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    Annual Report 2004 New challenges New thinking Do more, feel better, live longer


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    Mission Our global quest is to improve the quality of human life by enabling people to do more, feel better and live longer. Our Spirit We undertake our quest with the enthusiasm of entrepreneurs, excited by the constant search for innovation. We value performance achieved with integrity. We will attain success as a world class global leader with each and every one of our people contributing with passion and an unmatched sense of urgency. Strategic Intent We want to become the indisputable leader in our industry. GlaxoSmithKline plc is an English public limited company. Business segments It shares are listed on the London Stock Exchange and the GlaxoSmithKline operates principally in two industry New York Stock Exchange. segments: • Pharmaceuticals (prescription pharmaceuticals and History and development of the company vaccines) GlaxoSmithKline plc, and its subsidiary and associated • Consumer Healthcare (over-the-counter medicines, undertakings, constitute a major global healthcare group oral care and nutritional healthcare). engaged in the creation, discovery, development, manufacture and marketing of pharmaceutical and Annual Report and Review consumer health-related products. This report is the Annual Report of GlaxoSmithKline plc GlaxoSmithKline has its corporate head office in London. for the year ended 31st December 2004, prepared in It also has operational headquarters in Philadelphia and accordance with United Kingdom requirements. Research Triangle Park, USA, and operations in some A summary report on the year, the Annual Review 2004, 116 countries, with products sold in over 125 countries. intended for the investor not needing the full detail of The principal research and development (R&D) facilities the Annual Report, is produced as a separate document. are in the UK, the USA, Japan, Italy, Spain and Belgium. The Annual Review includes the joint statement by the Products are currently manufactured in some 38 countries. Chairman and the Chief Executive Officer, a summary The major markets for the Group’s products are the USA, review of operations, summary financial statements and France, Japan, the UK, Italy, Germany and Spain. a summary remuneration report. GlaxoSmithKline plc is a public limited company The Annual Review is issued to all shareholders. The incorporated on 6th December 1999 under English law. Annual Report is issued to shareholders who have elected On 27th December 2000 the company acquired Glaxo to receive it. Both documents are available on Wellcome plc and SmithKline Beecham plc, both English GlaxoSmithKline’s corporate website at www.gsk.com. public limited companies, by way of a scheme of arrangement for the merger of the two companies. Website Both Glaxo Wellcome and SmithKline Beecham were GlaxoSmithKline’s website, www.gsk.com gives additional major global healthcare businesses. information on the Group. Information made available on the website does not constitute part of this Annual Report.


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    GlaxoSmithKline 01 GlaxoSmithKline plc Annual Report for the year ended 31st December 2004 Contents Report of the Directors 02 Financial summary 03 Joint statement by the Chairman and the Chief Executive Officer 05 Description of business 33 Corporate governance 43 Remuneration Report 59 Operating and financial review and prospects Financial statements 88 Directors’ statements of responsibility 89 Independent Auditors’ report 90 Consolidated statement of profit and loss 90 Consolidated statement of total recognised gains and losses 92 Consolidated statement of cash flow 94 Consolidated balance sheet 94 Reconciliation of movements in consolidated equity shareholders’ funds 95 Company balance sheet 96 Notes to the financial statements Investor information 154 Financial record 163 Financial information under International Financial Reporting Standards (IFRS) 174 Shareholder return 175 Shareholder information 176 Share capital 178 Taxation information for shareholders 179 Cross reference to Form 20-F 180 Glossary of terms The Annual Report was approved by the Board of Directors on 2nd March 2005 and published on 4th March 2005. Contact details


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    02 GlaxoSmithKline Financial summary 2003 2004 (restated) Growth Statutory results £m £m CER% £% Turnover 20,359 21,441 1 (5) Trading profit 6,150 6,509 5 (6) Profit before taxation 6,119 6,313 8 (3) Earnings/Net income 4,302 4,478 7 (4) Basic earnings per share 75.0p 77.1p 8 (3) Dividends per share 42.0p 41.0p Merger, restructuring and disposal of subsidiaries Trading profit – (395) Profit before taxation – (390) Earnings/Net income – (281) Earnings per share – (4.9)p Business performance Turnover 20,359 21,441 1 (5) Trading profit 6,150 6,904 (1) (11) Profit before taxation 6,119 6,703 2 (9) Adjusted earnings/Net income 4,302 4,759 1 (10) Adjusted earnings per share 75.0p 82.0p 2 (9) The Group, as a multinational business, operates in many countries and earns revenues and incurs costs in many currencies. The results of the Group, as reported in sterling, are therefore affected by movements in exchange rates between sterling and overseas currencies. Average exchange rates prevailing during the period are used to translate the results and cash flows of overseas subsidiary and associated undertakings and joint ventures into sterling. Period end rates are used to translate the net assets of those undertakings. The currencies which most influence these translations are the US dollar, the Euro and the Japanese Yen. In order to illustrate underlying performance, it is the Group’s practice to discuss its results in terms of constant exchange rate (CER) growth. This represents growth calculated as if the exchange rates used to determine the results of overseas companies in sterling had remained unchanged from those used in the previous year. CER% represents growth at constant exchange rates. £% represents growth at actual exchange rates. During the years 2000 to 2003, business performance was the primary performance measure used by management and was presented after excluding merger items, integration and restructuring costs and disposals of businesses. Management believes that exclusion of these items provides a better comparison of the way in which the business was managed and gives an indication of the performance of the Group in terms of those elements of revenue and expenditure which local management was able to influence. For 2004, with the completion of these programmes, the Group is reporting results on a statutory basis only. Growth rates are presented comparing 2004 results both with 2003 business performance results and 2003 statutory results. Management considers that the comparison of 2004 statutory results with 2003 business performance results gives the most appropriate indication of the Group’s performance for the period under review and therefore commentaries are presented on this basis unless otherwise stated. Cautionary statement regarding forward-looking statements The Group's reports filed with or furnished to the US Securities and Exchange Commission (SEC), including this document and written information released, or oral statements made, to the public in the future by or on behalf of the Group, may contain forward-looking statements. Forward-looking statements give the Group's current expectations or forecasts of future events. An investor can identify these statements by the fact that they do not relate strictly to historical or current facts. They use words such as ‘anticipate’, ‘estimate’, ‘expect’, ‘intend’, ‘will’, ‘project’, ‘plan’, ‘believe’ and other words and terms of similar meaning in connection with any discussion of future operating or financial performance. In particular, these include statements relating to future actions, prospective products or product approvals, future performance or results of current and anticipated products, sales efforts, expenses, the outcome of contingencies such as legal proceedings, and financial results. The Group undertakes no obligation to update any forward-looking statements, whether as a result of new information, future events or otherwise. Forward-looking statements involve inherent risks and uncertainties. The Group cautions investors that a number of important factors including those in this document could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to, those discussed under ‘Risk factors’ on pages 76 to 78 of this Annual Report.


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    GlaxoSmithKline 03 Joint statement by the Chairman and the Chief Executive Officer We knew 2004 would be a challenging Our pipeline is focused on developing new medicines and vaccines to treat diseases of unmet medical need, such as cancer year for GlaxoSmithKline and we are and Alzheimer’s disease. Many of these have the potential to be important new products. pleased to report that we have achieved our financial and business objectives. For example, we believe that Cervarix, our promising vaccine candidate against cervical cancer, has the potential to make a major contribution to healthcare globally and to become our In our last Annual Report, we predicted that 2004 would be a best-selling vaccine. We expect to file Cervarix in the European challenging year as we felt the full impact of generic competition Union and international markets in 2006. to Paxil and the introduction of generic Wellbutrin. GlaxoSmithKline managed this year well, thanks to the underlying Great opportunities lie ahead of us. This year, we will work to strength of the business. In fact, GlaxoSmithKline is a much ensure a greater understanding by key stakeholders of the value stronger company today than it was a year ago. of innovative medicines. We will continue our contribution to finding a solution to the healthcare funding crisis, and we will Our broad-based portfolio of fast-growing products and continued seek new ways of improving access to our medicines for the focus on controlling costs enabled us to absorb the loss of more people who need them most but are least able to pay for them. than £1.5 billion of business to generics and still achieve a Our Corporate Responsibility Principles continue to guide the way one per cent increase in global pharmaceutical sales. Turnover we do business. A separate 2004 Corporate Responsibility Report of £20 billion grew one per cent at constant exchange rates (CER), (available from the GlaxoSmithKline website) explains progress and we achieved our guidance of earnings per share (EPS) at least against these Principles during the year. in line with business performance EPS in 2003 (at CER). Our EPS grew two per cent to 75 pence in 2004. Acknowledgements We acknowledge with gratitude the contribution of In 2005, we expect to see faster growth with an EPS percentage Sir Christopher Hogg and Sir Peter Job, who retired from the CER growth in the low double-digit range on an International Board at the end of 2004. Sir Christopher chaired GlaxoSmithKline Financial Reporting Standards (IFRS) basis. This is being driven by through a period that saw the company derive the full benefits the strong growth of key products and continuing efficiencies in of the merger and meet the challenges caused by the loss of our operations. Our most exciting phase of growth will come patent protection on major products. when the new compounds and vaccines currently in development start contributing to our performance over the next few years. John Coombe, Chief Financial Officer, will retire from the Board of GlaxoSmithKline on 31st March 2005. John has served GlaxoSmithKline has one of the largest and most promising GlaxoSmithKline and its predecessor companies in an exemplary pipelines in the industry, with 140 projects in clinical development manner for more than 18 years, playing a major role in guiding (as at the end of February 2005), including 88 New Chemical the company through the post-merger period and establishing Entities (NCEs), 32 Product Line Extensions and 20 vaccines. Of GlaxoSmithKline as a leader within the global pharmaceutical these compounds, 43 NCEs have moved into Phase II trials, industry. including compounds to treat HIV, diabetes, blood disorders and multiple sclerosis, and data on at least 15 of these are expected We thank all three departing directors for their substantial during 2005. In 2005, we also anticipate the launch of six new contributions to GlaxoSmithKline and wish them well for products, including Rotarix for rotavirus, Vesicare for overactive the future. bladder, Boniva for osteoporosis, Avandaryl for diabetes, Requip for restless legs syndrome and Entereg for post-operative bowel disorders. Sir Christopher Gent Jean-Pierre Garnier Non-Executive Chairman Chief Executive Officer


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    04 GlaxoSmithKline


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    GlaxoSmithKline 05 Description of business The Description of business discusses the strategy, the activities, the resources and the operating environment of the business and identifies developments and achievements in 2004, under the following headings: Strategy 06 Strategy 07 Build the best product pipeline in the industry 18 Achieve commercial and operational excellence 19 Improve access to medicines 20 Be the best place for the best people to do their best work 21 Invest in communities 23 Consumer Healthcare 24 Global manufacturing and supply Products and competition 25 Pharmaceutical 28 Consumer Healthcare Regulatory environment 29 Regulation 30 Intellectual property 31 Responsibility for environment, health and safety Discussion of the Group’s management structures and corporate governance procedures is set out in Corporate governance (pages 33 to 42). The Remuneration Report gives details of the Group’s policies on Directors’ remuneration and the amounts earned by Directors and senior management in 2004 (pages 43 to 58). Discussion of the Group’s operating and financial performance and financial resources is given in the Operating and financial review and prospects (pages 59 to 86). In this report: ‘GlaxoSmithKline’ or the ‘Group’ means GlaxoSmithKline plc and its subsidiary undertakings and the ‘company’ means GlaxoSmithKline plc. ‘GlaxoSmithKline share’ means an Ordinary Share of GlaxoSmithKline plc of 25p. An American Depositary Share (ADS) represents two GlaxoSmithKline shares. Throughout this report, figures quoted for market size, market share and market growth rates relate to the 12 months ended 30th September 2004 (or later where available). These are GlaxoSmithKline estimates based on the most recent data from independent external sources, valued in sterling at relevant exchange rates. Figures quoted for product market share reflect sales by GlaxoSmithKline and licensees. Brand names appearing in italics throughout this report are trademarks either owned by and/or licensed to GlaxoSmithKline or associated companies, with the exception of Baycol and Levitra, trademarks of Bayer, Hepsera, a trademark of Gilead Services in some countries including the USA, Integrilin, a trademark of Cor Therapeutics, Micropump, a trademark of Flamel Technologies, Nicoderm, a trade mark of Sanofi-Aventis, Elan, Novartis or GlaxoSmithKline in certain countries, Natrecor, a trademark of Scios and Janssen, Navelbine, a trademark of Pierre Fabre Médicament, Vesicare, a trademark of Yamanouchi Pharmaceuticals, Boniva/Bonviva, a trademark of Roche, Entereg, a trademark of Adolor Corporation and Pritor, a trademark of Boehringer Ingelheim, all of which are used in certain countries under license by the Group.


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    06 GlaxoSmithKline Description of business Strategy GlaxoSmithKline’s business goal is to become the indisputable Be the best place for the best people to do their best work leader in the pharmaceutical and consumer healthcare industry. The single greatest source of competitive advantage of any Achieving this goal will require meeting the three key challenges organisation is its people. The Group’s ambition is to make it the that face both the industry and society as a whole: place where great people apply their energy and passion to make a difference in the world. Their skills and intellect are key • improving productivity in research and development components in the successful implementation of the Group’s • ensuring patients have access to new medicines strategy. The work environment supports an informed, empowered • reaching consumers beyond the traditional healthcare and resilient workforce, in which the Group values and draws on professional. the diverse knowledge, perspectives, experience, and styles of the GlaxoSmithKline has developed strategies which focus on a global community. Further details are given on page 20. number of key business drivers in order to meet these challenges. Invest in communities Build the best product pipeline in the industry GlaxoSmithKline continues to build on its history of community The Group is aiming to create the best product pipeline in the investment programmes. These provide support for better industry for the benefit of patients, consumers and society. This healthcare delivery and education in under-served communities includes developing a focused portfolio strategy to support around the world. The Group does this through active engagement the pipeline and manage the full life cycle of compounds from with numerous external stakeholders including the World Health launch as a prescription medicine through to becoming over-the- Organisation and members of the not-for-profit community. It counter products where appropriate. This strategy includes funds community-led initiatives across the world and donates selective in-licensing and efficient execution of development, medicines to support humanitarian efforts and community-based commercialisation and the supply chain processes. healthcare. Many of the programmes are long-term commitments that help bring about sustainable change in communities. Further GlaxoSmithKline’s R&D organisation measures productivity by the details are given on pages 21 to 22. number and innovation of the products it creates, and also by the commercial value of the products and their ability to address the Commit to corporate responsibility unmet needs of all consumers. This includes patients, healthcare GlaxoSmithKline is committed to connecting business decisions professionals, budget holders and regulators, each with their own to ethical, social and environmental concerns. Thus, corporate perspective on what constitutes a valuable new product. responsibility is an integral and embedded part of the way we Further details are given on pages 7 to 17. do business. Achieve commercial and operational excellence In 2003, GlaxoSmithKline published a set of Corporate GlaxoSmithKline links research and commercial operations closely Responsibility Principles to provide guidance on the standards in order to maximise the value of the portfolio. As compounds to which the Group is committed. This sets out the approach are developed and tested, marketing campaigns and sales efforts to ten areas: standards of ethical conduct, research and are planned. Where appropriate within markets, the Group aims innovation, products and customers, access to medicines, to build strong relationships with patients and consumers as the employment practices, human rights, community investment, ultimate users of its medicines. caring for the environment, leadership and advocacy, and engagement with stakeholders. The Group reports annually Common approaches to management processes and business on progress in upholding these principles in its Corporate functions are used by an internationally diverse and talented Responsibility Report, which is available on the website at management team in order to create and sustain competitive www.gsk.com. advantage in all markets. Further details are given on page 18. Improve access to medicines GlaxoSmithKline has created extensive programmes designed to improve the healthcare of people who have limited access to medicines both in the developed and developing world. These are set out in the ‘Improve access to medicines’ section of this report (page 19).


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    Description of business GlaxoSmithKline 07 Build the best product pipeline in the industry Research and development – Pharmaceuticals Finding candidate compounds Research and Development (R&D) operates on a global basis, Early research and the role of genetics employing over 15,000 staff at sites mainly in the UK and the USA The early stages of finding new medicines requires essentially two but also in Belgium, Canada, France, India, Italy, Japan, and Spain. components; targets that can be shown to affect mechanisms In addition, R&D has partnerships with other companies worldwide of important pathological processes in human disease, and in order to benefit from the particular skills and expertise that are compounds able to modulate the behaviour of specific targets. available in particular locations. As part of this target validation process, GlaxoSmithKline aims to identify the genes most relevant to common diseases with Focus on the patient large unmet medical needs and major patient burdens. GlaxoSmithKline’s strategic intent is to become the indisputable Many diseases arise through complex interactions between a leader in the industry. Its success is dependent on a vibrant, number of gene variants and environmental factors, so the productive R&D function supporting existing products and challenge is significant. Identifying the genes that predispose developing new ways to help patients. R&D is increasingly patients to a particular disease and understanding their roles in seeking the views of patients to understand the most important its progression lead to new ways to intervene in these diseases. aspects of their disease and the impact it has on their lives. In Genes of interest have been identified for asthma and non-insulin addition to discussions with key opinion leaders, GlaxoSmithKline dependent diabetes. Further genetic association studies in well is devoting more resource to a dialogue with patients and their phenotyped patients are under way in schizophrenia, unipolar families. This information may then be used to shape drug depression, obesity, Alzheimer’s disease, rheumatoid arthritis, development programmes. Once a new medicine is ready for osteoarthritis, metabolic syndrome, chronic obstructive pulmonary launch, GlaxoSmithKline then knows it will bring clear benefit to disease (COPD), coronary artery disease and acute coronary patients’ lives. syndrome. Productivity GlaxoSmithKline is justly proud of its reputation for applied A continued high priority during 2004 has been the challenge scientific excellence and is at the forefront of many advances of increasing productivity, both through improving science and which are harnessed to find new medicines as quickly as possible. through managing the entire R&D organisation so that its resources One example of where the Group is helping to move the are optimally focused on the discovery and development of new understanding of disease processes forward is the development medicines. Some of the scientific initiatives that have enhanced of imaging techniques that may be validated to act as surrogate productivity are discussed below. Programmes to identify markers for disease. This allows increasingly accurate prediction association between diseases and genes have facilitated the linkage of the clinical effect of lead molecules and drug candidates before of cellular targets to disease, identifying for GlaxoSmithKline the embarking on the later stages of development and thus more areas of research that are most likely to produce new ways of efficient use of resources. helping patients. Increased automation in the screening of compounds has provided more lead compounds more quickly and Discovery Research of higher quality than before. Further improvements have been Discovery Research (DR) produces the lead compounds that form made in imaging techniques to allow early decisions on which the basis of drug discovery efforts in the Centres of Excellence for compounds to progress. In addition, the greater use of automation Drug Discovery (CEDDs). In 2004, DR has provided the CEDDs with in the laboratory environment and expansion of the electronic over 45 high-quality new lead compounds with activity against collection of clinical trial information allow scientists to become defined targets. Investment in DR has been focused on increasing more productive throughout the discovery and development the quality and quantity of the lead compounds available. process. This year, R&D has completed the current phase of its investment GlaxoSmithKline’s product development pipeline, set out on pages in automation with the opening of a new combined facility for 14 to 17, shows considerable breadth and depth. At the end of high-throughput screening and high-throughput chemistry in February 2005 GlaxoSmithKline had 195 pharmaceutical and Upper Providence, USA. This has enabled the screening of over vaccine projects in development of which 140 are in the clinic. one million compounds in 2004, with a success ratio that has consistently increased over the investment period. In addition, a Molecular Imaging Centre of Excellence (MICE) in Upper Merion, USA was opened, providing a platform to develop non-invasive, multi-modal imaging technologies for preclinical applications.


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    08 GlaxoSmithKline Description of business Build the best product pipeline in the industry continued Compounds progressed into Phase I clinical development in 2004 During 2004 a number of discovery projects, listed in the table below, progressed through non-clinical safety testing and into early (Phase I) clinical development undertaken by the CEDDs. These compounds are continuing their rigorous non-clinical, clinical and commercial assessments, leading to proof of concept decisions over the next 12–18 months. Compound/Product Mechanism Indication 159802 long-acting beta2 agonist (inhaled) asthma/COPD 189075 sodium dependent glucose transport (SGLT-2) inhibitor type 2 diabetes 189254 histamine H3 antagonist dementia 423562 calcium antagonist osteoporosis 427353 beta3 adrenergic agonist overactive bladder 565154 oral pleuromutilin treatment of respiratory tract infections 642444 long-acting beta2 agonist (inhaled) asthma/COPD 656933 interleukin8 receptor antagonist COPD 677116 lipoprotein-associated phospholipase A2 inhibitor atherosclerosis 679769 NK1 antagonist urinary incontinence 705498 vanilloid receptor1 antagonist acute migraine 743921 kinesin spindle protein (KSP) inhibitor cancer 768974 parathyroid hormone (agonist) osteoporosis 813893 factor Xa inhibitor prevention of stroke in atrial fibrillation 825780 DNA antiviral vaccine HIV 842166 non-cannabinoid2 agonist inflammatory pain 856464 melanin-concentrating hormone antagonist obesity 856553 p38 kinase inhibitor rheumatoid arthritis and COPD 876008 corticotrophin releasing factor (CRF1) antagonist depression, anxiety and irritable bowel syndrome (IBS) Requip XR non-ergot dopamine agonist restless legs syndrome (RLS) Product submissions A number of significant dossiers were submitted to the regulatory authorities in the major regions during 2004 which are summarised in the table below. Product Country/Region Description Bonviva/Boniva EU and USA monthly oral dosing regimen of ibandronate, a bisphosphonate for the treatment of osteoporosis Entereg USA alvimopan, a peripheral mu-opioid receptor antagonist for post-operative ileus Hepsera Japan adefovir, an RNA-directed DNA polymerase inhibitor for the treatment of hepatitis B Lexiva Japan fosamprenavir, an HIV aspartyle protease inhibitor for the treatment of HIV Product approvals In 2004, approvals were received for a number of new products, as summarised in the table below. Country/Region Product (Approval Date) Description Bonviva EU (February) daily oral dosing regimen of ibandronate, a bisphosphonate for the treatment of osteoporosis Flolan PAH Japan (June) epoprostenol, a prostacyclin agonist for the treatment of pulmonary arterial hypertension Hepsera Japan (October) adefovir, an RNA-directed DNA polymerase inhibitor for the treatment of hepatitis B Lexiva Japan (December) fosamprenavir, an HIV aspartyl protease inhibitor for the treatment of HIV Telzir EU (July) fosamprenavir, for the treatment of HIV Vesicare USA (November) solifenacin, a muscarinic acetylcholine receptor antagonist for the treatment of over-active bladder in-licensed from Yamanouchi


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    Description of business GlaxoSmithKline 09 Selecting the best candidate molecules Early in the development process, the metabolic rate and safety of compounds are evaluated in laboratory animals prior to testing Centres of Excellence for Drug Discovery in humans. The testing required in both animals and humans is There are two fundamental steps in turning a lead compound mandated and is highly regulated by governmental agencies into a drug candidate: (i) optimising it for potency, efficacy, safety (see Animals and research on page 13). and other intrinsic characteristics of the molecule, and (ii) demonstrating the validity of the therapeutic hypothesis through PCD researchers investigate appropriate dosage forms (e.g. tablet early clinical trials of the resulting candidate. These steps are or inhaled) and develop formulations to enhance the drug’s facilitated by rapid, informed decision-making and creative effectiveness and to facilitate the ease of use by the patient. solutions to the issues that inevitably arise in this phase of Processes and supporting analytical methods for drug synthesis development. The CEDDs are focused on specific disease areas. and product formulation and delivery are scaled up to meet They are designed to be nimble and entrepreneurial with the increasing supply requirements, ultimately leading to the technical range of skills and resources required to drive mid-stage transfer of the processes and methods to manufacturing. The development projects from lead optimisation through to their key New Product Supply Process, a partnership between R&D and decision point, demonstration of proof of concept, before major Global Manufacturing and Supply, ensures that a robust product investments are made to fund large-scale clinical trials. is developed for large-scale commercial manufacturing and launch. There are seven CEDDs, based in Europe and the USA: Also improving R&D’s productivity are new drug delivery systems, predictive technologies, particle engineering and process • Biopharmaceuticals, centred in Stevenage (UK) innovation. The use of particle engineering and process innovation • Cardiovascular & Urogenital Diseases, centred in Upper Merion enhances the ability to manufacture consistently high-quality (USA) products efficiently. • Metabolic & Viral Diseases, centred in Research Triangle Park (USA) Worldwide development • Microbial, Musculoskeletal & Proliferative Diseases, including To provide focus for the development process, all the major cancer, centred in Upper Providence (USA) functional components of clinical, medical, biomedical data, • Neurology & Gastrointestinal Diseases, centred in Harlow (UK) regulatory and safety are integrated into a single management • Psychiatry, centred in Verona (Italy) organisation, Worldwide Development (WWD). • Respiratory and Inflammation, centred in Stevenage (UK). During 2004 the creation of the Medicine Development Centres Each CEDD is responsible for identifying the optimal drug (MDCs), which provide a focus for late-stage development, was candidate for the desired biological effect and then assessing its completed and embedded in the organisation. The MDCs are safety and other development characteristics in preclinical screens, responsible for creating value through the delivery of full product some of which may involve using animals. Once this is achieved, development plans, managing the day-to-day operational activities the CEDDs are responsible for proving that the compound is safe for the late-stage development portfolio, maximising the global and efficacious in patients in small-scale clinical trials – the proof commercial potential of products by optimising the delivery of the of concept decision point. portfolio, and ensuring strong partnerships with the CEDDs and A decision is then made on whether the information available Global Commercial Strategy (GCS) in order to deliver differentiated to date justifies the compound’s progression into late-stage drug products of value. development where the necessary large-scale clinical trials are Throughout the development process, the Regulatory function conducted to register and commercialise the product. maintains a dialogue with the regulatory agencies in the major A major investment was announced in September 2004 to markets to ensure that the development programme is best establish a preclinical research facility for neurodegenerative focused to generate the data that is required for the grant of diseases in Singapore. The facility, which will have a team of licences. This dialogue also facilitates GlaxoSmithKline’s ability 30 to 35 scientists, will focus on new therapies in the treatment to respond efficiently to emerging requirements for safety and of neurodegenerative illnesses such as Alzheimer’s disease and efficacy data. Parkinson’s disease as well as schizophrenia. The R&D model In 2004, the CEDDs continued to progress significant numbers of new compounds into both first dosing in humans and initial Genetics Research Preclinical Global Commercial evaluation of efficacy in patients. & Discovery Research Development Strategy Converting candidates to medicines Preclinical development Centres Preclinical Development (PCD) participates in a wide range of of Medicine activities within the drug development process from optimising Excellence Development the selection of compounds for potential development through tics in rch Centres launch to the marketplace and enhancement of existing products Drug by devising more convenient formulations. very Discovery rch


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    10 GlaxoSmithKline Description of business Build the best product pipeline in the industry continued The MDCs are based at the major US and UK sites and are Pharmacogenetic-based information will provide prescribing therapeutically aligned as follows: physicians with key information to help them select the medicine and dose most likely to be of therapeutic benefit to their patients. • Cardiovascular/Metabolic • Infectious Diseases including Diseases of the Developing Clinical trial governance World (DDW) In conducting the clinical trials required to show that medicines are • Musculoskeletal/Inflammation/Gastrointestinal/Urology safe and effective, GlaxoSmithKline’s first priority is to protect the • Neuroscience (Psychiatry/Neurology) participants and future patients. All clinical trials sponsored by the • Oncology Group, irrespective of where they take place, are conducted • Respiratory. according to international standards of good clinical practice and These matrix teams are responsible for maximising the worldwide applicable laws and regulations. The protocols are reviewed by the development opportunities for each product within their remit so external regulatory agencies in the relevant countries where that all the information needed to support the registration, safety required and all protocols are considered by an Ethics Review programmes, pricing and formulary negotiations is available when Committee whose remit covers the site where the study will take it is required. Commercial input from Global Commercial Strategy place. Safety data is routinely collected throughout development ensures that at an early stage regional marketing needs are fully programs and is reported to national and regional regulatory integrated into any development plans. Careful prioritisation across agencies in line with applicable regulations. Additionally it is all phases of development ensures that a high potential and reviewed internally for any safety signals. The GlaxoSmithKline integrated portfolio is achieved in the context of patient needs. Global Safety Board is responsible internally for both approving pivotal studies and investigating any issues related to patient safety The MDCs collaborate at an early stage with the CEDDs to define that arise during the development programme. In addition, the target product profiles for new molecules and with integrated Clinical Compliance department monitors compliance with Good technical development and manufacturing functions to ensure Clinical Practice standards during the conduct, analysis and rapid, effective launch and delivery of the product to patients. reporting of clinical trials. Its remit covers GlaxoSmithKline sites Innovative clinical programmes for lead molecules from the running trials as well as Clinical Research Organisations (CROs) and CEDDs are developed using cross-functional project teams. In investigators performing clinical research on the Group’s behalf. these programmes, one key measure of productivity is the number The results of these audits are regularly reviewed by the R&D of active subjects in clinical trials each year. WWD has increased Global Risk Management Compliance Board and by the Audit the number of active subjects in clinical trials significantly over Committee. the last three years in order to keep up with the increasing need to demonstrate the safety and efficacy of its products. During 2004 GlaxoSmithKline took another step to make information from its clinical trials widely and easily available when The Gold Pass designation for assets of high value and strategic it established its Clinical Trial Register as a public website on which importance to GlaxoSmithKline, requiring specific organisational clinical trials data is published. Regulatory authorities around the visibility and urgency to meet patients’ needs, continued through world will continue to be fully informed of the data that are 2004. Because of the way in which the organisation’s resources generated so that they can be reassured as to the safety and are focused on these developments, only a small number of assets efficacy of GlaxoSmithKline’s products but the Clinical Trial Register receive Gold Pass status at any one time, enabling the organisation will enhance the ability of clinicians to make informed clinical to be fully aligned. Two products, radafaxine (353162) for judgements to benefit their patients. depression and lapatinib (572016) for cancer continued to progress and three further projects received the Gold Pass status during Global commercial strategy the year. The Global Commercial Strategy (GCS) organisation provides One of these combines 159797, a new long-acting beta-agonist integrated global commercialisation and strategic direction within and 685698, a new inhaled corticosteroid for the treatment of R&D, as well as supporting the development of regional marketing asthma and COPD. The second is the chemokine receptor campaigns for products emerging from R&D to maximise portfolio antagonist 873140 for HIV infection and the third project is the value through the full product life cycle. In addition, data are cyclo-oxygenase 2 inhibitor 406381. generated supporting the added value of products through assessments of improvements to the quality of patients’ lives and Development and the role of genetics reductions in the overall costs of healthcare from the use of GlaxoSmithKline believes that pharmacogenetic research, which GlaxoSmithKline’s products. is the correlation of genetic data with response to medicine, will provide valuable information to help improve decision making Extending the use of existing products during drug development, thus having a positive impact on key Once a product has been launched, it is important to establish causes of pipeline attrition (i.e. lack of efficacy and adverse drug additional ways in which patients can be helped through reactions) and clinical trial design. As a result, R&D is collecting investigating whether any other illnesses may be treated or by samples in clinical development studies to identify the development of additional dosage forms which are more pharmacogenetic information that can help predict a patient’s convenient for patients. Some of these developments reflect response. Prospectively collected efficacy and safety studies during feedback from patients and the medical professions; others are clinical trials have become standard elements of development. the result of continuing research into disease and its causes. This information is intended to define patient groups who are likely to respond best to treatment, or individuals who are most likely to suffer an adverse event, as the compound progresses through development in the clinic.


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    Description of business GlaxoSmithKline 11 Line extension submissions A number of product line extensions were submitted to the regulatory authorities in the major regions during 2004, which are summarised in the table below. Product Country/Region Description Arixtra EU and USA fondaparinux, a synthetic factor Xa inhibitor for the prevention of deep vein thrombosis after abdominal surgery Arixtra EU and USA fondaparinux, for the prevention of deep vein thrombosis in medical conditions Augmentin ES Japan a syrup formulation of amoxicillin (a beta-lactam antibiotic) and clavulanate (a beta lactamase inhibitor) for the treatment of otitis media in children Boniva USA labelling for an intermittent intravenous dosing regimen of ibandronate, a bisphosphonate for the treatment of osteoporosis Epzicom Japan fixed dose combination of 2 reverse transcriptase inhibitors for the treatment of HIV infections Imigran STAT dose Japan the hydroxytryptamine agonist sumatriptan in a self-injection device for the treatment of migraine Requip Japan an additional strength of ropinirole, a non-ergot dopamine D2 agonist for Parkinson’s disease Seretide EU labelling for use as initial maintenance therapy in asthma for the combination of salmeterol, a long-acting beta-blocker, and fluticasone, a corticosteroid Seretide Diskus Japan use in the treatment of asthma and COPD for the combination of salmeterol and fluticasone in a dry powder inhaler Serevent EU a chlorofluorocarbon-free formulation of the pressurised aerosol containing salmeterol for the treatment of asthma and COPD Ventolin USA a chlorofluorocarbon-free formulation of salbutamol, a short-acting beta agonist in a pressurised aerosol with a dose counter Wellbutrin XL USA indication for the treatment of seasonal affective disorder with the dopamine/noradrenaline re-uptake inhibitor bupropion Zefix Japan labelling for use of lamivudine, a reverse transcriptase inhibitor for the treatment of liver cirrhosis Ziagen QD Japan reverse transcriptase inhibitor abacavir for the treatment of HIV Zovirax Japan a cream formulation of the DNA polymerase inhibitor aciclovir for use in the treatment of herpes simplex infections Line extension approvals In 2004 approvals were received for a number of significant new indications and formulations for existing products, which are summarised in the table below. Product Country/Region Description (Approval date) Advair Diskus USA (April) labelling for paediatric twice-daily dosing in asthma of the combination of salmeterol, a long-acting beta-blocker, and fluticasone, a corticosteroid in a dry powder device Arixtra USA (June) fondaparinux, a synthetic factor Xa inhibitor for the treatment of deep vein EU (November) thrombosis Flovent USA (May) a chlorofluorocarbon-free formulation of the pressurised aerosol with a dose counter containing fluticasone, a corticosteroid for treating asthma Kivexa/Epzicom USA (August) a fixed dose combination of two reverse transcriptase inhibitors for the treatment of EU (December) HIV infections Japan (December) Paxil CR USA (January) controlled release formulation of paroxetine, a selective serotonin re-uptake inhibitor for intermittent treatment of pre-menstrual dysphoric disorder Requip EU (June) ropinirole, a non-ergot dopamine D2 agonist for restless legs syndrome Seretide EU (January) labelling for paediatric twice-daily dosing of the combination of salmeterol, a long- acting beta-blocker, and fluticasone, a corticosteroid in a pressurised aerosol for the treatment of asthma Seretide EU (March) a dose counter formulation of salmeterol for the treatment of asthma and COPD Serevent Diskus Japan (February) a dry powder formulation of salmeterol for the treatment of asthma and COPD Zefix Japan (October) labelling for use of lamivudine, a reverse transcriptase inhibitor in combination with Hepsera for the treatment of hepatitis B Ziagen QD Japan (December) the reverse transcriptase inhibitor abacavir for the treatment of HIV.


  • Page 14

    12 GlaxoSmithKline Description of business Build the best product pipeline in the industry continued Examples of lifecycle management include the new indication for Collaborative ADI partnerships from earlier are: Cytokinetics Inc. Seretide/Advair making this important asthma medicine available (oncology: mitotic kinesin inhibitors), Shionogi & Co., (HIV and for use in children between 4–11 years and Kivexa/Epzicom, neurology programmes; potential broad-based discovery a single tablet combining the active molecules used in two collaboration in antimicrobials, oncology, metabolic and neurology), successful treatments for HIV in order to simplify dosing for Tanabe Seiyaku Co. Ltd. (broad-based: neurology, GI, urology, patients. Line extensions form a significant part of the overall diabetes, respiratory) , Exelixis Inc. (oncology, inflammation), portfolio; recent examples such as Augmentin ES/XR, Seroxat/Paxil Theravance Inc. (asthma), Ranbaxy Laboratories Ltd. (broad based) CR and Wellbutrin XL, achieved £1,038 million sales in 2004. and NeuroSearch (central nervous system). ADI partnerships have also been established with three academic institutions to A number of product line extensions were submitted to the supplement internal target validation activities and provide better regulatory authorities in the major regions during 2004. These access to tissue samples and patient populations for clinical studies. submissions are summarised on page 11. GlaxoSmithKline has one academic ADI partner in the UK and two In 2004 approvals were received for a number of significant in the USA. These are long term collaborative relationships to new indications and formulations for existing products. These which the Group has committed funding for two years, with approvals are summarised on page 8. option to renew for an additional three years. Managing the portfolio In-licensing and research collaborations The resources available to exploit opportunities arising from within GlaxoSmithKline has continued to identify compounds that would the Group will always be limited. Improving productivity progresses enhance the portfolio and to create innovative collaborations to more compounds into later phases of development, consequently ensure that the Group is regarded as the partner of choice for both putting demands on R&D resources. It is therefore that much more large and small companies. important to look objectively at the portfolio and ensure that the The subjects of in-licensing or co-marketing / co-promotion progress of assets is prosecuted as efficiently as possible. The key agreements in 2004 were: projects reaching significant milestones are reviewed each month by the Product Management Board (PMB), which is responsible for • AlbugonTM, a GLP-1 albumin fusion protein in pre-clinical determining whether an individual asset has achieved the pre-set development for type 2 diabetes from Human Genome Sciences criteria to pass into the next phase of development. This body • Exclusive marketing of Integrilin in Europe, a glycoprotein (GP) is led jointly by the chairman of R&D and the president of llb-llla inhibitor currently used to treat patients with unstable Pharmaceutical Operations and includes the presidents of the angina and non-ST-segment elevation myocardial infarction, Regions and Global Manufacturing and Supply, in addition to with Millennium Pharmaceuticals Inc. the heads of the major functions within R&D. • A broad alliance to develop and commercialise novel medicines across a variety of therapeutic areas, including bacterial The PMB also actively manages the overall portfolio through the infection, respiratory, urinary incontinence and gastrointestinal annual portfolio review exercise. This thorough and careful with Theravance Inc. assessment of all of the assets in Drug Discovery and Worldwide Development leads to a prioritisation of projects on the basis not In addition, GlaxoSmithKline has already entered into a number of only of commercial value, but also of unmet medical need. This agreements with third parties to co-develop and then co-market also allows the identification of alternative approaches to balance certain compounds. These arrangements range from milestone the Group’s assets most efficiently, including the use of external payments to third parties to acquire rights to their intellectual partners in development and out-licensing products that no longer property, to joint ventures to develop and commercialise specified fit within the strategic portfolio. compounds. Under many of these agreements the Group has obligations to make payments in the future if specified milestones Following the annual portfolio prioritisation reviews, the CEDDs are are achieved. These financial commitments are summarised in able to select which programmes to pursue internally. Other assets Note 26 to the Financial statements, ‘Commitments’. may be developed through a novel partnership scheme known as the Alternative Discovery Initiative (ADI). GlaxoSmithKline and its Discontinuations partners can share risk and reward through various business All R&D carries a risk of failure commensurate with the extension arrangements. of scientific knowledge of a compound and its effects. Not all lead The ADI partnerships with biotechnology companies and other compounds that are identified to possess positive activity against a pharmaceutical companies to explore different approaches to drug validated target will prove to be safe enough to introduce to discovery that were formed in recent years continue to provide humans or feasible to manufacture on a commercial scale. increased opportunities to exploit the productivity from our new GlaxoSmithKline R&D endeavours to ensure that as far as possible technologies. In 2004, additional focus was placed on ADIs by these risks are ameliorated by extensive predictive testing as early adding to the Tanabe collaboration and forming new partnerships as possible in the development process. Despite these efforts, the with NiKem Research (central nervous system), Diversa Corp. ultimate test for a product remains the point at which it is (anti-infectives), Toyama Chemical Co Ltd (antibacterials) and administered to large numbers of patients with the disease. Meiji Seika Kaisha Ltd. Late-stage projects terminated during 2004 in Phase II include 493838 for neuropathic pain, vestipitant (597599) for dyspepsia, depression and anxiety, piboserod for atrial fibrillation and talnetant for over-active bladder.


  • Page 15

    Description of business GlaxoSmithKline 13 Research and development - vaccines The Group currently has 14 R&D projects and programmes of relevance to the developing world, seven of which are aimed All vaccines R&D is conducted at GlaxoSmithKline’s biologicals at producing vaccines and medicines for diseases that centre in Rixensart, Belgium, including other related activities such disproportionately affect developing countries. as clinical development, regulatory strategy, commercial strategy, scaling up, packaging and all support functions and primary The Group also works in close collaboration with external partners production of all vaccines with the exception of influenza vaccine, worldwide in the search for new treatments for diseases of the which is produced at the Group’s state-of-the-art facility in developing world. Partnerships here are key in order to maximise Germany. Over 1,000 scientists are employed who are devoted to the combined expertise and talent of the pharmaceutical industry discovering new vaccines and developing more cost-effective and and academia in discovering and developing new medicines for convenient combination vaccines to prevent infections that cause the developing world. serious medical problems worldwide. Discovery work involves many Public/private partnerships remain essential to fund research where collaborators in academia and the biotech industry worldwide and there is no commercially viable market for a potential product. The allows identification of new vaccine candidates which are then Group continues to work closely with many Governments, expressed in yeast, bacteria or mammalian cells and purified to a United Nations’ agencies and other global funding bodies in this very high level. area. For example, in 2004, GlaxoSmithKline’s pyridone project This is followed by formulation of the vaccine, which involves was awarded the Medicines for Malaria Venture “Project of the mixing antigens with selected novel proprietary adjuvants, which Year” for its rapid and successful progress in finding a drug are designed to stimulate a good and appropriate immune candidate. The newly selected candidate has since moved into response in humans. The next step is to evaluate safety and pre-clinical development. efficacy of the candidate vaccine, which may involve using animals. Animals and research Once preclinical proof of concept has been established, the candidate vaccine is then tested in clinical trials in healthy For ethical, regulatory and scientific reasons, research using animals individuals to evaluate safety and how effective the vaccine is in remains a small but vital part of research and development of new inducing an immune response to protect the body from disease medicines and vaccines. GlaxoSmithKline only uses animals where encountered later in a natural setting. Large-scale field trials in there is no alternative and only in the numbers required for each healthy individuals follow to establish safety and efficacy in a test. The Group strives to exceed regulatory standards in the care cross section of the population. The results obtained during and use of the animals it uses and undergoes internal and external clinical trials and the development of a quality production process review to assure these standards. and facilities are then combined into a regulatory file which is The vast majority of the experimental methods do not use animals submitted to the authorities in the various countries where the and GlaxoSmithKline is actively engaged in research to develop and vaccine is to be made available. validate more tests that either avoid the use of animals in research In 2004 biologicals, which has a long track record of developing or reduce the numbers needed. When animals are used in research and making vaccines available to the developing world at unnecessary pain or suffering is scrupulously avoided. preferential prices, pioneered a new “South First” vaccine strategy GlaxoSmithKline understands that use of animals for research for its new rotavirus vaccine. This involved developing a totally purposes commands a high level of public interest. The unique and novel clinical and regulatory strategy to ensure this GlaxoSmithKline Public Policy Position ‘The care and ethical use vaccine was first registered and made available to those areas of of animals in research’, and further information and reports, are the world where the medical need is greatest. available on the website, www.gsk.com or from Secretariat. Recently, Cervarix, a vaccine for the prevention of cervical cancer received Gold Pass status. See page 10 for further details of the Gold Pass programme. Diseases of the developing world Continued investment in research into diseases that affect the developing world is essential if there is to be a long-term improvement in the healthcare of people who live in these regions; this will include the resolution of challenges such as drug resistance and poor patient compliance. As part of GlaxoSmithKline’s response to this challenge the Microbial, Musculoskeletal & Proliferative Diseases CEDD has responsibility for a drug discovery unit, dedicated to finding new medicines for these diseases, based at Tres Cantos, Spain. The work undertaken in Tres Cantos focuses on malaria and tuberculosis which, together with work elsewhere in the Group on HIV/AIDS and vaccines, means GlaxoSmithKline is addressing the prevention and treatment of all three of the World Health Organization’s (WHO) top priority diseases.


  • Page 16

    14 GlaxoSmithKline Description of business Build the best product pipeline in the industry continued GlaxoSmithKline’s pipeline The chart below shows GlaxoSmithKline’s new chemical entities (NCE), product line extensions (PLE) and vaccine pipeline evolution for projects in the clinic since 2001. It shows increased levels of productivity particularly in Phase II. This is expected to lead to an increase in Phase III and registrations in the coming years. Phase I NCEs with multiple indications are only counted once. NCEs in later phases are counted by each indication. 160 140 26% of pipeline 11 120 118 39% of pipeline 12 Late Stage 43 Growth 19 80 25 34 NCE Phase III/registration 40 41 32 NCE Phase II NCE Phase I PLEs 21 20 0 Vaccines 2001 2004 Product development pipeline The product development pipeline, set out on the following three pages shows considerable breadth and depth. At the end of February 2005, GlaxoSmithKline had 195 pharmaceutical and vaccine projects in development, of which 140 are in the clinic comprising 88 new chemical entities, 32 product line extensions and 20 vaccines. The content of the drug development portfolio will change over time as new compounds progress from discovery to development and from development to the market. Owing to the nature of the drug development process, many of these compounds, especially those in early stages of investigation, may be terminated as they progress through development. For competitive reasons, new projects in pre-clinical development have not been disclosed and some project types may not have been identified. Key (v) Vaccine Phase I Evaluation of clinical pharmacology, usually conducted (p) Pharmaccine in volunteers * Compounds in Shionogi-GlaxoSmithKline Pharmaceuticals Phase II Determination of dose and initial evaluation of LLC joint venture efficacy, conducted in a small number of patients † In-license or other alliance relationship with third party Phase III Large comparative study (compound versus placebo S Date of first submission and/or established treatment) in patients to A Date of first regulatory approval (for MAA, this is the first establish clinical benefit and safety EU approval letter) AL Approvable letter MAA Marketing authorisation application (Europe) NDA New drug application (USA)


  • Page 17

    Description of business GlaxoSmithKline 15 Estimated filing dates Compound/Product Type Indication Phase MAA NDA Cardiovascular, Metabolic & Urogenital 659032† Lp-PLA2 inhibitor atherosclerosis I 677116† Lp-PLA2 inhibitor atherosclerosis I 681323 p38 kinase inhibitor atherosclerosis (also rheumatoid arthritis & COPD) I 813893 factor Xa inhibitor prevention of stroke in atrial fibrillation I 480848† Lp-PLA2 inhibitor atherosclerosis II 493838 adenosine A1A agonist dyslipidaemia II 501516† PPAR delta agonist dyslipidaemia II odiparcil† indirect thrombin inhibitor prevention of thrombotic complications of II cardiovascular disease & deep vein thrombosis (DVT) prophylaxis Arixtra synthetic factor Xa inhibitor treatment of acute coronary syndrome III 2006 2006 Coreg CR† beta blocker hypertension & congestive heart failure – once daily III N/A 2005 Noratak† recombinant B-type natriuretic peptide acute heart failure lll 2007 N/A Arixtra synthetic factor Xa inhibitor prevention of DVT – abdominal surgery Submitted S:Jul04 S:Jul04 Arixtra synthetic factor Xa inhibitor prevention of DVT – medical conditions Approved A:Jan05 S:Feb04 Arixtra synthetic factor Xa inhibitor treatment of DVT Approved A:Nov04 A:Jun04 Metabolic projects 189075† sodium dependent glucose transport type 2 diabetes I (SGLT2) inhibitor 856464 melanin concentrating hormone antagonist obesity I 677954 PPAR pan agonist type 2 diabetes II 823093 DPP IV inhibitor type 2 diabetes II 869682† SGLT2 inhibitor type 2 diabetes II solabegron (427353) beta3 adrenergic agonist type 2 diabetes (also over-active bladder) II Avandamet XR PPAR gamma agonist plus metformin type 2 diabetes – extended release III 2005 Avandaryl† PPAR gamma agonist plus sulphonylurea type 2 diabetes – fixed dose combination Approvable 2005 AL:Aug04 Infectious Diseases 565154 oral pleuromutilin treatment of respiratory tract infections I 270773† phospholipid anti-endotoxin emulsion sepsis II chlorproguanil, dapsone + antifolate + artemisinin treatment of uncomplicated malaria II 2007 N/A artesunate (CDA)† 275833 topical pleuromutilin bacterial skin infections III 2006 2005 sitamaquine 8-aminoquinoline treatment of visceral leishmaniasis III N/A Etaquine† 8-aminoquinoline malaria prophylaxis (adults) III TBD 2007 Anti-virals 825780† DNA antiviral vaccine HIV infections I 640385† aspartyl protease inhibitor HIV infections II 695634 non-nucleoside reverse transcriptase inhibitor HIV infections II 2007 2007 873140† CCR5 antagonist HIV infections II 2007 2007 Epzicom/Kivexa† reverse transcriptase inhibitor HIV infections – combination tablet Approved A:Dec04 A:Aug04 Musculoskeletal, Inflammation, Gastrointestinal & Urology 423557† calcium antagonist osteoporosis I 423562† calcium antagonist osteoporosis I 462795† cathepsin K inhibitor osteoporosis & osteoarthritis I 679769 NKI antagonist urinary incontinence (UI) (also depression & anxiety, chemotherapy induced & postoperative nausea & vomiting) I 681323 p38 kinase inhibitor rheumatoid arthritis (also atherosclerosis & COPD) I 768974† parathyroid hormone agonist osteoporosis I 856553 p38 kinase inhibitor (oral) rheumatoid arthritis (also COPD) I 876008† corticotrophin releasing factor (CRFI) antagonist irritable bowel syndrome (IBS) also depression & anxiety I Entereg† peripheral mu-opioid antagonist IBS I solabegron (427353) beta3 adrenergic agonist over-active bladder (also type 2 diabetes) I 2007 2007 270384 endothelial cell adhesion molecule inhibitor inflammatory bowel disease II 274150 selective iNOS inhibitor rheumatoid arthritis (also migraine, asthma) II 683699† dual alpha4 integrin antagonist (VLA4) inflammatory bowel disease (also multiple sclerosis) II talnetant NK3 antagonist IBS (also schizophrenia) II 2007 2007 Avandia PPAR gamma agonist rheumatoid arthritis II Entereg† peripheral mu-opioid antagonist chronic opiate induced bowel dysfunction & constipation II 2007 2007 mepolizumab anti-IL5 monoclonal antibody hypereosinophillic syndrome (also asthma & eosinophilic esophagitis) III 2006 2006 Avandia PPAR gamma agonist psoriasis III Avodart + alpha blocker 5-alpha reductase inhibitor plus alpha blocker benign prostatic hyperplasia – fixed dose combination III 2007 2007 Avodart 5-alpha reductase inhibitor reduction in the risk of prostate cancer III Boniva/Bonviva bisphosphonate treatment of postmenopausal osteoporosis Submitted 2005 S:Dec04 – intermittent i.v. dosing Boniva/Bonviva bisphosphonate treatment & prevention of postmenopausal osteoporosis Submitted S:Sep04 S:May04 – monthly oral dosing Entereg† peripheral mu-opioid antagonist post operative ileus Submitted 2005 S:Jun04 Vesicare† muscarinic antagonist overactive bladder Approved N/A A:Nov04


  • Page 18

    16 GlaxoSmithKline Description of business Build the best product pipeline in the industry continued Estimated filing dates Compound/Product Type Indication Phase MAA NDA Neurosciences 189254 Histamine H3 antagonist dementia I 234551* endothelin A antagonist stroke I 274150 selective iNOS inhibitor migraine (also rheumatoid arthritis, asthma) I 406725 gap junction blocker migraine, epilepsy & neuropathic pain I 2007 2007 644784 dual acting COX-2 inhibitor acute & chronic pain conditions including neuropathic I pain (also schizophrenia) 705498 vanilloid 1 antagonist acute migraine I 737004* endothelin A antagonist stroke I 742457 5HT6 antagonist schizophrenia & dementia I 773812 mixed 5HT/dopaminergic antagonist schizophrenia I 823296 NK1 antagonist depression & anxiety I 842166 non-cannabinoid CB2 agonist inflammatory pain I 876008† corticotrophin releasing factor (CRF1) antagonist depression & anxiety (also IBS) I radafaxine (353162) noradrenaline/dopamine re-uptake inhibitor fibromyalgia & neuropathic pain I Requip XR non-ergot dopamine agonist restless legs syndrome (RLS) I 2006 2006 radafaxine (353162) noradrenaline/dopamine re-uptake inhibitor depression II 2007 radafaxine (353162) noradrenaline/dopamine re-uptake inhibitor RLS II 372475 (NS2359)† triple (5HT/noradrenaline/dopamine) re-uptake depression II inhibitor 406381 dual acting COX-2 inhibitor acute & chronic pain & migraine II TBD TBD 468816 glycine antagonist smoking cessation II re-uptake inhibitor 679769 NK1 antagonist depression & anxiety (also chemotherapy induced II & postoperative nausea & vomiting and UI) 683699† dual alpha4 integrin antagonist (VLA4) multiple sclerosis (also inflammatory bowel disease) II vestipitant (597599) + paroxetine NK1 antagonist + selective serotonin depression & anxiety II talnetant NK3 antagonist schizophrenia (also IBS) II Avandia PPAR gamma agonist Alzheimer's disease II Lamictal sodium channel inhibitor bipolar disorder – acute treatment III N/A 2006 Lamictal XR sodium channel inhibitor neuropathic pain (epilepsy, NDA only) once daily III 2006 2006 Lamictal XR sodium channel inhibitor schizophrenia III 2007 Requip CR† non-ergot dopamine agonist Parkinson’s disease – once daily controlled release III 2005 2005 formulation Trexima 5HT1 agonist + naproxen migraine – fixed dose combination III N/A 2005 Wellbutrin XL† noradrenaline/dopamine re-uptake inhibitor seasonal affective disorder Submitted S:Dec04 Requip non-ergot dopamine agonist RLS Approved A:Jun04 A:Dec03 Wellbutrin XL† noradrenaline/dopamine re-uptake inhibitor depression Approved 2006 A:Aug03 Oncology 743921† kinesin spindle protein (KSP) inhibitor cancer I elacridar oral bioenhancer cancer I 497115† thrombopoietin agonist thrombocytopaenia II 2006 2006 485232† recombinant human IL18 immunomodulator immunologically-sensitive cancers (melanoma & renal cell) II 2007 2007 679769 NK1 antagonist chemotherapy induced & postoperative nausea & II vomiting (also depression & anxiety and UI) 715992† kinesin spindle protein (KSP) inhibitor non small cell lung cancer & other tumours II 786034 vascular endothelial growth factor 2 solid tumours II tyrosine kinase inhibitor vestipitant (597599) NK1 antagonist postoperative nausea & vomiting (also chemotherapy II 2006 2006 induced nausea & vomiting) ethynylcytidine† selective RNA polymerase inhibitor solid tumours II lapatinib ErbB-2 and EGFR dual kinase inhibitor breast cancer (also renal, lung, bladder, gastric, III 2006 2005 head & neck cancers) Hycamtin topo-isomerase I inhibitor ovarian cancer first line therapy III 2006 2006 Hycamtin topo-isomerase I inhibitor small cell lung cancer second line therapy III 2006 2006 – oral formulation nelarabine guanine arabinoside prodrug acute lymphoblastic leukaemia & lymphomas III 2005 2005 Hycamtin topo-isomerase I inhibitor small cell lung cancer second line therapy Approved 2005 A:Nov98


  • Page 19

    Description of business GlaxoSmithKline 17 Estimated filing dates Compound/Product Type Indication Phase MAA NDA Respiratory 159802† long acting beta2 agonist asthma & chronic obstructive pulmonary disease (COPD) I 642444† long acting beta2 agonist asthma & COPD I 656933 IL8 antagonist COPD I 681323 p38 kinase inhibitor (oral) COPD (also rheumatoid arthritis & atherosclerosis) I 856553 p38 kinase inhibitor (oral) COPD (also rheumatoid arthritis) I 159797† long acting beta2 agonist COPD, also COPD & asthma in combination with II a glucocorticoid agonist 202405 muscarinic antagonist COPD II 274150 selective iNOS inhibitor (oral) asthma, (also migraine & rheumatoid arthritis) II 597901† long acting beta2 agonist COPD, also COPD & asthma in combination with II a glucocorticoid agonist 678007† long acting beta2 agonist COPD, also COPD & asthma in combination with II a glucocorticoid agonist 685698 glucocorticoid agonist asthma & COPD in combination with a long acting II beta2 agonist (also allergic rhinitis) 766994 chemokine 3 (CCR3) antagonist (oral) asthma & allergic rhinitis ll 799943 glucocorticoid agonist asthma & COPD in combination with a long acting II beta2 agonist 842470† PDE IV inhibitor (inhaled) COPD II mepolizumab anti-IL5 monoclonal antibody asthma (also hypereosinophillic syndrome and II eosinophilic esophagitis) Avamys/Allermist (685698) glucocorticoid agonist allergic rhinitis III 2006 2006 Seretide/Advair beta2 agonist/inhaled corticosteroid COPD – mortality claim III 2006 2006 Seretide beta2 agonist/inhaled corticosteroid asthma – initial maintenance therapy Submitted S:Aug04 N/A Serevent beta2 agonist asthma & COPD – non-CFC inhaler Submitted S:Apr04 N/A Ariflo PDE IV inhibitor (oral) COPD Approvable AL:Oct03 Seretide/Advair beta2 agonist/inhaled corticosteroid asthma – non-CFC inhaler Approved A:Jun00 AL:Oct01 & Oct02 Hepatitis Vaccines Hepatitis E recombinant hepatitis E prophylaxis II Fendrix Extra Strength recombinant extra strength hepatitis B prophylaxis (pre-haemodialysis Approved A:Nov04 A:Feb05 Hepatitis B and haemodialysis patients) Paediatric Vaccines Rotarix live attenuated – oral rotavirus prophylaxis lll 2005 Streptorix conjugated S. pneumoniae disease prophylaxis for children III 2007 2007 N. meningitidis conjugated meningitis prophylaxis Submitted S:2005 combinations Priorix-Tetra live attenuated measles, mumps, rubella and varicella prophylaxis Submitted S:Apr04 Other Vaccines HIV recombinant HIV prophylaxis I f u improved fl subunit influenza prophylaxis I S. pneumoniae elderly recombinant S. pneumoniae disease prophylaxis I Varicella Zoster recombinant Varicella Zoster prevention I Dengue fever attenuated tetravalent vaccine prophylactic use Il Epstein-Barr virus recombinant EBV prophylaxis II Mosquirix recombinant malaria prophylaxis II Staphylococcal antibodies† monoclonal antibody prevention of staphylococcal infections II Cervarix recombinant prophylaxis of human papillomavirus (HPV) infections IIl 2006 Simplirix recombinant genital herpes prophylaxis III Boostrix subunit adolescent/adult booster for diphtheria, tetanus and Approved A:Oct00 S:Jun04 pertussis Pharmaccines breast cancer therapeutic recombinant treatment of breast cancer I (Her 2 Neu) P501 recombinant treatment of prostate cancer l mage 3 (249553) recombinant treatment of lung cancer/melanoma II


  • Page 20

    18 GlaxoSmithKline Description of business Achieve commercial and operational excellence GlaxoSmithKline undertakes a range of activities to maximise the GlaxoSmithKline also complies with relevant industry codes of commercial potential of its intellectual property, by introducing practice. Training is provided for all employees whose position innovative products into as many markets as possible, accelerating requires an understanding of Group marketing requirements, the process to bring new products to market, increasing brand particularly sales representatives. There is a monitoring process recognition and ensuring that patients have access to new for marketing activities which includes Group internal audit and medicines. Both the pharmaceutical and consumer healthcare independent reviews and approvals. businesses focus on ways to improve existing performance through commercial and operational excellence initiatives. Patient advocacy The Patient advocacy initiative has demonstrated significant Worldwide sales force excellence progress since its inception in 2002. The rationale for the strategy GlaxoSmithKline sales force has always ranked high on surveys centres on both enhancing access for the Group’s medicines in with healthcare professionals. Worldwide sales force excellence markets where public and private payers influence availability as (WSFE) aims to improve customer satisfaction even further. well as improving the reputation as a patient-centric group. The time available for physicians to learn about new medicines Initially launched as a US programme, it has now been expanded and clinical studies is precious. Through the WSFE initiative, sales to be a critical initiative in strategic plans throughout the world. representatives strengthen product knowledge and learn to deliver This year’s Patient Advocacy Leaders Summit in Philadelphia was patient-specific treatment options more efficiently and more attended by over four hundred people representing twenty three effectively. Research shows that a sales visit is highly effective when countries from six continents. Additionally, Patient Advocacy teams a representative engages the physician in dialogue around patient in both the US and Europe have shared best practices and types and supports the message with visual aids that illustrate established processes to optimise interaction with patient groups. clinical results. European Centres of Excellence In 2004, the Group introduced a single global sales call model that Pharmaceuticals Europe has introduced a new business model to focuses on treating the patient through a dialogue about ”when“ enhance its ability to compete in an increasingly challenging a GlaxoSmithKline medicine is appropriate, “why” it is effective environment. The model has established Centres of Excellence for and “how” to administer it safely. By the end of the year, all field key therapeutic areas, such as respiratory and metabolic and for people in the Group’s key markets had been trained in the new business capabilities such as commercial excellence and portfolio “When? Why? How?” approach. management. These centres develop pan-European strategies The entire sales organisation is immersed in WSFE to bring about which are implemented consistently across the region. The model a cultural change that raises ethical standards and helps build is driving the swift adoption of brand strategies and campaigns, long-term, trusting relationships with the healthcare community. while reducing costs and duplication. The new model also focuses on ensuring that new assets may be launched in Europe with the Marketing excellence optimal data to support their approval and reimbursement. Goals of the global Marketing excellence initiative are first, to help undiagnosed patients seek a physician’s help and, second, Procurement to ensure they receive appropriate treatment. For example, in the GlaxoSmithKline annually spends around £5 billion on non- UK, officials estimate that 2.4 million people suffer from type 2 production related third party purchases; worldwide this covers diabetes, yet about 25 per cent of them remain undiagnosed, all areas including media, travel, R&D, IT and marketing. These and of those diagnosed, another 25 per cent remain untreated. purchases are managed by procurement, on behalf of their internal Of those treated, a significant number is under-treated in some customers and focus on delivering the best value to the Group. way – that is, these patients do not achieve the level of health This approach covers assurance of supply, service, quality, cost that the treatments could provide under optimal circumstances. and innovation. The process has delivered savings in excess of GlaxoSmithKline’s marketing initiative implements programmes to £200 million per year since the merger. overcome the barriers to proper diagnosis and treatment. As these programmes begin to show effects, the societal costs of disease Improving processes will decrease. To the extent that a GlaxoSmithKline product is The Group has ongoing improvements in processes to increase chosen for patients’ treatment, the Group will benefit as well. the quality of goods and services, improve speed and reliability of performance and deliver savings. The procurement function GlaxoSmithKline has been recognised by the industry for its initiates rigorous supplier selection and monitoring processes across excellence in marketing and has received a variety of awards all key areas of expenditure and compliance with the use of acknowledging the success of its campaigns. Each award preferred suppliers is high. In 2004, operational excellence experts programme is independently judged by experts. from Global Manufacturing and Supply supported a number of GlaxoSmithKline is committed to marketing that is ethical, other businesses and functions by helping to solve problems in a responsible and patient-centred. There is a corporate policy rigorous, controlled and structured way and to focus efficiently governing marketing activities that applies to all employees, on those activities adding the greatest value to GlaxoSmithKline. suppliers, contractors and agents. This policy requires that all marketing and promotional activities are based on valid scientific Project Future evidence, and comply with applicable laws and regulations. Each In 2003, Project Future, a fundamental review of the Consumer business sector has policies that include additional requirements Healthcare business model to increase competitiveness and, and guidance. thereby, sales growth was undertaken. This model was implemented in 2004. Further details are given on page 23.


  • Page 21

    Description of business GlaxoSmithKline 19 Improve access to medicines Access to healthcare in the developing world Voluntary licences During 2004, GlaxoSmithKline granted five voluntary licences to Access to healthcare in developing countries remains a major African generics companies for the manufacture and sale of ARVs challenge to the global community. The problem, which is rooted to both the public and private sectors in sub-Saharan Africa. These in poverty and a lack of political will, continues to demand a licences build upon the Group’s agreement with Aspen significant mobilisation of resources and a true spirit of partnership. Pharmacare, sub-Saharan Africa’s largest generic company, first It must be tackled as a shared responsibility by all sectors of global signed in September 2001, and demonstrate GlaxoSmithKline’s society. The Group does not have the mandate, expertise or ongoing commitment to increasing access to essential medicines resources to address the underlying problems that exist. However, through innovative solutions. GlaxoSmithKline continues to play a vital role, through its commitment to R&D into diseases particularly prevalent in the Looking ahead developing world, through its programme of preferential pricing GlaxoSmithKline will continue to build on its products, pricing and for its anti-retrovirals (ARVs), anti-malarials and vaccines, and partnership commitments to help improve healthcare in the through its willingness to seek innovative solutions, such as developing world. However, a significant increase in funding from voluntary licencing arrangements. the global community is still needed. It is also important to maintain incentives for R&D through protection of intellectual Preferential pricing arrangements property. There is, for example, neither a cure nor a vaccine for GlaxoSmithKline has offered its vaccines to key organisations for HIV/AIDS. vaccination programmes in developing countries at preferential prices for over 20 years. The Group also sets a single, sustainable, While much was achieved in 2004, sustainable progress will only not-for-profit price for each of its ARVs and anti-malarials to a wide occur if the significant barriers that stand in the way of better range of customers in Least Developed Countries (UN definition) access to healthcare are tackled as a shared responsibility by all and sub-Saharan Africa, as well as projects fully-funded by the sectors of global society – governments, international agencies, Global Fund to Fight AIDS, TB, and Malaria and the US President’s charities, academic institutions, the pharmaceutical industry and Emergency Plan for AIDS Relief. This means that the not-for-profit others. prices are offered in a total of 100 countries. Access to healthcare in the developed world GlaxoSmithKline is committed to contributing to health improvements in a sustainable manner. The prices for its ARVs and GlaxoSmithKline plays an active role in improving the healthcare anti-malarials are therefore set at levels at which no profit is made, of people who have limited access to medicines. During 2004, the but direct costs are covered, allowing supply to be sustained for Group’s Bridges to Access and Commitment to Access programmes as long as required. The Group has undertaken to reduce these provided over $372 million worth of medicines to qualifying low- prices whenever possible. Although two reductions were income US residents. For Medicare beneficiaries, there is the announced in 2003, no price reductions were possible in 2004. GlaxoSmithKline Orange Card programme which offers qualifying US senior citizens 20 to 40 per cent discounts off their outpatient Preferential pricing is improving access. The Group has signed over GlaxoSmithKline medicines. More than 175,000 individuals have 200 agreements, covering 57 of the world’s poorest countries, to signed up for the programme. The Group is committed to supply ARVs at preferential prices. Customers include governments, maintaining this programme until a Medicare prescription benefit non-governmental organisations (NGOs), hospitals, academic is in place in 2006. institutions and private employers. The Group is also a founding member of Together Rx, a multi- The offer of not-for-profit prices requires a sustainable framework, company card programme through which seven major participating combining the Group’s commitment to preferential pricing with pharmaceutical companies offer savings in the USA on more than commitments from governments of the developed world to avoid 155 widely prescribed medicines. Together Rx participants can save price referencing against preferentially priced medicines and to up to 40 per cent off the usual amount for their prescriptions. help prevent product diversion. GlaxoSmithKline has taken steps to By the end of 2004 over 1.4 million people had joined this minimise the threat of diversion and is now able to supply over 50 programme. countries with Combivir, Epivir and Trizivir in special access packs. Similar efforts are underway to secure widespread regulatory In addition, GlaxoSmithKline and nine other pharmaceutical approval for Retrovir and Epivir Syrup access packs and to register companies created Together Rx Access, a savings programme for differentiated red (as opposed to traditional white) Combivir and qualified individuals in the USA who lack prescription drug Epivir tablets across a number of International markets. During coverage. Through Together Rx Access, the participating companies 2004, the Group successfully registered nine of its ARVs under offer savings of about 25 to 40 per cent off the usual pharmacy the European Union’s Anti-Diversion Regulation. It also continued cost on over 275 medicines. to encourage other countries to take the necessary steps to ensure the introduction and strict enforcement of appropriate anti-diversion measures.


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    20 GlaxoSmithKline Description of business Be the best place for the best people to do their best work GlaxoSmithKline people Individuals are developed for global leadership positions through targeted job moves in different businesses and geographies. A GlaxoSmithKline is committed to creating the best place for the variety of programmes are offered internally to develop leaders best people to do their best work. and managers who innovate, inspire and execute well. Performance and reward Communication and involvement Reward philosophy and programme development underscore A senior management conference, held in February 2004, allowed GlaxoSmithKline’s commitment to a performance culture. more than 1,000 delegates to be briefed directly by members of Performance based pay, share awards, share options and the Corporate Executive Team on key challenges facing the Group performance and development planning contribute to retention and to debate strategies for addressing them. The event also of key talent, superior performance and accomplishment of recognised individuals who made outstanding contributions business targets. in 2003. The annual performance and development planning (PDP) In May 2004, a second Global Leadership Survey was conducted process ensures that individuals set business goals aligned among more than 10,000 managers to gauge opinion on critical with corporate strategies, set behavioural goals, and create a issues such as culture and confidence in the Group’s future. Results development plan. PDP’s are reviewed throughout the year, showed significant improvement on 29 of 31 items compared with culminating with an end of year review that is factored into 2002 results. Compared with global benchmarks, managers rate compensation decisions. highly on fostering alignment between personal goals and the Performance with Integrity is central to operating at GlaxoSmithKline mission and fostering an environment of ethics GlaxoSmithKline. The recent Leadership Survey showed over and integrity. In the survey, 80 per cent of managers were “proud 90 per cent believe that “people in their department show to be part of GlaxoSmithKline” and would “gladly refer a friend commitment to performance with integrity”. or family member to work for GlaxoSmithKline”. A commitment to flexible working through flexi-time, With regard to improvement areas, managers report that teleconferencing, remote working and flexible work schedules, GlaxoSmithKline should continue to enhance our environment as recognises that employees work best in an environment that a place where people are able to do their best work and engage helps them integrate their work and personal lives. managers in making the changes necessary to compete effectively. Each business and function has developed action plans to address Diversity areas for improvement. The GlaxoSmithKline diversity initiative focuses on improving The Group continually seeks ways of improving the efficiency and performance by responding to the diverse needs of employees, effectiveness of employee communications, in order to maximise customers, and external stakeholders. At the second annual awareness of critical information within a diverse global audience. Multicultural Marketing and Diversity Awards, 80 entrants from A streaming video project is underway, which will allow senior five countries highlighted innovative activities that demonstrated executives to communicate more frequently with employees. business impact. In 2004, the global management population by gender was 65 per cent male, 35 per cent female. For more details Health and well-being on diversity measures, see the Corporate responsibility report in Global policies on Employee Health are supported by mandatory the section, Employment Practices. standards that integrate employee health and safety and The Group is committed to employment policies free from environmental requirements. These standards are applied to all discrimination against potential or existing staff on the grounds the Group’s facilities and operations worldwide. of age, race, ethnic and national origin, gender, sexual orientation, Based on the first year data from the global health experience, faith or disability. GlaxoSmithKline is committed to offering people three health areas have been identified for additional focus. These with disabilities access to the full range of recruitment and career are musculoskeletal, mental health and conditions related to opportunities. material handling. Multidisciplinary teams are working to set baselines, align reporting and develop interventions. This effort Recruitment will help to reduce the incidence and impact of these conditions Whilst voluntary turnover is only four per cent, GlaxoSmithKline in the future. is committed to continuing to enhance its recruitment processes. Candidate Care transforms the recruitment process into a customer Human resources services and information systems experience, aiming to build positive relationships with those who GlaxoSmithKline’s human resource delivery strategy is designed to seek to join and stay with the Group. make the most of technology. Human resources services and information are delivered through low cost, highly effective Talent management and leadership development channels that make it easy for job candidates, employees and Every individual creates a development plan yearly as part of the retirees to access information about employment, compensation PDP process. Key talent is then identified through Talent Reviews and benefits, policies and programmes. These include intuitive conducted by each business and function. Individuals are given personalised web based tools, available to employees in many feedback on development needs, and key talent is developed locations. through new positions, assignments and courses. A pool of successors is identified for all Vice-President positions and other critical positions in the organisation.


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    Description of business GlaxoSmithKline 21 Invest in communities Success through partnership GlaxoSmithKline does not operate a single charitable foundation but has a number of small country-based foundations in Canada, GlaxoSmithKline continues to build on its history of community the Czech Republic, France, Italy, Romania, Spain and North investment programmes and support for better healthcare delivery Carolina in the USA. The grants made by these foundations and education in under-served communities around the world. in 2004 are included in the investment total. The Group does this through active engagement with numerous external stakeholders including the World Health Organization GlaxoSmithKline is a member of the PerCent Club, giving over (WHO) and members of the not-for-profit community. It funds one per cent of its profit before tax to good causes, and has community-led initiatives across the world and donates medicines been recognised as the largest giver of any FTSE 100 company to support humanitarian efforts and community-based healthcare. for the previous three years. Many of the programmes are long term commitments that help bring about sustainable change in communities. Global health programmes Eliminating Lymphatic Filariasis Community investment The Group’s effort to help rid the world of the disabling disease, lymphatic filariasis (LF), continued in close partnership with the GlaxoSmithKline’s global community investment activities in 2004 governments of endemic countries, the WHO and over 40 partner were valued at £328 million, equivalent to 5.4 per cent of Group organisations. The Group has committed to donate as much of profit before tax. This comprised product donations of £260 the anti-parasitic drug albendazole as required to treat the one million, cash giving of £48 million, in-kind donations of £2 million billion people at risk in 80 countries by 2020. and costs of £18 million to manage and deliver community programmes in more than 100 countries. In 2004, the sixth year of the programme, 67 million albendazole treatments, worth £7 million at wholesale acquisition cost, were Product donations in 2004 were as follows: donated to 34 countries. Since the global elimination programme Product donations (total £260 million) started in 2000 over 85 million people have received donated albendazole – a cumulative total of 307 million treatments. During 1. Patient Assistant Programs 2004, Egypt and several Pacific Islands completed the minimum 3 £203 million five rounds of mass drug administration and preliminary results 2. Albendazole for LF look impressive. 2 £7 million In addition to donating albendazole tablets,the Group gave grants 3. Humanitarian Product Donations of £1 million and staff expertise to support the activities of the £50 million Global Alliance to Eliminate LF. 1 GlaxoSmithKline’s Positive Action on HIV/AIDS Positive Action is GlaxoSmithKline’s 12-year pioneering global programme working with communities affected by AIDS. It GlaxoSmithKline’s cash giving was targeted primarily at health supports community-based organisations to deliver effective HIV and education initiatives. and AIDS education, prevention and healthcare services. New programmes were launched in Latin America, Asia and central Breakdown of cash giving (total £48 million) and eastern Europe to address the emerging epidemic. During 2004, Positive Action worked with 23 partners to support 5 1. Health (44%) programmes in 35 countries, including: 4 2. Education (38%) • raising awareness about AIDS among men in Kenya 3 • providing UK prisoners with education on preventing blood- 1 3. Arts and Culture (2%) borne diseases 4. Environment (2%) • training more than 350 trainers of health and social care workers in 130 African organisations 5. Other (14%) • promoting partnerships in Asia to improve patients’ 2 understanding about treatment • providing support for thousands of community delegates at regional and international AIDS conferences. In the UK, GlaxoSmithKline contributed £4 million in 2004 to its continuing corporate programme of charitable activities supporting The GlaxoSmithKline African Malaria Partnership over 70 organisations in health, medical research, science The GlaxoSmithKline African Malaria Partnership supports three education, the arts and the environment. In addition Group behavioural development programmes working in eight African companies in the UK provided a further £4 million for community countries, following the addition of Senegal to the programme purposes. Corporate programmes in North America focused on in 2004. During 2004, the Group disbursed further grants in a improving public education and access to better healthcare for $1.5 million three year commitment to its partners; Freedom From children and senior citizens with funding of $12 million. In Hunger, the African Medical and Research Foundation (AMREF) addition nearly $16 million was donated by the Group’s US-based and Plan International. The programmes are expected to benefit businesses to regional community activities. nearly two million people and focus particularly on young children and pregnant women, encouraging effective prevention measures, prompt treatment and antenatal malaria management.


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    22 GlaxoSmithKline Description of business Invest in communities continued PHASE The Group supported the British Lung Foundation’s Baby Breathe The PHASE initiative (Personal Hygiene and Sanitation Education) Easy programme with a two year grant of £386,000, funding is providing education to thousands of school children in Kenya, a pilot scheme which will be run in nine regions across the UK. Zambia, Nicaragua and Peru to improve their health and hygiene This supports parents and carers of babies and children under to fight infectious diseases. In 2004, the Group committed three- five, with recurring chest problems. year funding of £226,000 to extend the programme into Uganda in partnership with the Ministry of Health and AMREF. The Education initiatives achievements of PHASE were again recognised with a World The Group’s efforts to improve public and science education Business Award in support of the Millennium Development Goals included a three year grant of $300,000 to the National Board and an industry award for disease prevention and education. for Professional Teaching Standards to increase the number of science teachers pursuing certification in North Carolina and Humanitarian product donations Philadelphia. During 2004, GlaxoSmithKline donated essential products such A grant of $50,000 to the Center for Corporate Citizenship of the as antibiotics, through non-profit partners including AmeriCares, US Chamber of Commerce links the Department of Education into MAP International and Project HOPE, in response to humanitarian a programme to review how education impacts the economy. The relief efforts and community healthcare. For example, the Group Philadelphia Education Fund received a grant of $129,000 for the donated products following the floods in Bangladesh, hurricanes Middle Grade Matters campaign to improve middle-level education in the USA and the Caribbean, typhoons in the Philippines, the for children aged 11-16. conflict in Sudan, and the Asian tsunami. GlaxoSmithKline continued to support the INSPIRE (INnovative In 2004, the total value of the Group’s humanitarian product Scheme for Post-doctoral researchers in Research and Education) donations was £50 million. This excludes albendazole donated scheme, developed in partnership with Imperial College London to the lymphatic filariasis elimination programme. Product and the Specialist Schools Trust, with a £1 million donation over donations are valued at wholesale acquisition cost which is the four years. INSPIRE places post-doctoral researchers in specialist wholesale list price, not including discounts, and is a standard science schools to assist with science teaching. industry method. Science in the Summer, a free library-based science education Community initiatives programme in the Philadelphia area teaching basic scientific GlaxoSmithKline is dedicated to strengthening the fabric of concepts, continued to receive support with a grant of $365,000. communities where it operates through providing health Now in its 19th year, more than 68,000 children have participated and education initiatives and support for local civic and cultural in the programme. Science Across the World, an award-winning institutions that improve quality of life. GlaxoSmithKline’s international education programme that uses web-based resources contribution to improve healthcare includes a three-year grant of to promote discussion of science issues between 90,000 children more than $2 million which has helped to expand The Children’s in schools in over 100 countries, received a grant of £100,000. Health Fund’s Referral Management Initiative (RMI) into seven US states, ensuring continuity of specialist medical care for high-risk Employee involvement children who are often homeless. GlaxoSmithKline employees are encouraged to contribute to their local communities through employee volunteering schemes. The Group supported the Arthur Ashe Institute for Urban Health Support varies around the world but includes employee time, with grants totalling $350,000 over three years for core funding cash donations to charities where employees volunteer and a and the Community Health Empowerment Program to provide matching gifts programme. In many countries, GlaxoSmithKline health education for low-income neighbourhoods in non- offers tax-efficient methods for employee giving in accordance traditional venues, such as churches and shops. with local taxation guidelines. GlaxoSmithKline continues its 10 year partnership with Barretstown In 2004, in the USA, the Group matched more than 15,000 in Ireland and L’Envol in France which provide life-changing activity employee and retiree gifts at a value of over $4 million. The programmes backed by the medical community for European Group also matched the $1.3 million of employee donations to children with cancer and life-threatening illnesses, helping them to the GlaxoSmithKline and United Way campaign giving a combined rediscover their confidence, self-esteem and participate fully in contribution of $2.6 million. In addition, GlaxoSmithKline’s their everyday lives. They received £250,000 Investment in Volunteer Excellence (GIVE) programme provided and £100,000, respectively. grants to 700 charitable organisations where employees or their The annual Impact Awards recognise excellence in the work of partners have volunteered at least 50 hours in the year. non-profit community health organisations across the UK and in GlaxoSmithKline’s Making a Difference programme in the UK the Greater Philadelphia area of the USA. Over 20 charities provided grants of £269,000 to over 400 non-profit organisations received unrestricted awards for their work dealing with diverse or registered charities based on employee involvement. issues such as domestic and community violence, sexual health for young people and child abuse. To further medical research, over £500,000 was provided to UK medical charities such as Breakthrough Breast Cancer, Cystic Fibrosis Trust, DEBRA, Ehlers-Danlos Support Group and the Motor Neurone Disease Association.


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    Description of business GlaxoSmithKline 23 Consumer Healthcare Current business The five Global brand concepts and teams are: GlaxoSmithKline Consumer Healthcare manufactures and markets • Aquafresh consumer brands in the healthcare industry. The organisation has • Sensodyne structure and responsibility at global, regional and local levels. • Dental care & cold sore Operations span the majority of the world’s geography and are • Panadol sold principally across two major trade channels, grocery and • Smoking Control pharmacy. Brands are marketed across the full regulatory The Future Group also includes centres of excellence in global spectrum from prescription through to free sale. project management, medical marketing and e-marketing. Support The environment in which the Consumer Healthcare business functions have also reorganised to more effectively serve the new operates has become ever more challenging: model. • consumers are demanding better quality, better value and Lead market brands (30 per cent of global sales) improved performance These brands are large and marketed in several territories but • retailers have consolidated, globalised and therefore generally with one anchor market that can lead the development strengthened their negotiation power of these businesses for other markets. They still enjoy central R&D • competitors are finding conditions equally challenging and resource, and include such brands as Lucozade, Ribena, Horlicks, therefore competing more aggressively across all elements Tums and Dr Best. of the marketing mix Enterprise brands (30 per cent of global sales) • cycle times for innovation have been reduced. The remaining valuable local brands are managed in a new model which retains local responsibility for the brand, communications New strategy and innovation. The enterprise brands are also supported by The vision of the Consumer Healthcare business is to be the global, regionally-focused resources, to enable application of fastest growing consumer healthcare group, through the best practice and the cross-pollination of innovation. innovation centred on consumers and delivered by science. The success of Consumer Healthcare’s new business model will In order to conduct business more effectively in the current be reflected in the sales growth of the Global, Lead market environment the Consumer Healthcare business strategy and and Enterprise brands. operating model have been redesigned. The new model was implemented in 2004 and is now operational and targeted to Research and development – Consumer Healthcare deliver faster sales growth. It will achieve this through a vigorous focus on delivering new product developments, tightly aligned R&D has aligned itself closely with the new Consumer Healthcare with consumer needs. The new model more effectively welds operating model and structure. For the Global brands, it now together R&D, marketing and commercial operating units with mirrors the commercial structure with R&D teams paired with a new culture providing: Future Group teams and located in the principal centres for Consumer Healthcare R&D at Weybridge in the UK and in • greater focus, alignment and simplicity – less proliferation, Parsippany in the USA; with this co-location, these sites are duplication and bureaucracy now termed Innovation Centres. The focus of R&D is on the • better, faster ways of working together and no dilution identification and rapid development of novel products that of local knowledge or implementation power. bring benefits to consumers in the over-the-counter (OTC), oral care and nutritional healthcare markets. New structure The focus of the new operating model is on brands and growth opportunities. Consequently brands are split into three categories and the business structure is centred on: • Global brands • Lead market brands • Enterprise brands Global brands (40 per cent of global sales) For those brands that have sales in multiple markets and similar positioning such that they may be developed most effectively using a global approach, a new team called the Future Group has been created. This group assumes responsibility for consumer and market understanding, brand equity and strategy, innovation pipeline and communication. The Future Group comprises dedicated resources for idea generation and innovation development covering both product packaging and the whole communications mix.


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    24 GlaxoSmithKline Description of business Global manufacturing and supply GlaxoSmithKline has a large portfolio of products, ranging from Regional pharma supply tablets and toothpaste to inhalers and complex capsules, in over Regional pharma supply focuses on several key activities, the 28,000 different pack sizes and presentations. supply of products that are key in one or more regions, the supply of products that are important in a particular market, and the Manufacture of medicines begins with the development of a tailoring of packaging to meet specific local requirements. A key therapeutic active ingredient (bulk active) in a selected formulation. focus for the regional pharma supply team is on reducing costs Global Manufacturing and Supply (GMS) develops manufacturing so that GlaxoSmithKline can compete more effectively in all its processes for full scale volume production of active compounds at markets. There are 31 sites in 23 countries in Regional pharma primary manufacturing sites. Converting active compounds into a supply. finished dosage formulation is the responsibility of the secondary manufacturing sites. New product and global supply GMS operates as a single global network of 82 sites in 37 New product and global supply focuses on ensuring that the countries. Each year GMS produces around 6,000 tonnes of bulk appropriate technical competencies exist to support rapid and actives and over four billion packs, which are packaged and successful new product introduction. It works closely with R&D’s delivered for sale in over 160 countries. Throughout the world it development team to do this. It also ensures secure supply of the also supports approximately 2,000 new product and line extension key brands that are sold across many markets and have global launches a year. distribution. This division is the focal point for developing and introducing new secondary manufacturing technologies for GMS. By adopting leading edge practices and developing its people GMS It co-ordinates with Primary supply operations to ensure optimal expects to derive benefits from: alignment between the two divisions and a full value stream • a secure source of supply of high quality products approach to introducing new products. There are eight sites in six countries in New product and global supply. • compliance with regulatory requirements and customer expectations Operational excellence • best in class cost. GMS has developed a set of metrics and a common methodology for driving improvement; in particular these have focused on Organisation increasing the robustness of the manufacturing processes to reduce waste and maintain the highest quality standards. Extensive Supply divisions leadership education has been carried out to reinforce a culture of The former five geographic and supply chain structures are now continuous improvement, with staff empowered to solve problems four supply divisions, with sites grouped together based upon in a rigorous, controlled and structured way. All this has given the common business drivers, areas of expertise and the commercial capability to drive step-change in performance, and to implement activities that they support. These four divisions are described improvements rapidly across the manufacturing network. below: Since the formation of GlaxoSmithKline, merger rationalisation Primary supply and Antibiotics and operational excellence initiatives have reduced the number Primary supply and Antibiotics focuses on ensuring the supply of of manufacturing sites by 33 (29 per cent). high quality and competitively priced bulk actives and on driving improvements in primary technologies and processes. It also External suppliers supports the delivery of maximum value from the antibiotics Manufacturing spends over £2 billion with many external suppliers franchise through a combined primary and secondary approach every year, including the purchase of active ingredients, chemical to cost competitive supply and response to market opportunities intermediates, part-finished and finished products. GMS takes and customer needs. There are 18 sites in eight countries in appropriate steps to protect its supply chains from any disruption Primary supply and Antibiotics. resulting from interrupted external supply through appropriate stock levels, contracting and alternative registered suppliers. Consumer Healthcare supply Consumer Healthcare supply focuses on delivering high-quality, Vaccines supply chain competitively-produced products and offering the capability Vaccine manufacturing is located primarily at Rixensart and Wavre for rapid new product introduction in a highly innovative and in Belgium, with three other sites in France, Germany and Hungary competitive business which has far shorter time frames than and two joint ventures in China and Russia. Managing the vaccine pharmaceuticals. New technologies have become a fundamental supply chain involves anticipating market needs and using a flexible platform for lowering costs and providing flexibility in operations. approach to be able to meet fluctuations in demand. These are There are 25 sites in 18 countries in Consumer Healthcare supply. based on forecasts from the different markets and firm orders from health authorities for mass vaccination campaigns. Bulk, filling and packaging are carefully balanced and stocking of vaccines helps manage short-term increases in demand. Such increases are prompted by disease outbreaks or increased demand from the public owing to disease awareness campaigns.


  • Page 27

    Description of business GlaxoSmithKline 25 Products and competition Pharmaceutical products Anti-virals Combivir, a combination of Retrovir and Epivir, has consolidated GlaxoSmithKline’s principal pharmaceutical products are presently the position of these two reverse transcriptase inhibitors as the directed to nine therapeutic areas. An analysis of sales by these cornerstone of many multiple anti-HIV product regimens. therapeutic areas, and a description of the principal products, are Physician acceptance has clearly demonstrated the value placed set out below: on minimising the pill burden faced by patients. 2004 2003 2002 Turnover by therapeutic area £m £m £m Ziagen is a reverse transcriptase inhibitor. The product’s potency, Respiratory 4,415 4,417 3,987 ease of use and resistance profile allow it to play a significant Central nervous system 3,463 4,455 4,511 role in a variety of highly active, well tolerated and simplified HIV Anti-virals 2,360 2,349 2,299 treatment regimens. Anti-bacterials/anti-malarials 1,561 1,815 2,210 Trizivir is a combination of Combivir and Ziagen, combining three Metabolic 1,253 1,079 960 anti-HIV therapies in one tablet, for twice daily administration. Vaccines 1,196 1,123 1,080 Oncology and emesis 934 1,001 977 Epzicom/Kivexa, approved by the FDA in August 2004, is a Cardiovascular and urogenital 933 771 661 combination of Epivir and Ziagen that is taken as one tablet with Other 1,031 1,171 1,310 once-daily dosing for HIV/AIDS in combination with at least one other anti-HIV drug. 17,146 18,181 17,995 Lexiva/Telzir is a protease inhibitor for the treatment of HIV, that is Products and their versions may not be approved for all indications well tolerated and more convenient than Agenerase which it in all markets where they are available. supersedes. Lexiva may be taken twice daily or once daily when boosted with ritonavir. Respiratory Seretide/Advair, a combination of Serevent and Flixotide, offers Zeffix has been approved for marketing in the USA, Europe, China a long-acting bronchodilator and an anti-inflammatory in a single and other markets for the treatment of chronic hepatitis B. inhaler. It is approved for the treatment of asthma and COPD. Valtrex is a treatment for episodic genital herpes as well as the Flixotide/Flovent and Becotide/Beclovent are inhaled steroids for long term suppression and reduction of transmission of genital the treatment of inflammation associated with asthma and COPD. herpes, zoster (shingles), cold sores and chicken pox. Valtrex supersedes Zovirax, which is also used to treat herpes infections. Serevent is a long-acting bronchodilator used to treat asthma and COPD, and Ventolin is a selective short-acting bronchodilator used Anti-bacterials and anti-malarials to treat bronchospasm. Augmentin is a broad-spectrum antibiotic suitable for the Flixonase/Flonase and Beconase are intra-nasal preparations for treatment of a wide range of common bacterial infections and the treatment of perennial and seasonal rhinitis. is particularly effective against respiratory tract infections. Augmentin ES-600 is an extra strength suspension specifically Central nervous system (CNS) designed to treat children with recurrent or persistent middle ear Seroxat/Paxil is a selective serotonin re-uptake inhibitor (SSRI) for infections. Augmentin XR is an extra strength tablet form for the treatment of depression, panic, obsessive compulsive disorder, adults to combat difficult to treat infections. post traumatic stress disorder, social anxiety disorder, premenstrual Zinnat is an oral antibiotic used primarily for community-acquired dysphoric disorder, and general anxiety disorder. infections of the lower respiratory tract. Wellbutrin is an anti-depressant, available in the USA in normal, Malarone is an oral anti-malarial used for the treatment and sustained-release (SR) and once daily formulations. prophylaxis of malaria caused by Plasmodium falciparum. Imigran/Imitrex is a 5HT1 receptor agonist used for the treatment Lapdap is an effective and well tolerated therapy for the treatment of severe or frequent migraine and cluster headache, and has of malaria, which has been developed through a become the reference product in this sector. Naramig/Amerge is public/private collaboration. a newer migraine product. Lamictal, a well established treatment for epilepsy, is now also indicated for bipolar disorder. Requip is a specific dopamine D2/D3 receptor agonist indicated for the treatment of Parkinson’s disease.


  • Page 28

    26 GlaxoSmithKline Description of business Products and competition continued Metabolic Cardiovascular and urogenital Avandia is a potent insulin sensitising agent which acts on the Coreg is an alpha/beta blocker which has been proven to be underlying pathophysiology of type 2 diabetes. effective in treating patients with mild, moderate and severe heart failure, heart attack or hypertension. GlaxoSmithKline has sole Avandamet is a combination of Avandia and metformin HCI; it marketing rights in the USA and Canada. Generic versions of the is the first medicine that targets insulin resistance and decreases product are available in Canada. glucose production in one convenient pill. Levitra is a PDE-5 inhibitor indicated for male erectile dysfunction. Avandaryl, a fixed-dosed combination of Avandia, and Amaryl, GlaxoSmithKline has co-promotion rights in the USA and more a Sanofi-Aventis product, was approved in Canada in than 20 other markets . October 2004. An FDA approvable letter was received in 2004. GlaxoSmithKline is working with the FDA to bring Avodart is a 5-ARI inhibitor currently indicated for benign prostatic about a resolution of the outstanding issues. hyperplasia. A large clinical outcome study is underway examining its efficacy in the prevention of prostate cancer. Vaccines Arixtra and Fraxiparine were acquired in 2004 as part of the GlaxoSmithKline markets a range of hepatitis vaccines. Havrix divestitures required for the merger of Sanofi and Aventis. protects against hepatitis A and Engerix-B against hepatitis B. Arixtra, a selective Factor Xa inhibitor, is indicated for the Twinrix is a combined hepatitis A and B vaccine, protecting against prophylaxis of deep vein thrombosis, which may lead to pulmonary both diseases with one vaccine and available in both adult and embolism, in hip fracture surgery, knee replacement and hip paediatric strengths. replacement surgery. It is also indicated for the treatment of deep Infanrix is a range of paediatric vaccine combinations. Infanrix vein thrombosis and pulmonary embolism. provides protection against diphtheria, tetanus and pertussis Fraxiparine is a low-molecular weight heparin indicated for (whooping cough). Infanrix PeNta/Pediarix provides additional prophylaxis of thromboembolic disorders (particularly deep vein protection against hepatitis B and polio, and Infanrix hexa further thrombosis and pulmonary embolism) in general surgery and adds protection against haemophilus influenzae type b, which in orthopedic surgery, treatment of deep vein thrombosis and causes meningitis. prevention of clotting during hemodialysis. GlaxoSmithKline also markets Priorix, a measles, mumps and The European marketing rights to Integrilin were acquired in 2004. rubella vaccine, Typherix, a vaccine for protection against typhoid A GP IIb-IIIa inhibitor, it is approved in the EU for the prevention fever, and Varilrix, a vaccine against varicella or chicken pox. In of early myocardial infarction. addition, the Group markets a range of vaccines to prevent meningitis under the umbrella name Mencevax. Other This category includes Betnovate, the higher potency Dermovate Oncology and emesis and the newer Cutivate, which are anti-inflammatory steroid Zofran is used to prevent nausea and vomiting associated with products used to treat skin diseases such as eczema and psoriasis, chemotherapy and radiotherapy for cancer, and is available in Relafen, a non-steroidal anti-inflammatory drug for the treatment both oral and injectable forms. It is also approved for use in the of arthritis, and Zantac, for the treatment of peptic ulcer disease prevention and treatment of post-operative nausea and vomiting. and a range of gastric acid related disorders. Hycamtin is a second line treatment both for ovarian cancer and for small cell lung cancer. Bexxar is a treatment for patients with CD20 follicular, non- Hodgkin’s lymphoma with and without transformation whose disease is refractory to rituximab and who have relapsed following chemotherapy.


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    Description of business GlaxoSmithKline 27 Pharmaceuticals competition Anti-virals Major competitors in the HIV market include Gilead, Bristol Myers The pharmaceutical industry is highly competitive. Squibb, Abbott, Merck and Pfizer. GlaxoSmithKline’s principal competitors are large international pharmaceutical companies with substantial resources. Some of GlaxoSmithKline has a pioneering role in the HIV market, with these companies and their major products are mentioned below. Retrovir and Epivir acting as the cornerstone of combination therapy and available as Combivir in a single tablet. The launches Pharmaceuticals may be subject to competition from other of Ziagen, Agenerase, Trizivir, Lexiva and Epizcom have broadened products during the period of patent protection and, once off the Group’s portfolio of HIV products. patent, from generic versions. The manufacturers of generic products typically do not bear significant research and development Valtrex has strengthened the Group’s position in the anti-herpes costs and consequently are able to offer their products at area. Zovirax faces competition from generic aciclovir. Both Valtrex considerably lower prices than the branded competitors. A research and Zovirax compete with Novartis’ Famvir. Zeffix was the first and development based pharmaceutical company will normally anti-viral on the market to treat hepatitis B. Gilead’s Hepsera was seek to achieve a sufficiently high profit margin and sales volume the second. GlaxoSmithKline has marketing rights to Hepsera in during the period of patent protection to repay the original some key markets. investment, which is generally substantial, and to fund research for the future. Competition from generic products generally occurs Anti-bacterials and anti-malarials as patents in major markets expire. Increasingly patent challenges Generic versions of both Augmentin and Ceftin/Zinnat are available are made prior to patent expiry, claiming that the innovator patent in the USA. Augmentin has also lost patent protection in various is not valid and/or that it is not infringed by the generic product. countries in Europe. Augmentin XR and Augmentin ES compete Following loss of patent protection, generic products rapidly against a broad range of other branded and generic antibiotics. capture a large share of the market, particularly in the USA. Malarone’s safety profile and convenient dosing regimen have helped put this product in a strong position versus mefloquine GlaxoSmithKline believes that remaining competitive is dependent for malaria prophylaxis. upon the discovery and development of new products, together with effective marketing of existing products. Within the Metabolic pharmaceutical industry, the introduction of new products and The major competitor for Avandia is Takeda Chemical’s Actos, processes by competitors may affect pricing levels or result in which is co-promoted with Eli Lilly in the USA. changing patterns of product use. There can be no assurance that products may not become outmoded, notwithstanding patent or Vaccines trade mark protection. In addition, increased government and GlaxoSmithKline’s major competitors in the vaccine market include other pressures for physicians and patients to use generic Sanofi Pasteur (SP), Merck and Wyeth. Engerix-B and Havrix pharmaceuticals, rather than brand-name medicines, may increase compete with vaccines produced by SP and Merck – Comvax and competition for products that are no longer protected by patent. Recombivax HB for hepatitis B, and Vaqta and Avaxim for hepatitis A. Infanrix’s major competitor is SP’s range of DTPa-based Respiratory combination vaccines. GlaxoSmithKline’s respiratory franchise is driven by the growth of Seretide/Advair, gaining patients from competitor products and Oncology and emesis the cannibalisation of Serevent and Flixotide/Flovent. Major Zofran presently provides GlaxoSmithKline with a leadership respiratory competitors are Singulair from Merck, especially in the position in the anti-emetic market where competitor companies USA and in Europe, Symbicort from AstraZeneca and Spiriva from include Roche, Sanofi-Aventis and more recently Merck. Major Pfizer/Boehringer Ingelheim. competitors in the diverse cytotoxic market include Bristol Myers Squibb, Sanofi-Aventis, Pfizer and Novartis. GlaxoSmithKline’s CNS disorders cytotoxic portfolio, led by Hycamtin and Navelbine, currently holds Major competitors in the USA to Paxil are its generic forms, as a relatively small market position. well as generic fluoxetine, the generic form of Eli Lilly’s Prozac, Zoloft from Pfizer, Forest Laboratories’ Celexa and Lexapro. The Cardiovascular and urogenital principal competitors in the USA for Wellbutrin are generic forms GlaxoSmithKline markets Coreg in the USA where its major of bupropion, the generic forms of SSRIs and Effexor XR, a Wyeth competitors are Toprol XL and generic betablockers. Avodart product. Paxil CR and the once-daily Wellbutrin XL help to retain competes directly with Merck’s Proscar within the BPH market. a strong presence in the anti-depressant market, given the GlaxoSmithKline has co-promotion rights in the USA and over availability of generic paroxetine in the USA. Generic competition 20 other countries for Levitra, which faces competition from for Seroxat/Paxil has also commenced in the UK and a number Pfizer’s Viagra and Lilly/Icos’ Cialis. of other markets.


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    28 GlaxoSmithKline Description of business Products and competition continued Consumer Healthcare products Oral care The leading Oral care products are toothpastes and mouthwashes GlaxoSmithKline’s principal consumer healthcare products are in under the Aquafresh, Sensodyne, Macleans and Odol brand three major areas. An analysis of sales by these areas is set out names, and a range of toothbrushes sold under the Aquafresh, below: and Dr Best names. In addition, denture care products are available 2004 2003 2002 principally under the Polident, Poligrip and Corega brand names. £m £m £m OTC medicines 1,489 1,556 1,586 Nutritional healthcare Oral care 1,088 1,082 1,052 The leading products in this category are Lucozade glucose energy Nutritional healthcare 636 622 579 and sports drinks, Ribena, a blackcurrant juice-based drink rich in 3,213 3,260 3,217 vitamin C, and Horlicks, a range of milk-based malted food and chocolate drinks. In 2004 sales were three per cent higher in CER terms than in 2003 but declined one per cent in sterling terms. Consumer Healthcare competition Major products which are not necessarily sold in all markets are: GlaxoSmithKline holds leading global positions in all its key consumer product areas. Worldwide it is the second largest in Category Product Oral care and the third largest in OTC medicines. In Nutritional Over-the-counter medicines healthcare it holds the leading position in the UK, India and Analgesics Panadol Ireland. Dermatologicals Zovirax The main competitors include the major international companies Abreva Colgate-Palmolive, Johnson & Johnson, Pfizer, Procter & Gamble, Gastro-intestinal Tums Unilever and Wyeth. In addition, there are many other companies Citrucel that compete with GlaxoSmithKline in certain markets. Respiratory tract Contac Beechams The major competitor products in OTC medicines are: Smoking control Commit • in the USA: Metamucil (laxative), Pepcid (indigestion) and Nicorette private label smoking control products NicoDerm CQ NiQuitin CQ • in the UK: Lemsip (cold remedy), Nurofen and Anadin Nicabate CQ (analgesics), and Nicorette and Nicotinell (smoking control Natural wellness support Abtei treatments). Oral care Aquafresh In Oral care the major competitors are Colgate-Palmolive’s Colgate Dr Best and Procter & Gamble’s Crest. Macleans In Nutritional healthcare the major competitors to Horlicks are Odol Ovaltine and Milo malted food and chocolate drinks. The Odol Med 3 competitors to Ribena are primarily local fruit juice products, while Polident Lucozade competes with other energy drinks. Poligrip Sensodyne Nutritional healthcare Lucozade Ribena Horlicks Over-the-counter medicines The leading products are Panadol, a widely available paracetamol/acetominophen analgesic; Nicorette gum in the USA; the NicoDerm, NiQuitin CQ and Nicabate range of smoking control products; Tums, a calcium-based antacid; Citrucel laxative; Contac for the treatment of colds; Abtei, a natural medicines and vitamin range; and Zovirax and Abreva for the treatment of cold sores. In 2004, the Group obtained the OTC marketing rights to orlistat in the USA, an FDA approved prescription product for obesity management, marketed by Roche as Xenical.


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    Description of business GlaxoSmithKline 29 Regulatory environment Regulation – Pharmaceuticals Across International markets, countries outside the USA and Europe, the regulatory environment continues to be extremely GlaxoSmithKline operates within a highly regulated environment. varied and challenging. GlaxoSmithKline anticipates that the Regional and country-specific laws and regulations define the data introduction of new products will continue to require substantial required to show safety and efficacy of pharmaceutical products, effort, time and expense to comply with regulatory requirements. as well as govern testing, approval, manufacturing, labelling and marketing of drugs. These regulatory requirements are a major Price controls factor in determining whether a marketable product may be In many countries the prices of pharmaceutical products are successfully developed and the amount of time and expense controlled by law. Governments may also influence prices through associated with this development. their control of national healthcare organisations, which may bear a large part of the cost of supplying products to consumers. Recent Regulation process Government healthcare reforms in countries such as France, Spain In 2004 GlaxoSmithKline adopted the Common Technical and Germany may restrict pricing and reimbursement. Document format for marketing applications and major supplements. This is a single format for registering a product that In the USA, recent legislation on healthcare reform, cross-border is accepted by regulatory authorities in many regions. These trade, the acceleration of generics to market and increased patient applications are being prepared and submitted electronically. contributions have further increased the focus on pricing. Currently there are no government price controls over private sector Other harmonisation activities at a global and regional level are purchases, but federal legislation requires pharmaceutical ongoing with some success at standardisation. However, the manufacturers to pay prescribed rebates on certain drugs in order regulatory environment is varied and changes rapidly. The national to be eligible for reimbursement under Medicaid and other federal regulatory authorities in many jurisdictions have high standards of healthcare programmes. technical appraisal and consequently the introduction of new pharmaceutical products generally entails a lengthy Medicare approval process. The US Medicare Prescription Drug Improvement and In the European Union, there are currently two procedures for Modernization Act of 2003 provides limited immediate benefits obtaining marketing authorisations for medicinal products: to Medicare patients – the disabled and those over 65 years old – in the form of government sponsored discount cards to be • The Centralised Procedure, with applications made direct to replaced with a comprehensive out-patient drug benefit in 2006. the European Medicines Evaluation Agency and leading to an The benefit is intended to be administered by a number of private authorisation valid in all member states, is compulsory for organisations that will construct benefit structures consistent with products derived from biotechnology and optional for new federal law and will market the benefit to Medicare patients. active substances and other innovative medicinal products While the law provides strong incentives for manufacturers to • The Mutual Recognition Procedure, which is applicable to the negotiate prices with plan sponsors, the bill does not provide for majority of conventional medicinal products, operates by explicit government price controls. As most senior citizens already mutual recognition of national marketing authorisations. have some drug coverage, the greatest increase in demand is likely Where agreement cannot be reached, it is resolved by a to be in the population of low-income senior citizens who have no procedure of binding arbitration. coverage. Those low-income senior citizens will receive subsidies New EU legislation is to be implemented by the end of 2005, for the premiums, deductible and co-payments associated with the which will improve the Centralised Procedure and increase the comprehensive benefit. range of products for which it is compulsory. The Mutual This law also changes the way that drugs administered in surgeries, Recognition Procedure (the decentralised procedure), which is clinics and hospital outpatient departments will be reimbursed. intended to facilitate agreement between the member states, will Instead of reimbursement based on prices published by also be amended. The implementation of the new legislation will independent pricing services, doctor and clinic reimbursement will bring with it a number of other changes, for example, increased be based on actual market prices as reported by manufacturers post marketing safety monitoring and new types of conditional and audited by the government. The formula used for hospital product approvals. outpatient reimbursement will not change in 2005, but the US Grant of a marketing authorisation affords the Group a protection Government is directed to devise a new, cost-based methodology period during which a competitor cannot rely on confidential data for 2006 and beyond. in the regulatory file as a basis for its own marketing authorisation. The new EU legislation will, for the first time, harmonise the data protection period for both submission routes. The FDA has introduced a new focus called the Critical Path Initiative. This is intended to enable innovation in drug development, hopefully allowing for more rapid development and approval of needed medicines. This initiative will investigate the use of pharmacogenomics and surrogate markers of efficacy, among other things, such as manufacturing innovations, as tools for rapidly developing and producing safe and effective drugs for unmet medical needs.


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    30 GlaxoSmithKline Description of business Regulatory environment continued Value for money The basic patent position with respect to significant products is It is becoming increasingly necessary to demonstrate the value for as follows: money of new products, in particular the impact on drug budget Augmentin. The patent on the key active ingredient, potassium expenditure and the burden of the disease that will be treated. clavulanate has expired in all markets except Italy (2006b) and In some markets, the need to satisfy healthcare purchasers as to generic competition exists in most markets. value for money is becoming an additional hurdle for product Avandia and Avandamet. The patent on the active ingredient acceptance over and above the regulatory tests of safety, efficacy rosiglitazone is not due to expire until 2012a,c in the USA and and quality. This can delay bringing effective and improved 2013b in Europe. Patents on the commercial form of the active medicines to the market and reduce their effective patent ingredient rosiglitazone maleate are not due to expire until 2015 protection time. in the USA and 2014b in Europe. Litigation challenging the validity In many markets, especially in the USA and Europe, it is becoming of the patents protecting these products is ongoing in the USAe. increasingly difficult for even a significantly improved therapy to Avodart. The patent on the active ingredient dutasteride has a obtain a premium price over existing medication. Value-based normal expiry of 2015a in the USA and 2017b in Europe. pricing may be difficult to apply in such circumstances, although in the USA it is still possible to price products to reflect their value. Combivir. The patent on the specific combination of lamivudine It is not possible to predict whether, and to what extent, the and zidovudine is not due to expire until 2012 in the USA and Group’s business may be affected by future legislative and 2013b in Europe. regulatory developments relating to specific pharmaceutical Coreg. GlaxoSmithKline is the exclusive licensee under the US products or their price. patent on the active ingredient carvedilol, which is not due to expire until 2007a. Regulation – Consumer Healthcare Epivir. The patent on the active ingredient lamivudine is not due The consumer healthcare industry is subject to national regulation to expire until 2010a,c in the USA and 2011b in Europe. for the testing, approval, manufacturing, labelling and marketing Flixotide/Flovent and Flixonase/Flonase. In the USA, the patent on of products. In many countries, high standards of technical the active ingredient fluticasone propionate expired in May 2004. appraisal entail a lengthy approval process before a new product In most European countries protection expires in March 2005b. is launched. Imigran/Imitrex. The patent on the active ingredient sumatriptan National regulatory authorisation is also required to approve the is not due to expire until 2009c in the USA and 2006b in Europe switch of products from prescription to OTC. The requirements (2008b Italy). Litigation challenging the validity of the patent include long-term experience of the quality, safety and efficacy protecting this product is ongoing in the USAe. of the product in a wide patient population and data to confirm that the relevant condition is both self-limiting and easily Lamictal. The patent on the active ingredient lamotrigine is not diagnosed by the consumer. due to expire until 2009a,c (paediatric extension pending) in the USA and 2005b in most countries in Europe. Litigation challenging Intellectual property the validity of this patent in the USA has recently been settlede. Intellectual property is a key business asset for GlaxoSmithKline. Levitrad. GlaxoSmithKline has co-promotion rights under the US The effective legal protection of intellectual property is critical in patent on the active ingredient vardenafil which is not due to ensuring a reasonable return on investment in R&D. Intellectual expire until 2018 in the USA. property can be protected by patents, trade marks, registered Lexiva/Telzir. GlaxoSmithKline is the exclusive licensee under the designs, copyrights and domain name registrations. Patent and patent on the active ingredient fosamprenavir, which is not due trade mark rights are regarded as particularly valuable. to expire until 2017 in the USA and 2019b in Europe. In many cases generic manufacturers launch, or attempt to Paxil/Seroxat. The patent on the commercial form of the active launch, generic versions of patented drugs prior to normal patent ingredient paroxetine is not due to expire until 2007c in the USA expiry, arguing that the relevant patents are invalid and/or are not and 2006 in Europe. Litigation relating to the validity and infringed by their product. Significant litigation concerning these infringement of the patents protecting this product is ongoing challenges is summarised in Note 30 to the Financial statements, in the USAe. Generic competition has commenced in the USA, ‘Legal proceedings’. Europe and certain other markets. Paxil CR is protected by a formulation patent that is not due to expire until 2012. Patents GlaxoSmithKline’s policy is to obtain patent protection on all Retrovir. There are no patents on the active ingredient zidovudine. significant products discovered or developed through its R&D Patents covering pharmaceutical formulations containing activities. Patent protection for new active ingredients is available zidovudine and their medical use are not due to expire until 2005 in all significant markets. Protection can also be obtained for new in the USA and 2006 in Europe. pharmaceutical formulations and manufacturing processes, and for new medical uses and special devices for administering products.


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    Description of business GlaxoSmithKline 31 Seretide/Advair. The patent on the specific combination of active Responsibility for environment, health and safety ingredients salmeterol xinafoate and fluticasone propionate is Environment, health and safety (EHS) is a key element of corporate not due to expire until 2010 in the USA and 2013b in Europe. responsibility for the Group and has a high priority. Responsibility An application for re-issue of the US patent has been filed by for EHS is at the highest level. There is a corporate group reporting GlaxoSmithKlinee. The UK patent has been revoked by the UK to the General Counsel that has overall responsibility for providing courts. Patents on the individual ingredients do not expire in the governance and leadership on EHS issues. The head of this group UK until 2005. In the USA, the patent on salmeterol xinafoate makes regular reports to the Corporate Executive Team (CET) and does not expire until 2008. the Audit and Corporate Responsibility Committees of the Board Serevent. The patent on the active ingredient salmeterol xinafoate of Directors. Within the businesses, operations managers are is not due to expire until 2005b in most of Europe (2008b in responsible for EHS and are supported by site-based EHS and France and 2009b in Italy) and until 2008 in the USA. occupational health professionals. Trizivir. The patent on the specific combination of lamivudine, zidovudine and abacavir is not due to expire until 2016 in the EHS strategy USA and 2016 in Europe. GlaxoSmithKline has a ten-year strategic plan for managing EHS and sustainability throughout the business, the EHS Plan for Valtrex. The patent on the active ingredient valaciclovir is not due Excellence. It is aligned with the Group’s strategy and each year to expire until 2009a in the USA and 2009b in Europe. Litigation has a special focus. In 2004, the theme was on responding to challenging the validity of the patent protecting this product is external challenges. At the same time continued focus on themes ongoing in the USAe. from previous years continues to drive improvements in Wellbutrin SR, Wellbutrin XL and Zyban. The patent on the active programmes in key risk areas. ingredient has expired. There is now generic competition for the SR and instant release (IR) forms in the USA. In Europe, regulatory Responding to external challenges data exclusively provides protection until at least 2005, and until Society expects GlaxoSmithKline to take responsibility for the 2009 in some markets. In the USA, Wellbutrin XL is protected by environmental impact of its products as well as those from its two formulation patents that are not due to expire until 2018. operations. The focus of attention has expanded from production Litigation relating to the validity and infringement of one of these to products and environmental impact that can arise at any stage patents is ongoing in the USAe. in the product life cycle. The theme of the EHS Plan for Excellence in 2004, responding to external challenges, focused on three key Ziagen. The patent on the active ingredient abacavir is not due areas: pharmaceuticals in the environment; chemicals policy; and to expire until 2012a,c in the USA and 2014b in Europe. climate change. Zofran. The patent on the active ingredient ondansetron is not due to expire until 2005c in the USA and 2005b in Europe, (2007b Completing core programmes France and 2010b Italy). Patents on use in treating emesis expire The EHS Plan for Excellence in 2005 will focus on completing core in 2006. Litigation challenging the validity of the emesis use programmes measured by improved audit scores and by patent is ongoing in the USAe. achievement of the performance targets that were set in 2001. Trade marks Business drivers and EHS All of GlaxoSmithKline’s pharmaceutical products are protected by New product development registered trade marks in major markets. In general, the same Product stewardship and environmental aspects of sustainable mark is used for a product in each market around the world, but development principles have been introduced into all aspects of there may be local variations. For example in the USA the trade new product development. The entire life cycle impact of the mark Paxil is used instead of Seroxat and Advair is used instead of product is considered in order to address adverse impacts, to Seretide. optimise resources consumed and to reduce waste produced. Trade mark protection may generally be extended for as long Alternative chemistries and processes are reviewed to build safety as the trade mark is used by renewing it when necessary. into the processes and to improve mass productivity, which not GlaxoSmithKline’s trade marks on pharmaceutical products only optimises resource consumption and waste generation but generally assume an increasing importance when the patent also addresses triple bottom line considerations. for that product has expired in a particular country and generic versions of the product become available. Product commercialisation EHS helps to speed products to market by addressing regulatory The Consumer Healthcare trade marks are particularly important, concerns during their development. By incorporating EHS in as the business is very brand orientated and many products decision-making on design, packaging and labelling, it is possible do not have patent protection. to reduce costs, differentiate products and extend product life. a) Including patent term restoration under the Hatch-Waxman Act b) Including extension of term by national or European supplementary protection certificates c) Including extension of term for paediatric exclusivity d) A registered trademark of Bayer AG e) See Note 30 to Financial statements ‘Legal proceedings’.


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    32 GlaxoSmithKline Description of business Regulatory environment continued Global competitor EHS improvement Competitive advantage may be gained by improving public trust Objectives for 2004 focused on the emerging issues of based on applying best business processes globally and fostering pharmaceuticals in the environment, chemicals policy and climate a culture of continuous improvement. By optimising processes change, with a theme of responding to external EHS challenges. and making them more economically viable, potential is created Numerical targets for EHS performance improvements set in 2001 for lowering the price of medicines which can contribute to the are to be accomplished over five years. Progress toward meeting social benefit of allowing greater access to global markets. these targets is tracked every year and will be published on the website www.gsk.com. To date significant progress has been made GlaxoSmithKline people towards achieving the EHS targets. Many of the EHS programmes are focused on protecting people. GlaxoSmithKline is committed to working towards designing a GlaxoSmithKline selects its measures of performance improvement workplace that minimises work-related risks to safety and health based on the potential for adverse impact on people or the and provides a shirt-sleeve environment, so that personal safety environment, business continuity or business reputation. Most equipment will not be required on a routine basis to protect of the measures selected are similar to those reported by other employees’ health in laboratory or manufacturing operations. companies and are recommended by the Global Reporting Initiative, a long-term, multi-stakeholder, international undertaking EHS management to develop and disseminate globally applicable sustainability GlaxoSmithKline takes a systematic approach to managing EHS reporting guidelines. risks and impacts. A framework of information and programmes based on the global EHS standards guides the management of Sustainability key aspects, impacts and risks throughout the organisation. In the work towards eventual sustainability GlaxoSmithKline is addressing economic, environmental and social issues in research, EHS audits manufacturing, sales and distribution of our medicines. As part of its governance responsibility, GlaxoSmithKline conducts Sustainability starts with healthcare solutions found by research EHS audits of its sites, assessing performance against the EHS and development and continues with sustainable solutions in standards and assigning quantitative performance scores. In 2004, manufacturing and sales. The Group is currently looking into 33 sites were audited. As part of the continuous improvement improving operational efficiency and in the future will investigate process, progress was monitored on actions arising from issues the use of renewable resources and the overall balance of its raised on all audits. impact on society and the environment. The Group seeks dialogue with external stakeholders and considers their views when As part of the commitment to corporate social responsibility and developing our approaches to sustainable development. More the pro-active management of the GlaxoSmithKline manufacturing information on EHS programmes and performance may be found and supply base, 35 of the key contract manufacturers and on the website. suppliers were also assessed. This process evaluated the management of human rights and EHS risks and impacts based on the Group’s requirements for contract manufacturers. Recommendations were made for improvements where needed.


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    GlaxoSmithKline 33 Corporate governance This section discusses GlaxoSmithKline’s management structures and governance procedures. It contains the company’s reporting disclosures on corporate governance required by the Combined Code on Corporate Governance of the Financial Reporting Council (Combined Code), including the required statement of compliance. Further, the company reports on compliance with the US laws and regulations that apply to it. 34 The Board 35 Corporate Executive Team 36 Governance and policy 38 Dialogue with shareholders 38 Annual General Meeting 39 Internal control framework 40 Committee reports 41 The Combined Code 41 US law and regulation


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    34 GlaxoSmithKline Corporate governance The Board Dr Ronaldo Schmitz (Aged 66) Appointed on 23rd May 2000 Sir Christopher Gent (Aged 56) Non-Executive Director. Dr Schmitz was formerly a Non-Executive Appointed on 1st June 2004 Director of Glaxo Wellcome plc. He is a Non-Executive Director of Chairman. Sir Christopher was the Chief Executive Officer of Legal & General Group plc and a member of the Board of Directors Vodafone plc, until his retirement in July 2003. He is a Non- of Rohm and Haas Company and Cabot Corporation. Executive Director of Lehman Brothers Holdings Inc, a Director of the International Advisory Board of Hakluyt & Co, and is a Senior Dr Lucy Shapiro (Aged 64) Adviser at Bain & Co. Appointed on 23rd May 2000 Non-Executive Director. Dr Shapiro was formerly a Non-Executive Dr Jean-Pierre Garnier (Aged 57) Director of SmithKline Beecham plc. She is Ludwig Professor of Appointed on 23rd May 2000 Cancer Research in the Department of Developmental Biology Chief Executive Officer. Dr Garnier was appointed an Executive and Director of the Beckman Center for Molecular and Genetic Director of SmithKline Beecham plc in 1992, and became Chief Medicine at the Stanford University School of Medicine and a Executive Officer in April 2000. He is a Non-Executive Director of Non-Executive Director of Anacor Pharmaceuticals, Inc. She holds United Technologies Corporation and a member of the Board of a PhD in molecular biology from Albert Einstein College of Trustees of the Eisenhower Exchange Fellowships. He holds a Medicine. PhD in pharmacology from the University of Louis Pasteur in France and an MBA from Stanford University in the USA. Sir Robert Wilson (Aged 61) Appointed on 1st November 2003 John Coombe (Aged 59) Non-Executive Director. Sir Robert is Non-Executive Chairman Appointed on 23rd May 2000. Retiring on 31st March 2005. of BG Group plc and the Economist Group and was previously Chief Financial Officer. Mr Coombe was formerly an Executive Executive Chairman of Rio Tinto plc. Director of Glaxo Wellcome plc where he was responsible for Finance and Investor Relations. He is a member of the Supervisory Dr Tachi Yamada (Aged 59) Board of Siemens AG and the Code Committee of the UK Appointed on 1st January 2004 Takeover Panel and was appointed a Non-Executive Director of Chairman, Research & Development. Dr Yamada was a Non- HSBC Holdings plc on 1st March 2005. Executive Director, and subsequently an Executive Director, of SmithKline Beecham plc. Prior to joining SmithKline Beecham, Lawrence Culp (Aged 41) he was Chairman of the Department of Internal Medicine at the Appointed on 1st July 2003 University of Michigan Medical School and Physician-in-Chief of Non-Executive Director. Mr Culp is President and Chief Executive the University of Michigan Medical Center. He was a member of Officer of Danaher Corporation. Prior to joining Danaher, he held the Board of Directors of diaDexus, Inc. until December 2004 and positions in Accenture, previously Andersen Consulting. is a Trustee of the Rockefeller Brothers Fund. Sir Crispin Davis (Aged 55) Chief Financial Officer Designate Appointed on 1st July 2003 Julian Heslop (Aged 51) Non-Executive Director. Sir Crispin is Chief Executive of Reed Mr Heslop will succeed Mr Coombe as Chief Financial Officer Elsevier PLC. Prior to that, he was Chief Executive of Aegis Group with effect from 1st April 2005 when he will also join the Board. plc, which he joined from Guinness plc, where he was a member Mr Heslop joined Glaxo Wellcome as Financial Controller in April of the main board and Group Managing Director of United 1998. In January 2001, following the merger, he was appointed Distillers. He spent his early career with Procter & Gamble. Senior Vice President, Operations Controller. Prior to joining Sir Deryck Maughan (Aged 57) Glaxo Wellcome, he held senior finance roles at Grand Appointed on 1st June 2004 Metropolitan PLC. Non-Executive Director. Sir Deryck was formerly Chairman and Other Directors CEO of Citigroup International and of Salomon Brothers Inc. He Dr Michèle Barzach, Mr Donald McHenry and Mr John McArthur, serves on the Boards of Directors of Carnegie Hall, Lincoln Center all Non-Executive Directors, retired from the Board following the and NYU Medical Center. He is also an International Advisory conclusion of the AGM on 17th May 2004 and Sir Christopher Board member of British American Business Inc. and a Board Hogg (the former Chairman) and Sir Peter Job, both Non-Executive member of the American Academy in Berlin and the Trilateral Directors, retired from the Board on 31st December 2004. Commission. He served as Vice Chairman of the New York Stock Exchange from 1996 to 2000. Details of membership of the Board Committees may be found Sir Ian Prosser (Aged 61) on page 37. Appointed on 23rd May 2000 Senior Independent Director. Sir Ian was formerly a Non-Executive Director of SmithKline Beecham plc. He was Chairman and Chief Executive of Bass PLC (latterly Intercontinental Hotels PLC) and Chairman of the World Travel & Tourism Council. He is Non-Executive Deputy Chairman of BP plc and a Non-Executive Director of Sara Lee Corporation. He is also a member of the CBI President’s Committee.


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    Corporate governance GlaxoSmithKline 35 Corporate Executive Team (CET) David Stout President, Pharmaceutical Operations JP Garnier Mr Stout is responsible for the global pharmaceuticals and vaccines Chief Executive Officer businesses. He joined SmithKline Beecham in 1996 as head of its As Chief Executive Officer, Dr Garnier is responsible for the US Sales and Marketing and was President, US Pharmaceuticals, management of the Group. He oversees all operational aspects of until his current appointment in January 2003. the Group, including establishing policies, objectives and initiatives, and he directs long-term strategy. He was formerly Chief Executive Chris Viehbacher Officer of SmithKline Beecham, having joined the Group in 1990. President, US Pharmaceuticals Mr Viehbacher has been responsible for US Pharmaceuticals since Rupert Bondy January 2003. He joined Wellcome in 1988 and became Director, Senior Vice President and General Counsel Continental Europe at Glaxo Wellcome in 1999. He was Mr Bondy is responsible for legal matters across the Group, responsible for GlaxoSmithKline’s European Pharmaceuticals together with environmental, health and safety issues, insurance business before his current appointment. and security. He was a lawyer in private practice before joining SmithKline Beecham in 1995. Andrew Witty President, Pharmaceuticals Europe Ford Calhoun Mr Witty has been responsible for the Group’s pharmaceuticals Chief Information Officer operations in Europe since January 2003. He joined Glaxo in 1985 Dr Calhoun is responsible for information technology, a global and at GlaxoSmithKline was Senior Vice President, Asia Pacific function that enables key business processes across all parts of the until his current appointment. Group. With doctoral and post-doctoral training in microbiology, genetics, biomathematics and computer science, he joined Smith Tachi Yamada Kline & French in 1984. Chairman, Research & Development Dr Yamada leads the Group’s complex business of drug discovery John Coombe and development, creating new medicines through research. He Chief Financial Officer retiring on 31st March 2005 joined SmithKline Beecham in 1994 as a Non-Executive member of As head of the finance function, Mr Coombe is responsible for the Board and became Chairman, R&D Pharmaceuticals in 1999. activities such as financial reporting and control, tax and treasury, He was appointed to the Board of Directors on 1st January 2004. investor relations, finance systems, internal audit and real estate. He joined Glaxo in 1986 as Group Financial Controller and was Jennie Younger appointed Group Finance Director in 1992. Senior Vice President, Corporate Communications & Community Partnerships Marc Dunoyer Mrs Younger is responsible for the Group’s internal and external President, Pharmaceuticals Japan communications, its image and partnerships with global Mr Dunoyer was appointed President, Pharmaceuticals Japan in communities. She joined Glaxo Wellcome in 1996 as Director March 2003. He joined the Group in 1999 and was Senior Vice of Investor Relations and was appointed to her current position President and Regional Director, Japan until his current in 2001. In 2004 she won the European Women of Achievement appointment. Award for Business. Russell Greig Jack Ziegler President, Pharmaceuticals International President, Consumer Healthcare Dr Greig leads the pharmaceutical operations outside the USA Mr Ziegler is head of the global Consumer Healthcare business, and most of Europe, covering more than 100 countries. He joined which produces oral healthcare, over-the-counter medicines and the Group in 1980 and was Senior Vice President, Worldwide nutritional healthcare products. He joined SmithKline Beecham in Business Development for R&D prior to his current appointment 1991 and in 1998 was appointed President of the Consumer in March 2003. Healthcare business. Dan Phelan Julian Heslop Senior Vice President, Human Resources Chief Financial Officer Designate Mr Phelan is responsible for benefits, compensation, recruitment, Mr Heslop will succeed Mr Coombe as Chief Financial Officer organisation development, leadership development and succession with effect from 1st April 2005, when he will also join the CET. planning, human resource information systems and employee health management. He was a lawyer in private practice before Mr Heslop joined Glaxo Wellcome as Financial Controller in April joining Smith Kline & French in 1981 and in 1994 was appointed 1998. Following completion of the merger he was appointed Senior Vice President and Director, Human Resources, SmithKline Senior Vice President, Operations Controller. Beecham. Other members David Pulman Mr Ingram continues to work part-time as Vice Chairman of President, Global Manufacturing & Supply Pharmaceuticals, acting as a special advisor to the Group and Dr Pulman is responsible for the Global Manufacturing and Supply attending CET meetings in that capacity. Organisation and Global Procurement. He joined Glaxo in 1978 and was responsible for the North American supply network, manufacturing strategy and logistics until his current appointment in 2002.


  • Page 38

    36 GlaxoSmithKline Corporate governance Governance and policy Board process The Board has the authority, and is accountable to shareholders, The Board and Corporate Executive Team for ensuring that the company is appropriately managed and The Directors are listed under ‘The Board’ (page 34). achieves the strategic objectives it sets. The Board discharges The Board is responsible for the Group’s system of corporate those responsibilities through an annual programme of meetings governance and is ultimately accountable for the Group’s activities, which includes the approval of overall budgetary planning and strategy and financial performance. business strategy. The Chief Executive Officer (CEO) is responsible for executive The Board reviews the company’s internal controls and risk management of the Group and is assisted in this by the CET. The management policies and approves its governance structure and CET meets 11 times per year and otherwise as necessary. The code of ethics. The Board appraises and approves major financing, members and their responsibilities are listed under “Corporate investment and contractual decisions in excess of defined Executive Team” (page 35). thresholds. In addition to these matters, the Board evaluates and monitors the performance of the Group as a whole. This includes: The Board comprises three Executive and eight Non-Executive Directors. Whilst the Board considers all its Non-Executive Directors • engaging at Board meetings with the CEO, the other Executive to be independent in character and judgement, it has determined Directors and members of the CET as appropriate, on the that one Non-Executive Director, Dr Shapiro, should not be financial and operating performance of GlaxoSmithKline and considered as ’independent’ under the Combined Code. Dr Shapiro external issues material to the Group’s prospects is not considered to be independent due to the remuneration that • evaluating progress toward the achievement of the Group’s she receives from the Group as a member of the GlaxoSmithKline financial and business objectives and annual plans Scientific Advisory Board. When Sir Christopher Gent was appointed to the Board as Deputy Chairman, he was determined • monitoring, through reports received directly or from various by the Board to be independent. Upon taking up the chairmanship committees, the significant risks facing the Group. of the Board on 1st January 2005, in accordance with the The Board has overall responsibility for succession planning for Combined Code, he was excluded from the determination of the CEO and the other Executive Directors. The Board has given whether at least half the Board are independent Non-Executive the CEO broad authority to operate the business of the Group Directors. Neither Dr Shapiro nor Sir Christopher Gent hold and the CEO is accountable for, and reports to the Board on, positions on a Board Committee where independence is required business performance. under the Combined Code. CET members make regular presentations to the Board on their The Board considers that Mr Culp, Sir Crispin Davis, Sir Deryck areas of responsibility and the Board meets with all the CET Maughan, Sir Ian Prosser, Dr Schmitz and Sir Robert Wilson are members on an annual basis to discuss collectively the Group’s independent in accordance with the recommendations of the strategy. A primary element of the induction process for new Combined Code. Non-Executive Directors is undertaken by members of the CET, The following directors who retired during the year were not and all Non-Executive Directors are encouraged to have separate considered by the Board to be independent in accordance with informal discussions at their discretion with any CET members. the Combined Code: Dr Barzach, because she received The Board met six times in 2004 with each member attending as remuneration from a Group subsidiary, as a healthcare consultant follows: and Mr McHenry and Sir Christopher Hogg, due to their length Number of meetings Number of of service. Mr McArthur and Sir Peter Job, who also retired during Name held whilst a Board member meetings attended the year, were both considered to be independent. Sir Christopher Gent 3 3 At the date of publication and throughout 2004, a majority of Dr JP Garnier 6 6 the Board members, excluding the Chairman, were independent Mr J Coombe 6 6 Non-Executive Directors. Dr T Yamada 6 6 Mr L Culp 6 6 Sir Christopher Hogg was Chairman throughout 2004 and Sir Crispin Davis 6 5 retired from the Board on 31st December 2004. In May 2004, Sir Deryck Maughan 3 2 Sir Christopher Gent was appointed Deputy Chairman with effect Sir Ian Prosser 6 6 from 1st June 2004. The Board agreed that Sir Christopher Gent Dr R Schmitz 6 5 would succeed Sir Christopher Hogg as Chairman with effect Dr L Shapiro 6 6 from 1st January 2005. Dr Garnier is CEO. Sir Robert Wilson 6 6 The Chairman leads the Board, and represents the Board to the Sir Christopher Hogg 6 6 CEO and other CET members as necessary between Board Dr M Barzach 3 3 meetings. The CEO manages the Group and implements the Sir Peter Job 6 4 strategy and policies adopted by the Board. The Chairman and Mr J McArthur 3 2 the chairmen of Board Committees communicate regularly with Mr D McHenry 3 3 the CEO and other CET members. The division of responsibilities In addition to the six scheduled meetings referred to above, the between the role of Chairman and the CEO has been set out in Board also met on a quorate basis on one occasion. writing, agreed by the Board and appears in full on the website. Sir Ian Prosser was Senior Independent Director (SID) throughout 2004.


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    Corporate governance GlaxoSmithKline 37 Independent Advice The Chairman of the company and the CEO are responsible for The Board recognises that there may be occasions when one or evaluating and making recommendations to the Board on the more of the Directors feel it is necessary to take independent legal remuneration of the Non-Executive Directors. and/or financial advice at the company’s expense. There is an agreed procedure to enable them to do so. The procedure to be Nominations Committee followed is explained in the Corporate Governance section of the The Nominations Committee reviews the structure, size and company’s website. composition of the Board and the appointment of members of the Board and the CET, and makes recommendations to the Board Company Secretary as appropriate. The Committee also monitors the planning of The Company Secretary is responsible to the Board and is available succession to the Board and Senior Management. The Committee to individual Directors in respect of Board procedures. The consists entirely of Non-Executive Directors, of whom a majority Company Secretary is Simon Bicknell, who was appointed in May are independent, and meets at least once a year to consider 2000. He is a barrister and joined the Group in 1984. He is succession planning and otherwise as necessary. The Nominations secretary to all the Board Committees. Committee Report is given on page 41. Board Committees Corporate Responsibility Committee The Board has established a number of Committees and provides The Corporate Responsibility Committee consists entirely of sufficient resources to enable them to undertake their duties. Non-Executive Directors and provides a Board-level forum for the Current membership of these Committees is given in the table regular review of external issues that have the potential for serious below. impact upon the Group’s business and the oversight of reputation Corporate management. The Committee is also responsible for governance Audit Remuneration Nominations Responsibility oversight of the Group’s worldwide donations and community Sir Christopher Gent – – C C support. The Committee meets formally three times a year and Dr JP Garnier – – – – has further meetings and consultations as necessary. Mr J Coombe – – – – Dr T Yamada – – – – Financial Results Committee Mr L Culp – M – – The Financial Results Committee reviews and approves, on behalf Sir Crispin Davis – M – – of the Board, the Annual Report and Form 20-F, the Annual Review Sir Deryck Maughan M – – – and the convening of the Annual General Meeting, together with Sir Ian Prosser M – M M the preliminary and quarterly statements of trading results. Each Dr R Schmitz C – M – Director is a member of the Committee and the quorum for a Dr L Shapiro – – – M meeting is any three members. To be quorate, each meeting must Sir Robert Wilson M C – – include the Chairman or the Chairman of the Audit Committee and the CEO or the CFO. The Committee meets as necessary. Key: C = Chairman. M = Member. In addition, each Director is a member of the Corporate Administration & Transactions and Financial Results Committees. Corporate Administration & Transactions Committee The Corporate Administration & Transactions Committee reviews The following is a summary of the role and terms of reference of and approves matters in connection with the administration of each Committee. The current full terms of reference of each the Group’s business, and certain corporate transactions. The Committee can be obtained from the Company Secretary or the Committee consists of the Directors, CET members and the Corporate Governance section of the company’s website. Company Secretary. The Committee meets as necessary. Audit Committee Evaluation of the Board, Board Committees and Directors The Audit Committee reviews the financial and internal reporting The performance evaluation of the Board, its Committees and process, the system of internal controls, the management of risks Directors is normally undertaken by the Chairman and and the external and internal audit process. The Committee also implemented in collaboration with the Committee Chairmen and proposes to shareholders the appointment of the external auditors with the support of the Company Secretary. Following the and is directly responsible for their remuneration and oversight of appointment of Sir Christopher Gent in June 2004 as Deputy their work. The Committee consists entirely of independent Chairman, it was decided that the Deputy Chairman would Non-Executive Directors. It meets at least four times a year and undertake the 2004 performance evaluation of the Board, its otherwise as necessary. The Audit Committee Report is given Committees and Directors in collaboration with the Committee on page 40 to 41. Chairmen and the Company Secretary. Remuneration Committee The 2004 Board evaluation was conducted by way of a The Remuneration Committee determines the terms of service questionnaire followed by a private discussion between the and remuneration of the Executive Directors and members of the Deputy Chairman and each of the Directors, including the CET and, with the assistance of external independent advisors, it Chairman. An external consultant was appointed to assist in evaluates and makes recommendations to the Board on overall the evaluation of the Audit Committee. executive remuneration policy. The Committee consists entirely of independent Non-Executive Directors. It meets at least four times a year and otherwise as necessary. Information on the remuneration of Directors is given in the Remuneration Report on pages 43 to 58.


  • Page 40

    38 GlaxoSmithKline Corporate governance Dialogue with shareholders In May 2004 the company was authorised to purchase a maximum of 594.6 million shares. During 2004 18.1 million shares were Financial results are announced quarterly. purchased for cancellation and 69.9 million were purchased and The company reports formally to shareholders twice a year, when held as Treasury Shares (see Note 27 to the Financial statements, its half-year and full-year results are announced. The full-year ‘Share capital and share premium account’). The exact amount and results are included in the company’s Annual Report and Annual timing of future purchases, and the extent to which repurchased Review, which are issued to shareholders. The company’s half-year shares will be held as Treasury Shares rather than being cancelled, results are published in a national newspaper shortly after they are will be determined by the company and is dependent on market released. The CEO and CFO give presentations on the full-year conditions and other factors. results to institutional investors, analysts and the media in London and in New York. In addition, there are teleconferences after the Donations to Political Organisations and EU Political release of the first, second and third quarter results for institutional Expenditure investors, analysts and the media. The Annual Report, Annual At the AGM in May 2001, shareholders first authorised the Review and quarterly results may also be accessed on the company to make donations to EU Political Organisations and to company’s website. incur EU Political Expenditure, under the provisions of the Political Parties, Elections and Referendums Act 2000, of up to £100,000 The Annual General Meeting (AGM) takes place in London and each year. This authority has since been renewed annually. formal notification is sent to shareholders at least one month in Although the company does not make and does not intend to advance. At the Meeting, a business presentation is made to make such payments or donations to political parties, within the shareholders and all Directors able to attend are available, formally normal meaning of that expression, the definition in the legislation during the Meeting, and informally afterwards, for questions. of ’EU Political Organisation’ is wide. It can extend to bodies, Committee Chairmen ordinarily attend the AGM to respond to which the company and its subsidiaries might wish to support shareholders’ questions. Dr Schmitz, Chairman of the Audit including those concerned with policy review, law reform, the Committee, was unable to attend the Company’s AGM in May representation of the business community and special interest 2004 because he was convalescing. Sir Crispin Davis and groups, such as those concerned with the environment. The Group Mr McArthur were also unable to attend the meeting due to other made donations to non-EU Political Organisations totalling commitments. All resolutions at the AGM are decided on a poll £291,000 during 2004 (£353,000 in 2003). No donations were as required by the company’s Articles of Association. The results made to EU Political Organisations. of the poll are announced to the London Stock Exchange and posted on the company’s website. Details of the 2005 AGM are Annual General Meeting set out in the section ‘Annual General Meeting’ (see this page). The AGM will be held at 2.30pm on Wednesday, 25th May 2005 To ensure that the Non-Executive Directors are aware of and at The Queen Elizabeth II Conference Centre, Broad Sanctuary, understand the views of major shareholders about the company, Westminster, London SW1P 3EE. The business to be transacted the Board has in place a process focusing on sector-specific issues, at the meeting will include: as well as general shareholder preferences. The CEO and CFO maintain a dialogue with institutional • Receiving and adopting GlaxoSmithKline's 2004 Annual shareholders on performance, plans and objectives through a Report programme of regular meetings. They both speak regularly at external conferences and presentations. • Approving the 2004 Remuneration Report The Remuneration Report on pages 43 to 58 sets out the The Group’s Investor Relations department, with offices in London remuneration policies operated by GlaxoSmithKline and and Philadelphia, acts as a focal point for contact with investors disclosures on Directors’ remuneration, including those throughout the year. required by the Companies Act 1985 and the Directors’ The Chairman of the Remuneration Committee meets with Remuneration Report Regulations 2002. A resolution will major shareholders to discuss executive remuneration policy. All be proposed to approve the Remuneration Report. Non-Executive Directors, including new appointees, are available to meet with major shareholders if this is requested. • Retirement, election and re-election of Directors Sir Christopher Gent, Sir Deryck Maughan and Mr Heslop, The company’s website gives access to current financial and each of whom were appointed Directors since the 2004 business information about the Group. AGM, will offer themselves for election to the Board. Share buy-back programme Dr Garnier, Sir Ian Prosser, Dr Schmitz and Dr Shapiro will In October 2002, following the completion of the £4 billion share retire and offer themselves for re-election to the Board buy-back programme announced in 2001, the company under article 93 of the company’s Articles of Association. announced plans for a further £4 billion share buy-back programme. Of this programme, £219 million was accounted for • Re-appointment and remuneration of Auditors in 2002, £980 million in 2003 and £1,000 million in 2004. The Resolutions will be proposed to re-appoint programme covers purchases by the company of shares for PricewaterhouseCoopers LLP as auditors and to authorise cancellation or to be held as Treasury Shares, in accordance with the Audit Committee to determine their remuneration. the authority given by shareholders at the company’s AGM in 2004.


  • Page 41

    Corporate governance GlaxoSmithKline 39 • Special business Risk Oversight and Compliance Council (ROCC) The company will seek authority to: The ROCC is a council of senior executives authorised by the Board to assist the Audit Committee oversee the risk management and • make donations to EU Political Organisations and incur internal control activities of the Group. Membership comprises EU Political Expenditure several CET members and some of the heads of departments with • give the Directors authority to disapply pre-emption rights internal control, risk management, audit and compliance when allotting new shares in connection with rights issues responsibilities. A direct reporting line to the Audit Committee or otherwise up to a maximum of five per cent of the provides a mechanism for bypassing the executive management current issued share capital should the need ever arise. • purchase its own Ordinary Shares up to a maximum of just under ten per cent of the current issued share capital The ROCC meets on a regular basis to review and assess significant • amend the company’s Articles of Association: to enable the risks and their mitigation plans. The ROCC, responding to the company in certain circumstances to meet costs incurred by Group policy referred to above, has provided the business units the company associated with resolutions requisitioned by with a framework for risk management and upward reporting shareholders; to bring the Articles of Association in line with of significant risks. Mitigation planning and identification of a new legislation regarding the indemnification of directors; manager with overall responsibility for management of any and to clarify the circumstances in which an ADR holder given risk is a requirement. can speak at company meetings. Risk Management and Compliance Boards (RMCBs) Internal control framework Risk Management and Compliance Boards (RMCBs) have been established in each of the major business units. Membership often The Board recognises its responsibility to present a balanced and comprises members of the senior executive team of the respective understandable assessment of the Group’s position and prospects. business unit, augmented by specialists where appropriate. The The structure of accountability and audit operated in RMCBs oversee management of all risks that are considered GlaxoSmithKline is as follows. important for their respective business units, including those risks The Board has accountability for reviewing and approving the that are designated as significant to GlaxoSmithKline as a whole, adequacy and effectiveness of internal controls operated by the thus increasing the number of risks that are actively managed company, including financial, operational and compliance controls across the Group. and risk management. The Board has delegated responsibility for Each RMCB regularly reports the status regarding its significant such review to the Audit Committee, which receives reports risks to the ROCC. from those individuals identified in the Committee’s Report on pages 40 to 41. It is the responsibility of management, through Compliance functions the CET, to implement Board policies on risk and control. The CET In a number of risk areas, specific standards that meet or exceed is responsible for identifying, approving, monitoring and enforcing requirements of applicable law have been established. Specialist key policies that go to the heart of how the Group conducts audit and compliance groups (for example Corporate Environment, business. The internal control framework includes central direction, Health & Safety, Global Quality Assurance and Worldwide resource allocation and risk management of the key activities of Regulatory Compliance) assist in the dissemination, implementation research and development, manufacturing, marketing and sales, and audit of these standards. legal, human resources, information systems and financial practice. Corporate Ethics & Compliance (CEC) As part of this framework, there is a comprehensive planning The ROCC is also supported by the Corporate Ethics & Compliance system with an annual budget approved by the Board. The results department which is responsible for supporting the development of operating units are reported monthly and compared to the and implementation of practices that facilitate employees’ budget. Forecasts are prepared regularly during the year. compliance with laws and Group policy. Extensive financial controls, procedures, self-assessment exercises The thrust of the Group’s compliance effort is due diligence in and risk activities are reviewed by the Group’s internal auditors. preventing and detecting misconduct and non-compliance with Commercial and financial responsibility, however, is clearly law or regulation by promoting ethical behaviour, compliance with delegated to local business units, supported by a regional all laws and regulations, corporate responsibility at all levels, and management structure. These principles are designed to provide effective compliance systems. an environment of central leadership coupled with local operating autonomy as the framework for the exercise of accountability and The CEC is managed by the Corporate Compliance Officer, who control within the Group. reports directly to the CEO. The Corporate Compliance Officer chairs the ROCC and provides summary reports on the ROCC’s The Group also attaches importance to clear principles and activities and the Group’s significant risks to the CET and the procedures designed to achieve appropriate accountability and Audit Committee on a regular basis. control. A Group policy, ‘Risk Management and Legal Compliance’, mandates that business units establish processes for managing Areas of potentially significant risk and monitoring risks significant to their businesses and the Group. For details of risks affecting the Group, see Note 30 to the Financial statements, ‘Legal proceedings’ and ‘Risk factors’ The internal control framework also relies on the following for on pages 76 to 78. overseeing and reporting risk and compliance issues.


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    40 GlaxoSmithKline Corporate governance Effectiveness of controls Accordingly, the Board has chosen not to nominate any one The internal control framework has been in operation for the committee member as having recent and relevant financial whole of the year under review and continues to operate up to experience as defined by the Combined Code. the date of approval of this report. The system of internal controls In arriving at its conclusion, the Board considered the following is designed to manage rather than eliminate the risk of not points. Dr Schmitz has been the Chairman of the Committee achieving business objectives and can only provide reasonable and since April 2001. Prior to his appointment as a Non-Executive not absolute assurance against material misstatement or loss. Director of the company, he was a Non-Executive Director of The Audit Committee receives reports on areas of significant risk to Glaxo Wellcome plc, where he served on the Audit Committee. the Group and on related internal controls. Following consideration Dr Schmitz has also been a member of the Executive Board of of these reports, the Audit Committee reports annually to the Directors of Deutsche Bank AG. He retired from that Board in Board on the effectiveness of controls. Such controls may mitigate 2000 having been in charge of investment banking. Dr Schmitz but cannot eliminate risks. In addition, there are areas of the was formerly a member of the Executive Board of Directors of Group’s business where it is necessary to take risks to achieve a BASF from 1980 to 1990, including CFO from 1985 to 1990. satisfactory return for shareholders, such as investment in R&D He holds an MBA from Insead. Sir Ian Prosser was CFO and later and in acquiring new products or businesses. In these cases it CEO of Bass PLC and is a member of the Institute of Chartered is the Group’s objective to apply its expertise in the prudent Accountants in England and Wales. Sir Robert Wilson began his management rather than elimination of risk. The Directors’ review professional career as an economist. He is Chairman of BG Group relates to the company and its subsidiaries and does not extend plc. He held senior management positions at Rio Tinto plc to material associated undertakings, joint ventures or other culminating in his appointment as Executive Chairman, from investments. which he retired in 2003. Sir Deryck Maughan was appointed a member of the Committee on 21st January 2005. He was The Board, through the Audit Committee, has reviewed the Chairman and Chief Executive Officer of Citigroup International assessment of risks and the internal control framework that and Vice Chairman of Citigroup Inc. Prior to the creation of operates in GlaxoSmithKline and has considered the effectiveness Citigroup, he was Chairman and Co-Chief Executive Officer of of the system of internal control in operation in the Group for the Salomon Smith Barney. He was also Chairman and Chief Executive year covered by this report and up to the date of its approval by Officer of Salomon Brothers. Sir Peter Job, who retired from the the Board. The process followed by the Board in reviewing the Board on 31st December 2004, was CEO of Reuters plc from system of internal controls accords with the guidance on internal 1991 to 2001 and brought considerable industrial experience to control issued by the Turnbull Committee in 1999. his role as a member of the Committee. Committee reports The Committee is supported by the Company Secretary, who attends the Committee’s meetings, and it has available to it Audit Committee Report financial resources to take independent professional advice when The Audit Committee’s role flows directly from the Board’s considered necessary. Meetings of the Committee are attended oversight function and it is authorised by the Board to investigate by the Chairman, CEO, CFO, General Counsel, Head of Global any activity within its terms of reference. The Committee has Internal Audit (GIA), Corporate Compliance Officer and the written terms of reference which have been approved by the external auditors. Board. The Committee reports regularly to the Board on the performance of the activities it has been assigned. The In 2004, the Committee worked to a structured programme of Committee’s main responsibilities include reviewing the corporate activities, with standing items that the Committee is required to accounting and financial reporting process, monitoring the consider at each meeting together with other matters focused to integrity of the company’s financial statements, evaluating the coincide with key events of the annual financial reporting cycle: system of internal control and the management of risks, overseeing • the external auditors reported to the Committee on all critical activities of each of the Group’s compliance audit functions and accounting policies and practices used by the company, overseeing compliance with laws, regulations and ethical codes alternative accounting treatments which had been discussed of practice. The Committee’s oversight role requires it to address with management and the resultant conclusion by the external regularly the relationships between management and the internal auditors, material written communications with management and external auditors, and understand and monitor the reporting and any restrictions on access to information relationships and tiers of accountability between these parties. The Committee receives regular reports from members of the • the CFO reported on the financial performance of the company CET and senior managers covering the key compliance activities and on technical financial and accounting matters of the Group, including those concerning R&D, manufacturing, • the General Counsel reported on material litigation sales and marketing and EHS. • the Company Secretary reported on corporate governance The Committee is entirely composed of independent Non-Executive Directors. Committee members bring considerable financial and • the Heads of each of the Group’s compliance and audit groups accounting experience to the Committee’s work. Members have reported on their audit scope, annual coverage, audit resources past employment experience in either finance or accounting roles and on the results of audits conducted throughout the year or comparable experience in corporate activities. • the Corporate Compliance Officer reported on the activities The Board has determined that the combined qualifications and undertaken by the ROCC experience of the Committee members, when taken together with its modus operandi, give the Committee collectively the financial expertise necessary to discharge its responsibilities.


  • Page 43

    Corporate governance GlaxoSmithKline 41 • the Company Secretary as Chairman of the Disclosure When recruiting Non-Executive Directors, the Committee considers Committee reported on matters that affected the quality and the particular skills, knowledge and experience that would benefit timely disclosure of financial and other material information the Board most significantly for each appointment. Broad selection to the Board, to the public markets and to shareholders. This criteria are used which focus on achieving a balance between the enabled the Committee to review the clarity and completeness representation of UK and US markets, and having individuals with of the disclosures in the published annual financial statements, CEO experience and skills developed in various sectors and interim reports, quarterly and preliminary results specialities. Professional search agencies are engaged specialising announcements and other formal announcements relating to in the recruitment of high calibre Non-Executive Directors. Dossiers financial performance prior to their release by the Board. of potential Non-Executive appointees are provided to the Committee and candidates are short-listed for interview after The Audit Committee, management, internal auditors and the considering their relevant qualifications. New Non-Executive full Board work together to ensure the quality of the company’s Directors offer themselves for election at the company’s next corporate accounting and financial reporting. The Committee AGM. Their appointments are announced publicly. serves as the primary link between the Board and the external and internal auditors. This facilitates the necessary independence A customised induction process was conducted for each of the from management and encourages the external and internal new Non-Executive Directors focusing on their particular experience auditors to communicate freely and regularly with the Committee. and taking account of their different backgrounds. This process In 2004, the Committee met both collectively and separately with included meeting key members of the CET and other senior the external auditors and the Head of GIA, without members of executives and, in some cases, visiting particular operational management being present. facilities of the Group. The Committee has primary responsibility for making a In the case of the appointment of the new CFO, the Committee recommendation to shareholders on the appointment, considered the particular skills, knowledge and experience required reappointment and removal of the external auditors by annually to be the CFO of GlaxoSmithKline. The Committee considered assessing the qualifications, expertise, resources and independence a number of potential external and internal candidates before of the external auditors and the effectiveness of the audit process. recommending to the Board to approve the appointment of Mr Heslop. The Board approved Mr Heslop’s appointment, which In making its assessment, the Committee considers papers which was publicly announced in October 2004. Mr Heslop will offer detail the relevant regulatory requirements required of external himself for election at the company’s AGM in May 2005. auditors and evaluates reports from the external auditors on their compliance with the requirements. Where the external auditors The Committee met three times during 2004 in full session and provide non-audit services, the Committee ensures that auditor twice on a quorate basis. All members were present at the full objectivity and independence are safeguarded by a policy meetings. requiring pre-approval by the Audit Committee for such services. Expenditure on audit and non-audit services is set out on Remuneration Report page 104. The Remuneration Report can be found on pages 43 to 58. The guidelines set out in the company’s policy on engaging the The Combined Code external auditors to provide non-audit services include ascertaining that: the skills and experience of the external auditors make them Throughout 2004, the company complied with the Code provisions a suitable supplier of the non-audit services; adequate safeguards of the Combined Code, except as follows: are in place so that the objectivity and independence of the audit • B.1.1 - In designing schemes of performance-related are not compromised; and the fee levels relative to the annual remuneration, the Remuneration Committee should follow audit fee are within the limits set by the Committee. the provisions in Schedule A to the Code. Item 6 of The company also has well-established policies, including a Code Schedule A states that, in general, only basic salary should of Ethics, which is available on its website, and a help-line facility be pensionable. The company’s position is explained in the for the reporting and investigation of unlawful conduct. No Remuneration Report on pages 43 to 58. waivers to the code were made in 2004. • C.3.1 - The Board should satisfy itself that at least one member The Committee met in full session five times in 2004 and five of the Audit Committee has recent and relevant financial times on a quorate basis. Each full session was attended by all experience. The company’s position is explained on page 40. members except Sir Peter Job, who was unable to attend two • D.2.3 - The Chairman should arrange for the Chairmen of the meetings. Audit, Remuneration and Nominations Committees to be available to answer questions at the AGM and for all directors Nominations Committee Report to attend. The company’s position is explained on page 38. The Nominations Committee’s terms of reference include responsibility for proposing the appointment of Board and US law and regulation Committee members. During 2004, the Committee made recommendations to the Board on the appointment of A number of provisions of US law and regulation apply to Sir Christopher Gent, Sir Deryck Maughan and Mr Heslop. GlaxoSmithKline because the company’s shares are quoted on the New York Stock Exchange (NYSE) in the form of ADSs. In the case of the Chairman, the Committee focused on identifying an individual of the calibre and experience required to chair a complex global organisation.


  • Page 44

    42 GlaxoSmithKline Corporate governance NYSE rules • based on their knowledge, the ffinancial statements and other In general, the NYSE rules permit the company to follow UK financial information fairly present, in all material respects, the corporate governance practices instead of those that apply in the financial condition, results of operations and cash flows as of USA, provided that the company explains any significant variations. the dates, and for the periods, presented in the Annual Report This explanation is provided on the company’s website. and Form 20-F • they are responsible for establishing and maintaining disclosure Sarbanes-Oxley Act 2002 controls and procedures that ensure that material information Following a number of corporate and accounting scandals in is made known to them, have evaluated the effectiveness of the USA, Congress passed the Sarbanes-Oxley Act of 2002 these controls and procedures as at the year end, the results (Sarbanes-Oxley). Sarbanes-Oxley established new standards for of such evaluation being contained in the Annual Report and corporate accountability for companies listed in the USA. Although Form 20-F and have disclosed in the Annual Report and Form the company’s corporate governance structure was believed to 20-F any changes in internal controls over financial reporting be robust and in line with best practice, certain changes were during the period covered by the Annual Report and Form 20-F necessary to ensure compliance with Sarbanes-Oxley. that have materially affected, or are reasonably likely to affect As recommended by the Securities and Exchange Commission materially, the company’s internal control over financial (SEC), GlaxoSmithKline established a Disclosure Committee. The reporting Committee reports to the CEO, the CFO and to the Audit • they have disclosed, based on their most recent evaluation of Committee. It is chaired by the Company Secretary and the internal control over financial reporting, to the external auditors members consist of senior managers from finance, legal, and the Audit Committee all significant deficiencies and compliance, corporate communications and investor relations. material weaknesses in the design or operation of internal External legal counsel and the external auditors are invited to control over financial reporting which are reasonably likely to attend its meetings periodically. It has responsibility for considering affect adversely the company’s ability to record, process, the materiality of information and, on a timely basis, determining summarise and report financial information and any fraud the disclosure and treatment of that information. It also has (regardless of materiality) involving persons that have a responsibility for the timely filing of reports with the SEC and the significant role in the company’s internal control over financial formal review of the Annual Report and Form 20-F. In 2004, the reporting. Committee met eight times. The CEO and CFO have completed these certifications, which will Sarbanes-Oxley requires that the Annual Report contains a be filed with the SEC as part of the Group’s Form 20-F. statement as to whether a member of the company’s Audit Committee is an audit committee financial expert. Controls and procedures The Group carried out an evaluation under the supervision and The Board has reviewed the qualifications and backgrounds of with the participation, of the Group’s management, including the the members of the Audit Committee and determined that, CEO and CFO, of the effectiveness of the design and operation although no one member of the Company’s Audit Committee is of the Group’s disclosure controls and procedures as at an audit committee financial expert, the combined qualifications 31st December 2004. There are inherent limitations to the and experience of the Audit Committee members, when taken effectiveness of any system of disclosure controls and procedures, together with its modus operandi, give the Audit Committee including the possibility of human error and the circumvention collectively the financial expertise necessary to discharge its or overriding of the controls and procedures. responsibilities. For an explanation of the basis for the Board’s judgement, refer to page 40. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control For accounting periods ending on or after 15th July 2005, objectives. Based upon the Group’s evaluation, the CEO and CFO Sarbanes-Oxley requires that the company’s Form 20-F contain a have concluded that, as at 31st December 2004, the disclosure report stating the responsibility of management for establishing controls and procedures were effective to provide reasonable and maintaining adequate internal control over financial reporting assurance that information required to be disclosed in the reports and assessing the effectiveness of the company’s internal control the Group files and submits under the US Securities Exchange Act over financial reporting. Although the company is not required to of 1934, as amended, is recorded, processed, summarised and report compliance in its 2004 Form 20-F, management has reported as and when required. undertaken a process to ensure that it will be in a position to report compliance by the due date. There have been no changes in the Group’s internal control over financial reporting during 2004 that have materially affected, or Sarbanes-Oxley also introduced a requirement for the CEO and are reasonably likely to affect materially, the Group’s internal the CFO to complete formal certifications, confirming that: control over financial reporting. • they have each reviewed the Annual Report and Form 20-F • based on their knowledge, it contains no material misstatements or omissions


  • Page 45

    GlaxoSmithKline 43 Remuneration Report The Remuneration Report sets out the remuneration policies operated by GlaxoSmithKline in respect of the Directors and Corporate Executive Team (CET) members, together with disclosures on Directors’ remuneration including those required by The Directors’ Remuneration Report Regulations 2002 (the Regulations). In accordance with the Regulations, the following sections of the Remuneration Report are subject to audit: Annual remuneration; Non-Executive Directors’ remuneration; Share options; Incentive plans; performance criteria on Performance Share Plans and share options; and Pensions. The remaining sections are not subject to audit; neither are the pages referred to from within the audited sections. This Report is submitted to shareholders by the Board for approval at the Annual General Meeting, as referenced in the notice of Annual General Meeting. Throughout the Remuneration Report the Executive Directors and CET members are referred to as the ‘Executives’. References to GlaxoSmithKline shares and ADSs mean, respectively, Ordinary Shares of GlaxoSmithKline plc of 25p and American Depository Shares of GlaxoSmithKline plc. Each ADS represents two GlaxoSmithKline shares. 44 Introduction 44 Remuneration policy 47 Executive Director terms, conditions and remuneration 48 Non-Executive Director terms, conditions and fees 49 Directors and Senior Management remuneration 50 Annual remuneration 51 Non-Executive Directors’ remuneration 53 Directors’ interests 54 Share options 55 Incentive plans 57 Pensions 58 Directors and Senior Management 58 Directors’ interests in contracts


  • Page 46

    44 GlaxoSmithKline Remuneration Report Remuneration Report Introduction Remuneration policy The Remuneration Committee (or ‘Committee’) is responsible for Principles making recommendations to the Board on the company’s The four core principles which underpin the remuneration policy remuneration policy and, within the terms of the agreed policy, for GlaxoSmithKline are: determining the total individual remuneration packages of the • securing outstanding executive talent Executives. • pay for performance and only for performance The remuneration policy set out in this report was finalised after • robust and transparent governance structures undertaking an extensive consultation process with shareholders • a commitment to be a leader of good remuneration practice and institutional bodies during the course of 2003 and 2004. in the pharmaceutical industry. GlaxoSmithKline’s remuneration policy is designed to establish a In formulating the policy, the Committee also decided that: framework for remuneration that is consistent with the company’s • the remuneration structure must support the needs of the scale and scope of operations and meets the recruitment needs of business in a very competitive market place the business and is closely aligned with UK shareholder guidelines. • UK shareholder guidelines will be followed to the maximum As at 31st December 2004, the company was the second largest extent consistent with the needs of the business and the pharmaceutical company in the world by revenue, with operations company would maintain a regular dialogue with shareholders in five continents with products sold in over 125 countries and • global pharmaceutical companies are the primary pay with around 50 per cent of sales being generated in the USA. comparator group • performance conditions would be based on the measurable Remuneration Committee delivery of strong financial performance and the delivery of The composition of the Committee changed during the year. superior returns to shareholders as compared with other Mr McArthur retired from the Board in May 2004 and pharmaceutical companies Sir Robert Wilson was appointed Chairman of the Committee. • a high proportion of the total remuneration opportunity will The other members of the Committee were Sir Crispin Davis, be based on performance-related remuneration which will be Sir Peter Job and Mr Culp. The Board deemed all of the members delivered over the medium to long term of the Committee to be independent Non-Executive Directors in • remuneration would be determined using the projected value accordance with the Combined Code. method (see explanation below) The Committee met seven times during 2004 with each member • one remuneration structure for Executive Directors and the attending as follows: CET, in particular, the same performance conditions, will apply Number of meetings Number of meetings equally to their long-term incentive awards held whilst a attended by • no ex-gratia payments will be made Name Committee member Committee member • pay structures would be as simple as is consistent with the Sir Robert Wilson 7 7 business needs. (Chairman from 17th May 2004) Mr L Culp 7 6 Overall, the policy is intended to provide median total Sir Crispin Davis 7 7 remuneration for median performance. Poor performance will Mr J McArthur 2 2 result in total remuneration significantly below the pay comparator (Chairman until 17th May 2004) group median, with the opportunity to earn upper quartile total Sir Peter Job (retired 31st Dec 2004) 7 5 remuneration for exceptional performance. This strong alignment with performance is demonstrably in the One quorate meeting was held to approve the formal grant of interests of shareholders and provides the Executives with share options and performance share awards to give effect to the unambiguous signals about the importance of delivering success Committee’s decisions. to the company’s shareholders. With the exception of the Company Secretary, no employees of Commitment the company were involved in the conduct of Committee The Committee will apply this policy on a consistent and meetings. Dr Garnier (CEO) and the Senior Vice President, Human transparent basis. Any significant changes in the measures used Resources, were invited to attend part of some meetings of the to assess performance will be discussed with shareholders. In the Committee as required. use of comparators for pay benchmarking, the Committee will Deloitte & Touche LLP (Deloitte) have been appointed by the use its discretion to ensure that remuneration levels are reasonable, Committee to provide it with independent advice on executive and if it believes that changes may cause concern amongst remuneration. shareholders, the position will be discussed with shareholders prior to implementation. Deloitte provided other consulting services to GlaxoSmithKline during the year, but did not provide advice on Executive remuneration matters other than to the Committee. Towers Perrin provides market data and data analysis to the Committee.


  • Page 47

    Remuneration Report GlaxoSmithKline 45 Pay and performance comparators Individual elements of remuneration The following table sets out the companies used for pay and The balance between the fixed (base salary) and variable (annual performance comparison: bonus and long-term incentive) elements of remuneration changes Market Cap 31.12.04 with performance. The chart below shows the anticipated normal Company Country £m range of the mix between fixed and variable pay at different levels Abbott Laboratories USA 37,840 of performance for the CEO and the typical case for the other AstraZeneca UK 31,075 Executive Directors (“ED”). In some years, the ranges may be Bristol-Myers Squibb USA 25,962 higher or lower depending on the performance of the company Eli Lilly USA 33,448 and the individual. The number of shares subject to the long-term GlaxoSmithKline UK 71,704 incentive awards for the Executive Directors was unchanged from Johnson & Johnson USA 98,028 2003. Merck USA 37,123 CEO 5%-40% 15%-20% 40%-80% Novartis Switzerland 70,077 ED 10%-50% 20%-25% 25%-70% Pfizer USA 105,473 100 % Roche Holdings Switzerland 42,122 Sanofi-Aventis France 57,954 Schering-Plough USA 16,016 Takeda Pharmaceutical Company Japan 23,323 Base salary Annual bonus Long-term incentives Wyeth USA 29,596 Base salary The merger of Aventis and Sanofi-Synthelabo during 2004 reduced Base salaries are set by reference to the median for the relevant the size of the comparator group to 13 companies and market. For Executives this is the pharmaceutical pay comparator GlaxoSmithKline. The Committee subsequently determined that group. Actual salary levels are reviewed annually and may vary for a number of reasons, including focus of operation and market depending on an Executive’s experience, responsibility and market capitalisation, there was no other suitable company to add to value. Any changes usually take effect from 1st April. Base salaries the group. for Dr Garnier and Dr Yamada were not changed during 2004. Mr Coombe’s base salary was increased by three per cent during Benchmarking 2004. Dr Garnier received $1,522,500, Mr Coombe £509,850 For benchmarking purposes, total remuneration incorporates base and Dr Yamada $725,000. salary, annual bonus and long-term incentives. When setting pay the Committee has due regard to the Executives’ pension Annual bonus arrangements. All bonuses are determined on the basis of a formal review of The global pharmaceutical industry is used as the primary pay annual performance against stretching financial targets based on comparator for the Executives as it is the appropriate marketplace profit before interest and tax and are subject to detailed for the company’s most senior executive talent. In the first instance, assessment of individual, business unit and group achievements pay is benchmarked to publicly available remuneration data for against objectives. No bonus is payable if financial performance is these companies. less than 96 per cent of the target performance. The individual performance against objectives can increase or decrease the bonus To provide context to the above information, reference is made level by a factor which can range from zero to 1.5. Bonuses are to the Towers Perrin annual global pharmaceutical pay survey for subject to upper limits, which for the Executives other than the the Pharmaceutical Human Resources Association (PHRA). To CEO, range between 100 per cent and 200 per cent of base salary. ensure that the global pharmaceutical industry benchmark is The CEO’s limit is 200 per cent. subject to scrutiny and review, the Committee also considers pay data from other global businesses primarily in the consumer and An annual bonus paid on the basis of on-target business the manufacturing sectors. performance together with base salary provides annual cash in line with the median of the pay comparator group. Prior to determining the annual long-term incentive opportunity, the Committee considers a range of vesting levels that may be In the case of the CEO the bonus targets are set by the Board. achieved based on different assumptions such as share price Following the end of the financial year, the Committee reviews growth, performance levels etc. For performance in line with the CEO’s performance and determines the bonus payable, which expectations, total remuneration is targeted at the median of the is then recommended to the Board for approval. The CEO makes comparator group and the long-term incentive opportunity is set recommendations to the Committee regarding the performance in a way which provides for positioning of total remuneration at level achieved against objectives for the other Executives. These the median. recommendations are then considered by the Committee to determine the resultant bonus. To ensure that a stable benchmark is developed and to reduce the impact of short-term fluctuations, incentive policies for other Executives can also choose to invest their bonus in GlaxoSmithKline global pharmaceutical companies are assessed over a number of shares for a minimum of three years under the Annual Investment years. Plan or the equivalent US plan. At the end of the three-year holding period, Executives are entitled to a matching award of Valuation method 10 per cent of their deferred shareholding. The match is not The projected value method is used to benchmark total subject to further performance conditions. This plan is open to remuneration. This method projects the future value of the approximately 700 senior executives on the same terms. The remuneration package under different performance scenarios Committee believes that these arrangements encourage whilst moderating the impact of market fluctuations in the short shareholding amongst senior executives and considers it term and strengthening the focus on performance. appropriate for the Executives to participate on the same terms.


  • Page 48

    46 GlaxoSmithKline Remuneration Report In setting bonus awards for 2004, the Committee took into TSR rank with 13 companies & Percentage of account the achievement of management in maintaining growth GlaxoSmithKline award vesting* on a CER basis, whilst absorbing £1.5 billion of lost sales to 1 100% generics. 2 100% 3 87% Long-term incentives 4 74% Executives are eligible for performance share awards and share 5 61% options. The remuneration policy provides that annual long-term 6 48% incentive awards will normally be made up of a performance share 7 35% award and a share option award. Below 7 0% The Committee considers that performance shares provide a * TSR is measured on a pro-rata basis. Where GlaxoSmithKline’s stronger alignment to shareholder value, and therefore the performance falls between two of the comparators, the level of vesting remuneration policy places greater emphasis on the use of will be determined by the actual relative level of TSR rather than simple performance shares. Long-term incentive awards are determined ranking. such that for on-target performance more than half of the long-term incentive reward is derived from performance shares. To provide a closer link between shareholder returns and payments to the Executives, notional dividends are reinvested and paid out The grant of annual awards using more than one plan is consistent in proportion to the vesting of the award. The receipt of dividends with the practice of the pay comparator group and other leading has been incorporated into the benchmarking of award levels. In UK companies. Long-term incentives for the CET are provided addition, performance shares earned by the Executives cannot be on the same basis as the Executive Directors. sold, except to meet related tax liabilities, for a further two years Performance share awards and share options are delivered to US following the end of the vesting period. The Committee believes resident executives in the form of ADSs. Awards are delivered that this further aligns the interests of the Executives with the in the form of Ordinary Shares to executives resident in the UK long-term interests of shareholders. and other countries. All awards are made under plans which The vesting table for the performance share awards granted in incorporate dilution limits consistent with the guidelines provided December 2003, with the performance period 1st January 2004 by the Association of British Insurers, the National Association to 31st December 2006, is given on page 56. of Pension Funds and other shareholder representative bodies. Current estimated dilution from existing awards under all b) Share options GlaxoSmithKline employee share schemes made since the merger Share options allow a holder to buy shares at a future date at is approximately five per cent of the company’s share capital at the share price prevailing at the time of grant. Share options are 31st December 2004. granted to more than 12,000 managers at GlaxoSmithKline, including the Executives. The share options granted in 2004 to a) Performance shares the Executives were linked to the achievement of compound For the Executives, the level of performance shares vesting is based annual EPS growth over the performance period. on the company’s Total Shareholder Return (TSR) relative to the performance comparator group (see page 45) over a three-year The Committee considered that EPS was the key measure of the measurement period. TSR was chosen as the most appropriate performance of the business and was also fully reflected through comparative measure since it focuses on the return to the business measures extended throughout the Group, ensuring shareholders, is a well-understood and tested mechanism to organisational alignment. measure performance, and allows comparison between companies When setting EPS targets, the Committee considers the company’s operating in different countries. internal projections and analysts’ forecasts for GlaxoSmithKline’s TSR is measured in sterling over the performance period and EPS performance, as well as analysts’ forecasts for the represents the change in the value of a share together with the pharmaceutical industry. value of reinvested dividends paid. In order to remove the impact The following key principles govern the use of EPS as a of the varying tax treatments of dividends in different jurisdictions, performance measure: all dividends are reinvested gross. • adjustments will only be considered for major items In respect of the performance share awards granted in December • adjustments will be for the judgement of the Committee 2004, with the performance period 1st January 2005 to • the purpose of the adjustments is to ensure that the 31st December 2007, if GlaxoSmithKline is ranked at position performance measurement is fair and reasonable to both seven (the mid-point) of the performance comparator group, participants and shareholders 35 per cent of the shares will vest. Any ranking below this point • any discretion exercised by the Committee will be disclosed to will result in no shares vesting. Only if GlaxoSmithKline is one of shareholders in the Annual Report. the top two companies will all of the shares vest. When determining vesting levels, the Committee has regard for the The Committee will set out the basis of its decision if it considers company’s underlying financial performance. it appropriate to make any adjustment. For the 2004 grant, vesting increases on a straight-line basis for EPS performance between the hurdles set out in the table on the following page.


  • Page 49

    Remuneration Report GlaxoSmithKline 47 Annualised Percentage of The Sharesave plan and the ShareReward plan are Inland Revenue- growth in EPS award vesting approved plans open to all UK employees on the same terms. > RPI + 5% 100% Mr Coombe is a member of the Sharesave plan, into which he RPI + 4% 75% contributes £250 a month. This provides him with the option to RPI + 3% 50% buy shares at the end of the three-year savings period in line < RPI + 3% 0% with the opportunity available to all UK employees. Mr Coombe also contributes £125 per month to buy shares This performance condition is substantially consistent with UK under the ShareReward plan. The company matches the number shareholder guidelines and expectations and is demanding when of shares bought each month. compared with those operated by other global pharmaceutical companies. This is consistent with the policy of providing pay for The Executives also receive other benefits including healthcare performance and only for performance. (medical and dental), personal financial advice and life assurance. The cash value of the benefits received by the Executive Directors Performance is measured over the three financial years following in 2004 is shown on page 50. the grant of an option. The Committee has decided for the 2004 grant that there will be no performance retesting, so if the Executive Director terms, conditions and remuneration performance condition is not met after the three-year period, the option will lapse. Executive Director contracts The policy regarding the Executive Directors’ contracts was the Pensions subject of extensive review and change during 2003. The policy The Executives participate in GlaxoSmithKline senior executive provides the framework for contracts for Executive Directors pension plans. The pension arrangements are structured in appointed in the future. accordance with the plans operated for Executives in the country The key aspects of GlaxoSmithKline’s contractual framework are: in which the Executives are likely to retire. Benefits are normally payable at age 60. Details of individual arrangements for the Aspect Policy Executive Directors are set out on page 57. In response to the Notice period on 12 calendar months future pensions regime in the UK, the Committee will carefully termination by the consider the impact of the change in legislation and will decide employing company how best to move forward when regulation is clearer and a market or executive consensus emerges with a view to implementation in April 2006. Termination payment - 1x annual salary and 1x annual ’on-target’ bonus 1 Share ownership requirements - No mitigation required 2 To align the interests of executives with those of shareholders, executives are required to maintain significant holdings of shares Benefits Governed by benefits policy, in GlaxoSmithKline. These requirements are an important part of including: aligning the interests of executives with shareholders. The CEO is - healthcare (medical and dental) required to hold shares to the value of four times base salary. - personal financial advice Other Executive Directors are required to build a shareholding to - life assurance contributions the value of three times base salary. Members of the CET are Vesting of long-term Rules of relevant equity incentive required to build a shareholding to a value of two times base incentives plan 3 salary. The other top 700 executives in the Group are required Pension Based on existing arrangements and to build a shareholding to a value of one times base salary. terms of the relevant pension plan Executives are required to continue to satisfy these shareholding Non-compete clause 12 months from termination requirements for a minimum of twelve months following notice date 2 retirement from the company. 1 Dr Garnier’s target bonus is 100 per cent of salary, Mr Coombe’s is 85 per cent of In order for shares to qualify for these share ownership salary and Dr Yamada’s is 85 per cent of salary. requirements they must be held personally by the Executive or 2 The imposition of a 12-month non-compete period on the Executives is considered their spouse or minor children or have been earned but deferred vitally important by the company in order to protect the Group’s intellectual under one of the share programmes operated by the company. property. In light of the non-compete clause and competitor practice, the Committee believes that it would not be appropriate to provide for mitigation in Unexercised share options are not included in this calculation. As the contracts. When reviewing the level of severance payments, the Committee at 31st December 2004, Dr Garnier’s shareholding was 403,083 considered investor and DTI guidance. However, it determined that in line with ADSs, Mr Coombe’s was 186,652 ordinary shares and Dr Yamada’s competitive practice it is appropriate to provide for the payment of salary and target bonus on termination. was 60,923 ADSs. These holdings were in excess of the share 3 As approved by shareholders of GlaxoSmithKline, Glaxo Wellcome and SmithKline ownership requirements. Beecham, as appropriate. Other remuneration elements Dr Garnier, Mr Coombe and Dr Yamada agreed to changes in their The Executives participate in various legacy Glaxo Wellcome and previous contractual terms without compensation to come broadly SmithKline Beecham all-employee share plans in either the UK or in line with the new contractual framework, including the the USA and in the GlaxoSmithKline plans that replaced them. reduction of contractual notice period from 24 to 12 calendar months. However, in order to honour certain aspects of their ‘old’ contractual terms, there are a number of individual features which have been retained.


  • Page 50

    48 GlaxoSmithKline Remuneration Report In Dr Garnier’s case these include the entitlement to In 2000 all benefits accrued under the Glaxo Wellcome UK pension reimbursement of excise tax on change of control related arrangements were augmented by the Trustees of the plans by five payments, life insurance benefit funded by the company to age 65 per cent to reflect a distribution of surplus. This augmentation will and the following provisions relating to the vesting of long-term apply to that element of Mr Coombe’s pension earnings before incentives: 31st March 2000. • Pre-2003 awards Other entitlements On termination by the company (other than for cause), on In addition to the contractual provisions outlined above, in the retirement or on resignation for ‘good reason’ (i.e. resignation event that Dr Garnier, Dr Yamada or Mr Coombe’s service due to not being elected or retained as a director of the agreements are terminated by their employing company, the company or any merged company, or as a result of a change following would apply: of control provided that such resignation occurs on or within 30 days of the first anniversary of the change in control), • in the case of awards under the GlaxoSmithKline Annual options will vest in full and remain exercisable for the full Investment Plan, provided that their agreement is terminated option term and performance shares will vest at the end of other than for cause, any deferred amount, any income and the performance period subject to performance but not gains, are automatically distributed as soon as administratively time-apportioned. practicable after termination. If they resign, retire or the termination is for cause, then any deferred amount is not • 2003 and thereafter distributed until the end of the minimum three-year deferral The above provisions apply but options will be subject to period performance testing in all circumstances and any options or performance share awards made 12 months prior to the • in line with the policy applicable to US senior executives, termination notice date will lapse. Dr Garnier and Dr Yamada are entitled to receive continuing medical and dental insurance Mr Coombe remains entitled on termination to the cash equivalent of 12 months benefits and continuing medical and dental • following the merger, those participants in the legacy share insurance. option schemes who elected to exchange their legacy options for options over GlaxoSmithKline shares will receive an In addition, the current Executive Directors are entitled to receive additional cash benefit equal to 10 per cent of the grant price one year’s worth of pension contributions on termination. of the original option. This additional benefit is triggered when Dr Garnier’s and Mr Coombe’s contracts were executed on the new option is exercised or lapses. To qualify for this 3rd March 2004 and took effect from 1st January 2004. additional cash benefit, participants had to retain their options Dr Garnier’s contract will expire on 31st October 2007 and until at least the second anniversary of the effective date of Mr Coombe’s on 31st March 2005, being the last day of the the merger. month in which they reach their 60th birthday. Dr Yamada’s contract was executed on 27th July 2004 and took effect from Outside appointments for Executive Directors 1st January 2004 and expires on 30th June 2007 being the last Any outside appointments must be approved by the Chairman on day of the month in which he reaches his 62nd birthday. behalf of the Board. It is the company’s policy that remuneration earned from such appointments may be kept by the individual No termination payments will be made in respect of any part of Executive Director. a notice period extending beyond the contract expiry dates. Non-Executive Director terms, conditions and fees Individual pension arrangements The UK plan provides for a pension based on two-thirds of final Non-Executive Directors of GlaxoSmithKline do not have service salary at age 60. The US cash balance plan provides for an annual contracts but instead have letters of appointment. The company contribution and interest on the sum accumulated in the cash aims to provide Non-Executive Directors with fees that are balance plan but with no contractual promise to provide specific competitive with other companies of equivalent size and levels of retirement income. complexity. During the year the Chairman (then Sir Christopher Hogg) and the CEO recommended, and the Board approved, GlaxoSmithKline makes annual contributions of 15 per cent of a new fee structure effective from 1st October 2004 for the Dr Garnier’s annual salary and bonus and 18 per cent of Non-Executive Directors as follows: Dr Yamada’s annual salary and bonus. The fund increases at an interest rate based on the yield on 30-year treasury bonds. The • a standard fee of £60,000 per annum company has no liability beyond making these annual • supplemental fees as follows: contributions. - £30,000 per annum for the SID and Audit Committee Prior to 1999 all US-employees, including Dr Garnier and Chairman Dr Yamada, were moved from a final salary pension arrangement - £20,000 per annum for the Chairman of the Remuneration to the current cash balance structure. For all employees in the US, and the Corporate Responsibility Committees cash balance plan contributions are based on combined annual - £5,000 per meeting for each Non-Executive Director salary and annual bonus. undertaking intercontinental travel to the meetings Mr Coombe participates in the Glaxo Wellcome defined benefit • fees that are paid in US dollars are converted at a rate of plan. On retirement at age 60, he is entitled to receive an annual £1/US$1.8162 being the exchange rate that applied when pension of two-thirds of his final salary, a two-thirds widow’s the new fee arrangements were approved. pension and inflation proofing. The fee arrangements for Sir Christopher Gent are described on page 49.

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