and that we haven't had such significant one for some time. We've concluded that where we have an ongoing participation in a program, we will include milestones and other similar payments as part of our core turnover. Where we do not, will treat all proceeds non-core other income, and as a result, the proceeds from the [indiscernible] transaction, when it closes will be in non-core results. Let me turn to a few more specifics in the quarter and describe in a bit more detail a few of the comparators you should consider as we move forward into Q4. As usual, most of my comments will be focused on CER growth and core results, but I should point out that currency continued to be a headwind for the group this quarter. Currency movements were a 2% drag on sales and a 5% headwind on core EPS. If rates remain at the same level as at the end of the quarter, and we have no further inter-company settlement gains or losses, we would expect the year as whole to also see 5% negative currency impact on core EPS. Turning to the three divisions: total Pharma sales including HIV were down 7% but up 1% pro forma as strong growth in sales of our HIV products more than offset lower sales in respiratory and in the established products portfolio. Q3 sales of HIV products grew 65% reflecting continued strong uptick for Triumeq and Tivicay in all three regions. Tivicay has now been launched in 51 markets and Triumeq in 26. We expect continued strong growth from both products in queue from ongoing launches and improved penetration in the markets where they have already been launched. U.S. Pharma sales were down 10% pro forma, primarily driven by Advair which is down 18%. It's down 19% year-to-date as we absorb the reductions last year but also as we transition our portfolio to the newer products. Our new products Breo and Anoro are building some momentum and together had sales of 41 million pounds, more than double Q3 last year. We've completed the vast majority of the contracting with managed care for next year, and as a result, we expect the formulary coverage in 2016 for all of our respiratory products to be as good as or better than 2015. Elsewhere in the U.S., Benlysta sales were up 23% to 53,000,000 pounds and TANZEUM doubled to 10,000,000 pounds. The overall decline in the U.S. was also affected by continuing tough comparators for Lavesa which was down 166% post the introduction of generics last year. The business had 54,000,000 pounds of sales in Q4 last year, so this will continue to be a headwind into the fourth quarter. In Europe, Pharma sales were down 7% pro forma, respiratory down 13% and Seretide down 23%. This reflects a step-up that we've seen in competitive action in the quarter with a number of new generics being launched and competitive tender activity particularly impacting volume share. Pricing pressures will continue, and as we shift our own respiratory business to new products, Seretide is likely to decline further. In the year-to-date, Seretide is down 17%. Offsetting that, we are seeing encouraging signs in the rollout of the new products, for example in Italy, Revlar volume share gains have almost completely eroded Seretide share losses. Both Revlar and Anoro have now been launched in the vast majority of European markets, and in Q3, total sales for Revlar and Anoro in Europe were £25 million, offsetting around a third of the Seretide sales decline. In International, sales declined 4% pro-forma. The region's growth continues to be held back by disruption in the Middle East and our China business, which saw a 27% pro-forma decline in the quarter as we continue to reset these businesses for the future, including disposing of a number of peripheral parts to the portfolio. In Japan, sales were up 4% pro-forma, led by a strong performance in [indiscernible], up 9%, as growth from the new products more than offset a 17% decline in Adoair. In emerging markets, sales were down 8% pro-forma, particularly impacted by Established Products down 17%, again, mainly driven by China, and [indiscernible] sales down 6%. Within [indiscernible], emerging market sales of Seretide were down 15% with additional generic competition, price reductions in a number of reimbursed markets flowing through in the quarter, and the impact of our own shift in new products in a number of early launch markets such as Brazil. Increased generic activity is likely to create some continuing quarter-to-quarter volatility going forward for [indiscernible]. Turning to Vaccines, overall, a strong quarter, 13% growth on a pro-forma basis. U.S. vaccines up 22% pro-forma, with flu vaccine sales up 59% benefiting from earlier supply in the quarter than last year, more doses, and the switch to 100% quadrivalent this year. For the quarter, we sold roughly 22 million doses versus last year's 15 million doses. Our new meningitis products, Menveo and Bexsero, also delivered strong growth, with total sales up 34%. In Europe, vaccine sales grew 14% pro-forma, mainly driven by our meningitis portfolio, led by Bexsero sales of £28 million and Menveo with £14 million. Bexsero particularly benefited from inclusion in the U.K. immunization program but also good private market sales in a number of other major countries. Boostrix up 30%, with strong growth in Germany. Hepatitis sales were down 15%, mainly because of the supply constraints that we've previously talked about. In international, vaccine sales were up 3% pro-forma against a tough comparator. Strong growth for Synflorix was up 19%, mostly offset by lower sales of Boostrix, down nearly 50% with significant competition arriving in the tender space and a number of capacity constraints, as well as hepatitis sales, which were also down reflecting the same constraints. We continue to make investments in the supply chain to improve overall reliability and expand capacity for the future that we'll take into 2017 before the program is fully complete. Consumer Healthcare up 7% pro-forma, with estimated consumption data for the portfolio in line with this rate and several points ahead of market growth. In the U.S., the business continued to benefit from Flonase OTC sales following its strong launch, which particularly benefited Q1. The international business delivered a more encouraging performance in the quarter, up 6%, with strong performances from India and a return to growth in Russia. Destocking has had less of an impact than in Q2, but the higher channel inventories of the acquired businesses in a few markets, particularly China and the Middle East, will continue to be a drag on growth through into the first quarter of next year, particularly in Wellness. Moving to operating profit, excluding currency, the operating margin was down 490 basis points. This is impacted by the one-off structural benefits of £219 million recorded in SG&A last year. Excluding this, the operating margin was down 120 basis points, incorporating the negative impact on the margin of the Novartis transaction, which we estimated around 330 basis points in the quarter. Looking at the ongoing business, we've made good progress in executing the integration plans and in driving costs out of the business. These savings, together with an improved product mix, particularly from the strong growth in ViiV sales, more than offset the impact of pricing pressures in [indiscernible] and the investments we're making in the business and drove a 210 basis point improvement in the pro-forma margin, again, excluding the impact of the structural benefit in Q3 last year. Year-to-date, the core margin is down 320 basis points. 270 basis points of this is due to the Novartis transaction, and I continue to expect the impact of the transaction for the full-year to be in the 200 basis point to 300 basis point range. Including the year-to-year comparators which we've covered a couple of times, we still expect the overall decline in the reported core margin for the full-year to be in the order of 500 basis points. In the bottom half of the P&L, the core effective tax rate is 20% for both Q3 this year and last year, and we continue to expect 20% for the full year. Further down the P&L, the charge for minority interest was 141 million pounds, up 94 million pounds from Q3 last year, reflecting the growth in the consumer group joint venture. Our cash flow, net cash in-flow from operations for the quarter was 524,000,000 pounds, excluding 43 million pounds of legal settlements, and adjusting this for the second tax payment on the Novartis transaction of around 268 million pounds and 365 million pounds of cash restructuring costs incurred in the quarter, both of which we are funding from proceeds of the Novartis transaction. The cash generated from operations was 1.2 billion pounds. This is down a little over 600 million pounds versus last year, which reflects the reduction in profit, some currency impact, but also a material increase in working capital during the quarter primarily due to the receivables and the seasonal sales of flu and consumer, and we expect this to reverse in Q4. Dividend payments totaled 920 million pounds. We're managing the balance sheet to protect our credit ratings and maintain our financial flexibility, and we continue to prioritize ordinary dividend payments and investment to accelerate the delivery of the transaction synergies and the other investment opportunities we have identified in the group. Net debt at the end of the second quarter was 10.6 billion pounds, 3.8 billion pounds lower than the balance at the end of last year and the reduction primarily reflects the reduction of the net proceeds from the Novartis transaction, offset by some of the accelerated investments we've already covered. In summary, Q3 was an encouraging quarter, and we are pleased with the progress of the momentum in all three businesses. We remain focused on the successful execution of our strategy, and at delivering more balanced and sustainable growth across the group. And with that, I'll hand the call back to Andrew.

Thanks very much, Simon, and we will open up the call now to Q&A if the operator could just go through the procedure.

Thank you. Ladies gentleman, your question-and-answer session will now begin. [Operator Instructions] Your first question comes from the line of Tim Anderson from Bernstein. Please go ahead.

Thank you. A few questions, if I can: on Advair generics in the U.S., is it unreasonable to model that this could potentially launch in 2017 or are you confident that that's not likely to happen? On your comments about core results in revisiting how you might book those, can you explain what the driver of that reassessment is and give us a bit more details and then the last question - high level M&A; Pfizer has been signaling a recent heightened interest in mergers and acquisitions, potentially with a tax inversion element. It's a very short with theoretical targets in the drug space that would get them this, but as you are no doubt aware, Glaxo is on that theoretical list. I would imagine that despite the financial disappointment over the last years, with the recent restructuring you guys have done, you feel energized and you would be very disinterested in any potential tie ups? So to me at least, a merger between Pfizer and Glaxo seemed highly improbable. But I would love to hear your comments on those if you can provide any.

Sure. Tim, thanks for the question. Let me ask Simon just to quickly address the core/non-core thought process, and then I'll come back to your two other questions.

Yes. Thanks, Tim. I mean, we've not had any similar divestments of this sort of scale recently, so this is a good opportunity to look at the policy afresh. And I think we just took the distinction that: A; we were going to get some of these disposals, but they worked going to be that regular, and that seemed to point at non-core, even though in the past the policy would've suggested it should go into core, and I know some other companies do that, but this seemed sporadic rather than regular. And second; we are not involved anymore and on that basis, it seemed much more akin to a disposal and so should be treated as non-core.

I think the bottom line, Tim, also, is we really want, what we're trying to show to you and the shareholder from the core is what we really believe are the kind of the elements of the business on a regular basis, you need to be keeping an eye on to track how we are doing. Obviously, as you bridge from core to total results, as you see in the release, we are very transparent, so if any shareholder wants to add back anything - and we know that many shareholders have slightly different add-backs - they can re-create those numbers. But as Simon rightly says, when you look at this transaction you say, okay, there are no ongoing activities for GSK and no ongoing receipt. It makes sense for it to be treated a disposal. Actually it's sporadic it should go into non-call. And I think we just wanted to clarify that. As far as the other two questions. So Advair generic in America. I have been CFO, I think I was appointed CEO in the fall of 2007, I've been asked this question every quarter since, just about. And we haven't get seen a generic. Obviously, we keep an eye on what some of the generic companies are saying. We are clearly moving into a window again. We've been there before where companies are talking about developing their potential generic threat. And of course, while in the past it's always failed, I can't guarantee it's going to fail in the future. And I've always been pretty clear with people that sooner or later you have to anticipate something could happen. It's just hard to know when. Now if you project forward and you look at the average review times of the FDA and all of those particularly given this is a reasonably - to state the obvious, I think this is a reasonably complicated product to generate a generic for. It seems unlikely to me that this would go very quickly. Could it conceivably start sometime in 2017? Conceivably, yes. Could it be later than that? Yes. Could it fail? Yes. So unfortunately, I'm not really the guy to help you too much. What we have tried to do to help you is we said back in May, when we gave you an indication of how we saw the growth rate of the company running all the way through the 2020. Essentially, to signal to you that in that period when we dialed in just for the purposes of that assumption, genericization in American. It really just reassured us that even if we do have a genericization of America during that period, we can deliver good, solid, sustainable sales growth and earnings growth for the company between May of 2015 and 2020. The other thing I would say to you, and obviously, it's been a little bit the driver of the challenge for us over the last 18 months, is we're well on the way to taking a third or a half of the genericization effect anyway. So we've seen a significant amount of price last year and this year. We'll see a bit more price next year on Advair in advance of any possible timings of generic. But of course, that means that size of that product is diminishing for the company. The volumes haven't gone down anywhere near as much the headline numbers would reflect. But we've seen a lot of price pressure and we've seen increase in generic competition ex U.S. in emerging markets, and to a lower degree in Europe. And so as a consequence, the size of the nut which is potentially at risk, eventually when, and if, a generic ever arrives, it is reducing all the time. And what that says I think is that the cloud if you will that's hung over us for a very long time in terms of what happens, if, and when Advair goes. First of all, the cloud is getting smaller, second of all the replacements from the pharmaceutical business and of course from the other businesses have got much more - got much larger and their momentum is much greater. And I think as a general point, we are less concerned about the threat than we were. Of course, it's never nothing, because Advair remains a very big product. But the dynamics are changing quite quickly. As far as the, as you put it, the high level M&A is concerned, I think very simply put, we are very happy with the strategy we laid out as we went through and executed the transaction with Novartis. We think it's the right strategy for the environment that we are operating in today, and highly lightly to operate in the future. We see very significant opportunity to create value through the expansion of the margin in consumer vaccines. The delivery of the sales growth of those two businesses, and bringing through of the pharmaceutical pipelines into the three businesses. And you are seeing nice steady progress this year of all of those agendas. The transaction has also given us another opportunity to really go after some of the structural fixed costs of the company and areas like R&D. And again, you're beginning to see some of the benefits of that. So we believe that is - we think it is the right strategy to face a world of uncertainty, price pressures, dynamic change. We think it's the right strategy. We think there is a very significant benefit from being focused on execution of that strategy. And as a consequence, that is very much where our attention is devoted and not looking at other types of transactions which, in our view, would potentially lead to years of distraction and draw us away from what we can see is a very interesting short to medium-term cycle of value generation as you then rotate through the potential generic adverse scenario one way or another as I've described and you look at our business the other side of that, wherever you choose to put that window. You look at the business on the other side of that and you have a business where there is no material intellectual property rights threat to the company's portfolio until 2026, 2027, and the business which has in all three of its platforms very significant opportunity to grow at what would be very material margins by that point. And that's really that's what's driving our focus to execute it. Next question?

Thank you. Your next question comes from the line of James Gordon from J.P. Morgan. Please go ahead.

Hello. Thanks for taking my question. Two questions, please. The first one was on the very good cost control this quarter and the sustainability of the cost control. The guidance of the high teens EBIT decline this year or the full year basis, it seems to imply that for Q4 you're going to have a really sharp decline like at least 30% EPS decline, and I would've thought that with further progress made on cost savings as you said, if you could talk about the magnitude of the upper pressures in Q4 this year on FX and why the guidance couldn't actually be a little bit better now? The second question was on the sales force for respiratory. We saw the negative results from the summit study and I know you had split your respiratory sales forces so there was going to be a separate Breo sales force, separate Advair, separate Anoro. I'm wondering with result from Breo, does that make you less likely to invest that much in pushing Breo and might that be diverted into the mepolizumab sales force? Now are you going to set up a big mepolizumab standard and sales force?

Right. Thanks very much for the question, James. So on the second point, so obviously disappointed by the SUMMIT results. These are, they're worth doing these studies, but they are always risky and there is always a chance they're going to fail. This one failed. Just want to reiterate, it was - SUMMIT was never in any of our forecasts that we shared with the Street. So for example, when we said that we would deliver at least 6 billion pounds of new product sales by 2020, that did not include the SUMMIT. That was always an upside to those numbers. Actually since the launch of, since the news of SUMMIT, we've seen no adverse effect on Breo. And actually I think people who have read the SUMMIT data, while it's clearly a failed study, I think they read that data and they see all sorts of information in there which for many people it further convince them of the merits of products like Breo. So actually as we stand today, we continue to see very good continued momentum in the U.S. now, we've got access and in Europe and Japan, where we have had a fantastic introduction also. You're beginning to see that reflected through the growing momentum in the sales number. And we're going to continue to be very much committed to that. I think actually, James, the world is beginning to kind of settle out into markets which are historically very bronchodilator heavy and markets which are much more steroid bronchodilators orientated, and I think that's likely to be the way in which we start to evolve our strategy and our portfolio as these products begin to be established in the marketplace. As far as sales force is concerned, actually, we've been increasing, not massively, but we've been increasing the size of our U.S. sales force for respiratory for Breo, Advair and Anoro. We've also been doing some - most of that has come from internal redeployment, but it's also been supplemented by the use of some CRO resource, seeing good returns from that investment. We've already built the new Cala sales force and its ready to go, so that's already in the run rate, if I can put it that way, at least for the quarter that's just gone by. Now as you think about SG&A going forward, there's going to be volatility quarter-to-quarter. I'll give you a very specific example. Q3 was pretty light for consumer, but Q4 is going to be pretty heavy for consumer because of the cough and cold season and the shift around, and as you know, post transaction have a much bigger cough and cold portfolio than we had before the transaction. So you're going to see a few movements like that. To a general point, we're very pleased with the performance in the quarter. Frankly, we've still got, you know, quite a few moving parts for Q4 as the new businesses is all settled down. Simon listed some of those in his commentary. Let's see how the fourth quarter plays out. We just felt actually it was a little early to declare victory. This is one step at a time. We're very focused on delivering the best number we can and let's see what Q4 looks like. Next question?

Your next question comes from the line of a Steve Scala from Cowen. Please go ahead.

Thank You. I have several questions. Both the ZOE-50 and ZOE-70 data have read out and showed very impressive efficacy. While will it take until the second half of 2016 to file a SHINGRIX? And will you not be pursuing a pediatric indication? Secondly, the decline in emerging markets was quite striking. When do you expect the emerging market area to return to growth? And then lastly, I would just like to follow up on Tim's M&A question. You said that GSK was not looking at options and/or something along those lines. But the question didn't imply that GSK was looking but that Pfizer was looking at GSK. So, Andrew, you did not say that GSK is determined to stay independent at that you feel that greater value can be delivered to shareholders as an independent entity. So is GSK determined to stay independent? Thank you.

Thanks, Steve. So as far as SHINGRIX or the Zoster vaccines are concerned, obviously, both studies came out very, very positively. I think to see those similarly high, those similarly very high rates of protection in the older population compared to the benchmarks have been historically set was really striking. This is clearly a highly, highly effective vaccine, both in terms of preventing shingles, but clearly also in preventing postherpetic neuralgia, which is obviously a very important measure. In terms of what we would be doing for the next few months, obviously, A, assembling the file. There are CMC things we have to go through in terms of things like batch validation. So that's in most of the critical path for the next few months that Steve is around the CMC element of the file. We will be exploring a pediatric opportunity but not in the initial file. We think this is going to be a very, very significant opportunity for the company. As you know, the products in the marketplace at the moment has reasonably limited supply, has a much lower level of efficacy and protection, has a waning level of persistency. And we believe that with both our manufacturing technology and scale and the profile of this product, this can be a very, very substantial vaccine for the company. As far as EM growth is concerned, yeah, it was disappointing during the quarter. A few things going on. So you've got some extra generic pressure in a few countries. You've got some macroeconomic pressure, particularly in places like Brazil and Russia which I think is common to many, many people. But we've also, as you know, we've been restructuring quite a number of our countries. And there is inevitably a bit of disruption caused by that. We're beginning to come through the other side of that. I'd expect us to probably be in growth in Q4 for the EMs, and I would definitely expect us to be in pretty robust growth, market level growth rates for 2016. So I think this is a reasonably temporary phenomenon, and I think we'll start to see that move out. I'd also mention that Q3 was a fairly punchy comparative for the EMs on the vaccine business. We still managed to grow the vaccine business in EMs, but it was against a very high benchmark, which again, was a little bit distorted there. I think as far as your follow-up to Tim's question is concerned, we are always going to want to follow the strategy which deliver the best long-term shareholder value for our shareholders. And we think the strategy we've got is exactly that. And we're not looking around particularly to just run and we've looked for other alternatives. We think this is a good strategy, and we're going to be focused on delivering it. And we think it can deliver not just shareholder return in the short to medium run. We think it can build the kind of capability that's going to be necessary to deal with some of the pressures that we think are coming in the macro environment for the industry. And while we all recognize the industry has been there a nice purple patch for the last two or three years, I think it's quite hard to conclude that, that purple patch is going to continue in perpetuity. When you start to think about some of the other pressures which are building up and beginning to become more visible, we think the strategy we put together makes a lot of coherent sense to faces those environments. So that's very much what we are focused on. Next question?

Your next question comes from the line of Graham Parry from Bank of America. Please proceed.

Hey. Thanks for taking the question. Firstly on Asperity, you talked about the coverage for Asperity being good into 2016, but can you give a feel for whether a similar level pricing or rebates would have to be sacrificed to achieve that? And secondly, GSK is back in the press with one of your shareholders very publicly calling for breakup of the company again. Can you just remind us for the record why you decided not to spend the divest established products and remind us to some of the challenges of breaking consumer out as a separate entity? And has a more detailed review of these options by your new chairman changed your viewpoints on any of those points at all? And then thirdly, last year you experienced a credit rating downgrade on your long-term credit rating A2. Do you see the Novartis consumer put in 2018 being cited as one of the reasons? As that approaches and becomes more of a near-term event, what options do you have to deal with that put on your balance sheet and then potentially avoid a near-term or short-term credit rating downgrade? Thank you.

Okay. Thanks very much, Graham. So in terms of coverage, yeah, coverage - so we're pretty settled for going into next year and you may have seen some of the coverage in the U.S. that some of the very big managed-care companies, in particular CVS Caremark have prioritized the GSK brands as you may have seen. Anoro and Encruz have been given priority at the expense of the deletion of the Spiriva and Spiriva-related brands. And you can, you will see a number of exclusive positions for GSK. You will also see a very wide level of coverage either at or above market, at or above the best in the market more or less across the board in the U.S. next year. So we go into next year probably with the best coverage we've ever had for our respiratory you portfolio, first thing to say. In terms of price, yes, you'll see a continued reduction in Advair price in the U.S. in terms of the net price that we are charging. But the rate of decline is decelerating. So the gig is not as great as it has been for the last couple of years. As far as the decisions around ViiV and established products are concerned, I think it's quite an interesting subject to just reflect on for a second. In all three cases or, sorry, in the established products and the Viiv case, we took a very conscious decision to essentially publicly discuss the pros and cons of whether we should keep the businesses or not. The reason we and I suppose we could have tried to secretly have this conversation with banks and, I don't know, send out a few people. But the one group we would never have been able to properly sound out in that conversation would have been the shareholders. By having a public reflection, of course it creates the kind a kind of excitement, which then sometimes gets consummated, sometimes doesn't get consummated. But it does create the opportunity for shareholders, large and small, to put their points of view forward. And in both cases, we have pretty strong and particularly in the case of the Viiv business very strong feedback from our shareholders that we should retain that business. Now of course in the period that we were doing that reflection, the expectations for the HIV new products literally almost grew exponentially as the product began to launch. And as you'll have seen, we've most recently overtaken Atripla as the best product launch in the U.S. HIV marketplace. And you see in the numbers the continued extraordinary rollout of the business. So we took the decision not to separate it because we believed we were the best owners. We believed that we were in the midst of creation of some of a quantum of value far in excess of what anybody at the time had believed existed and I think we've indicated since. And I would say the overwhelming majority, if not almost every shareholder who expressed an opinion during that process, was in support of that decision. Established products was a slightly different proposition. So established products, I think if you could convince yourself that there was a way to separate the established products and get, and bring forward a valuation far in excess of your retain case, then I think most people would find that a noncontroversial concept. The problem is, and I think you've seen other companies run into the same problem, these businesses are very distributed. So you're talking about dozens of products across dozens of countries. Actually what you're really talking about is a very fragmented portfolio of value points. They are supported by a legacy network of factories, which are in the tens of factories, and therefore the complexity of extraction is very, very material. We took the decision based on that and also based on the not surprising conclusion that the value offered was nowhere near sufficiently in excess of the retain case. So that just wasn't a good economic transaction to do. What we've done since is focused internally on how we can extract more margin for that business and I think what we've been able to show over the last couple of years is that while it inevitably is a declining business overall, it is able to deliver very substantial margin, which can then be redeployed in the growth businesses of the company. As far as - the new Chairman has been on the Board of GSK now since January. He's been involved in all the decisions we've taken since January and has, along with the rest of the Board, been unanimous in the support of the various decisions that we've taken. With that, next question?

Thank you. Your next question comes from the line of Seamus Fernandez from Leerink. Please go ahead.

Thanks very much for the questions. So just more a couple of pipeline questions as we're looking forward. In terms of the number, you have a number of Phase 2 products that are listed, in your overall portfolio. I know you have your R&D day next week, but just wondering, can you give us a number of what's the number of programs that you believe have the potential to move forward into Phase 3 in the next 12 months? And then separately, if you could, in terms of the Phase 3 programs as I look at them, sirukumab, the anti-(IL)-6, can you give us your thought process around what is a pretty crowded market and how you will differentiate there? And then the last question is on the pro-hydroxylase inhibitor, in terms of just the market opportunity, how are you guys thinking about market opportunity there in chronic renal disease? Thanks a lot.

Great. Thanks, Seamus. Before I get to you, I really apologize to Graham. I didn't ask Simon to address the put question. So maybe, Simon, could you do that first?

Yeah, Graham. I think as you pointed out, the agencies have already factored into their view of our balance sheet the liability of taking that put when it comes. And remember, the window doesn't open up until 2018. Exactly how we fund it and how we deal with it we'll have to decide when we get there. But it's already factored into the credit metrics for the company as the agencies and our bondholders see it today. So I'm not sure there's very much more to add at this point other than it'll obviously depend at the time on the shape of the business. And remember, bringing in that minority will be significantly credit enhancing of itself given the profitability and cash generation capability of that company.

Okay. Thanks very much, Simon. As far as - so I'm going to be a bit, sorry, a bit frustrating for you now, because obviously, we've got the R&D day just a week or so away. You're going to see, I think you're going to see the answers to your questions, Seamus, more or less at that R&D day. Maybe not absolutely everything. You're certainly going to see a very substantial amount of information about the anti-(IL)-6 program. You're certainly going to hear about the PHI program. Now overall, we're going to be talking to you about, I think, one way or another, you're going to hear about 40 discrete different medicines and vaccines next week. Now obviously they are in a spectrum of phases of development, and they carry a spectrum of attrition risk. But what's very clear is we've got a very substantial quantum of innovative product moving forward. And honestly, I think the very best thing to do is just ask you to be a little bit patient until New York next week. And, A, you'll have the chance to ask the question, we get the chance to avoid answering it in public rather than over a telephone call, and hopefully we'll be able to answer most of your question straight out without any hesitation. And you'll also have the chance, by the way, not just to meet the most senior management, including myself, Simon, Moncef, Patrick, but you'll see the leaders of our R&D organization. And so you'll have plenty of opportunity to explore some of the nuances. And you're right to focus on some of these drugs. PHI is a very exciting program. You're going to see next week exactly why we think we have the right molecule, we think we have the right differentiated program. You'll see why we believe in (IL)-6. I think you'll hear a little bit about where else we think we can take the anti-(IL)-6 into other indications. And you'll see an awful lot in the six therapy areas that GSK has focused its R&D operations in. So if I can just ask you to be patient, a week from now you should see all of that. Next question?

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

Hi, gentleman. Thanks for taking my question is. Firstly, I wondered if you could talk about the specific impact on Seretide in Europe? I think you saw a 16% volume decline there. It looks like from your comments there's not much there, that's kind of one-off effect in the quarter. Just other than it transitioning to the new portfolio, I wondered if there's anything else you can do to offset those pressures and defend those sales and whether maybe a change in your strategy in terms of contracting and tenders, whether you're considering that? And then a couple of things on the competitive environment in HIV. And we've seen first approvals of Gilead's new TAF formulation of its intergrase combination pill. I wondered whether you felt the need to add anything in terms of additional sales and marketing support to address maybe that increased competitive dynamic in the near term. And longer term, hearing from Gilead also yesterday that they are moving an unboostered integrated inhibitor into Phase III which could launch in 2018 and maybe be more competitive with Dolutek there. So I wondered whether that was affecting the urgency in which you feel the need to invest in lifecycle management for that franchise. Thanks.

Great. Thanks a lot, Richard. So you're going to see a lot of HIV next week. So again, I'm not going to get too much into the detail. I just do want to make a couple of comments about it, though. Dolutegravir based regimens have done so well because, A, it's an excellent molecule, and, B, the team did the most phenomenal job of coming to market not just with one pivotal study or two pivotal studies showing base competitiveness. It came to the marketplace with a full data set comparing itself to most of the other regimens and demonstrated extraordinary performance, very rare that I have seen a product which essentially hit its mark in pretty much every trial it did against every class was put up against. And I think that's what's really made this product cut through what is obviously a competitive market dominated by one company, and it's where we've of been able to take very significant market shares very quickly and deliver as I said already the most successful product launch in the category in the U.S. And when you, so I think it's really important not just to conclude that another one in the class, if indeed it does make it, if indeed it doesn't had a glitch on the way through, will somehow therefore just be the same as dolutegravir. I think you all model second and third entry molecules to class, you would all conclude that third entry model to class, that third entry to class has to be something very, very special to get ahead of numbers one and two. Given that number two is such a strongly profiled molecule, there's quite a reasonable hurdle for people to jump. You will see a lot around the lifecycle management and the science innovation in our HIV both short-acting and long-acting mechanisms of action next week, Richard, and I won't for the same reasons that I didn't go into Seamus, I won't go into it now because it would be much better for you to have the full conversation next week. As far as Seretide in Europe is concerned, essentially, we are continuing to see generics launch in different countries. I mean, the bottom line is that with a few exceptions, the generics are taking relatively low volume shares, so maybe 3% to 5% market shares. Most of the hit, not all, there's clearly a volume hit as well, most of the hit is price that we are taking, and obviously, we are taking price to retain share a number of countries, but I would fully expect that pressure to continue. As I said to an earlier question, essentially this is, you know, we're now seeing this gradual erosion of Seretide Advair as I've made perfectly clear, I do not believe for a second of that erosion will go to zero, just as we've never seen that happen in any other inhaled or respiratory products, so we fully expect there to be a significant surviving quantum of the Seretide Advair business, not least because of in MDI, DPI type of differences, but just simply at the pattern we've seen in other categories. And I would expect a very substantial amount of that to be in parts of your Europe and the emerging markets if we fast-forward to five years. So, yes, will continue to expect some pressure there. I wouldn't guide you to believe that we would suddenly have a big turnaround. I think the pressure is kind of set there at least for the next few quarters, it's likely be more about, is likely to be mostly about price rather than volume. Next question?

Thank you. Your next question comes from the line of Jo Walton from Credit Suisse. Please go ahead.

Thank you. Three quick questions, please. Firstly, on NUCALA. I wonder if you could give us some guide as to how quickly you should think, we should be thinking about the adoption? Clearly in your most recent respiratory launches, people of been disappointed at the ramp rate. So perhaps you can tell us a bit about how wide a footprint you think you NUCALA will have a bit about the message and give us some help as to how fast that can ramp up. Second question is just one on cost savings. It's very nice of you to tell us you've made $300 million of cost savings in this quarter. I wonder if you could tell us a bit about whether that's a good rate again for the fourth quarter now that you've had the deal consummated for a bit longer? Can you give us a guide as to whether you can get more cost savings or just cost savings coming through sooner, perhaps, than expected? And finally, just a quick question on vaccines: incredibly strong profitability in the third quarter - how much of that is just because of the timing of the flu business colleges' office and partly better partly just a timing issue from into the 3Q from 4Q. So how much of that is real improvement and how much should we see go away again in the fourth quarter? Thank you.

Thanks very much, Jo. So in the NUCALA launch, let's wait and see FDA PDUFA is November 4, so obviously I don't want to count any chickens until we have gone through that process. As you know, we've also have a positive opinion in Europe. My expectation is that we should see a relatively more rapid ramp-up in sales opportunity then we've seen in the classic mass market plates for respiratory products. But I still, I would guide you not to expect it from day one. And you kindly attributed the only slow ramp-ups to respiratory products. I noted this week it also happens to be happening in the cardiovascular marketplace for some other companies. So I think slow ramp is a general phenomenon. I'm going to hesitate to predict that there isn't going to be some kind of inertia in this particular category, so I think it will be quick out, so where I get to? I would like to expect that by the time we get into Q2 of next year that we would start to be seeing kind of the pattern open up, but let's wait and see. We certainly feel ready for it; we think we havoc extremely competitive profile, not just against the current standard of care out there on the marketplace but also much more importantly, we think it's pretty future-proofed from anything that's coming down the pike. And again, Jo, you'll see quite a lot about NUCALA next week. As far as the vaccine margin is concerned, you're quite right; it was a very good margin during the quarter. It was helped significantly by the flu, as you saw, we sold far more product in Q3. That's important because if you can sell early in America can also sell at higher price. So it's not just the move forward of the volume, it's also by moving forward the volume, you capture higher price than you would do if you sold it late. And so that no doubt helps. Having said that, we are seeing good underlying progression. I would not a back to Q4 margin to reflect the Q3 margin, but we are definitely seeing good underlying progression, and we're definitely seeing the beginnings. It's running a little bit behind as planned, but it's running a little bit behind Consumer, the beginnings of the cost of extraction from the integration and maybe Simon could talk about how to think about the overall timing of the deal synergies.

Yes, I think just to round out some vaccine, it's probably of the three businesses the one where I usually expect the margin to be most lumpy as it moves around quarter to quarter, similar to the top line. I think overall, as we came out of the third quarter, we were at an annual run rate of around $1.3 billion in total for the various programs that we've now aggregated. We were targeting 1.4 for the end of the year, so there's a good opportunity to do a little bit better than we planned for the year as a whole, but, let's see how the fourth quarter goes, and I think it's a bit premature to be changing the total targets that we've got for the overall program of $3 billion by 2017.

But rest assured, we're going as fast as we can to the highest number we can get is the bottom line.

We will see that in the performance of the quarter.

And I think somebody said earlier on, that surely the deal energized the company and yes, there's no question there with the pipeline in pharmaceuticals and vaccines, with the deal in vaccines and consumer and with the opportunity to reshape R&D, it's put a lot of energy into the organization. And we are seeing on almost on every metric, we're seeing the organization deliver ahead of what we ask it do in terms of synergies as a good example, but on the whole raft of other things. And from that point of view, we're feeling that this is very much on track. We'll have the next question. I think this will have to be the last one - sorry about that - but last question?

Thank you. Your next question, then, comes from the line of Alexandra Hauber with UBS. Please proceed.

Thanks for taking my questions. Two quick ones: I was wondering given the strength of the dolutegravir franchise whether now would be a good opportunity to revisit your guidance for these margins? It's hard to see what brings us down back to 70%, which would probably imply a massive ramp in the fixed costs? And secondly, just on the point, the last point you made on the vaccines, on the flu vaccines, I was wondering whether you could give us some kind of an idea on the price differential between [indiscernible] and ne Trivalent and also whether this year you are planning to ship a larger number of doses and if you could give us last year's number and actually this year's numbers that you're planning to ship. Thank you.

Thanks, Alexandra. So in terms of the HIV margin, I mean, clearly that business is going very well. I'm going to just ask, I think you should be thinking about the overall pharmaceutical margin, so I mean I'm sure it's riveting to get into the detail of the HIV only margin, but actually the whole pharma is the pharma business, and it's important to remember that. So the HIV business is a great growth business for us, of course it's generating significant contribution to the company. It's a massive beneficiary of the historically R&D spend which was itself paid for by Advair and HIV business is contributed to the massive R&D spend that we commit now for the next generation of products. So it's a very, so I don't think you're going to see that margin move around massively from where it is today, but I also am not completely convinced as a huge point in dwelling on it anymore. In terms of QIV, a couple of things, so this year, we only sold QIV in the U.S., so 100% of our shipments to QIV. That has changed over the years as we've ramped up into the new technologies. Last year, we did 50 million QIV and TIV in Q3. This year, we did 22 million QIV alone in Q3. We would expect to sell more as we go through the rest of the quarter. I won't go into the specifics of the price difference, because obviously those are all negotiated in the market but QIV is more expensive than TIV.

With that, I'm afraid we're out of time. Thank you very much for your questions, and I'm sorry if we didn't get to all of your questions. For those of you who are going to be attending the New York event next week, we look forward to having the chance to talk you there. It's going to be a reasonably long event, but it's also going to be an opportunity for you to talk to a reasonably wide number of senior leadership and scientific leadership of the R&D organizations, both in vaccine and pharmaceuticals, and I hope it will give a good opportunity for you to get well and truly tuned into a pretty broad-based number of assets within our six therapy areas that we're going to be focused on. With that, thank you for your attention, and of course, if you do have follow-up detail questions, please don't hesitate to contact the GSK Investor Relations team. Thanks very much.