FORM 6-K

 

 

SECURITIES AND EXCHANGE COMMISSION


Washington D.C. 20549

 

 

Report of Foreign Issuer

 

 

Pursuant to Rule 13a-16 or 15d-16 of


the Securities Exchange Act of 1934

 

 

 

For period ending 25 October 2017

 

GlaxoSmithKline plc

(Name of registrant)


 

 

 

980 Great West Road, Brentford, Middlesex, TW8 9GS

(Address of principal executive offices)


 

 

 

Indicate by check mark whether the registrant files or

will file annual reports under cover Form 20-F or Form 40-F


 

 

 

Form 20-F x     Form 40-F


 

--


 

Indicate by check mark whether the registrant by furnishing the

information contained in this Form is also thereby furnishing the

information to the Commission pursuant to Rule 12g3-2(b) under the

Securities Exchange Act of 1934.


 

 

 

Yes      No x

 

 

 

 

 

Issued: Wednesday, 25 October 2017, London U.K.

 

GSK delivers Q3 sales of £7.8 billion, +4% AER, +2% CER

 

Total EPS 24.8p, +49% AER, +46% CER; Adjusted EPS 32.5p, +3% AER, flat CER

 

Financial highlights
	●	Sales growth in Pharmaceuticals and Consumer Healthcare; Vaccines sales flat
	●	Pharmaceuticals sales £4.2 billion +3% AER, +2% CER; Vaccines £1.7 billion +5% AER, flat at CER; Consumer Healthcare £2.0 billion +5% AER, +2% CER
	●	Improved Total operating margin of 23.9% (+4.9 points, including 0.2 points currency benefit) and EPS (24.8p), primarily reflecting reduced transaction-related charges related to valuations of Consumer Healthcare and HIV businesses
	●	Improved Adjusted Group operating margin of 31.5% (+1.0 point, no currency effect) primarily reflecting leverage from sales growth, focus on costs and benefits of restructuring. Pharmaceuticals 34.0% (-0.3 points, no currency effect); Vaccines 41.3% (+1.6 points, including 0.3 points adverse currency effect); Consumer Healthcare 20.0% (+3.9 points, including 1.3 points currency benefit)
	●	YTD free cash flow £1.6 billion (9 months 2016: £1.3 billion)
	●	19p dividend declared for quarter. Continue to expect 80p for FY 2017
	●	Guidance for 2017 Adjusted earnings per share growth maintained at 3% to 5% CER
Product and pipeline highlights
	●	New product sales of £1.7 billion, +44% AER, +40% CER, driven by continued strong performance from Tivicay/Triumeq in HIV, Relvar/Breo Ellipta and Nucala in Respiratory and meningitis vaccines
	●	Trelegy Ellipta approved in the US for COPD and positive opinion received in Europe. Positive results from landmark IMPACT study show benefits of Trelegy Ellipta in reducing COPD exacerbations compared to dual therapies
	●	Shingrix vaccine for shingles approved in US and Canada
	●	Phase III results for Nucala (mepolizumab) in COPD published in New England Journal of Medicine with regulatory filings planned for this year
	●	In Oncology, CHMP PRIME designation granted for 2857916 (BCMA antibody-drug conjugate) for relapsed and refractory multiple myeloma and new data to be presented at an upcoming scientific conference; option exercised from Adaptimmune to develop T-cell therapy (NY-ESO-1) for multiple tumour types

 

Q3 2017 results
	Q3 2017		Growth				9 months 2017		Growth
	£m		£%		CER%		£m		£%		CER%
Turnover	7,843		4		2		22,547		11		3
Total operating profit	1,877		31		27		3,575		78		52
Total earnings per share	24.8p		49		46		42.5p		>100		>100
Adjusted operating profit	2,468		7		5		6,530		16		5
Adjusted earnings per share	32.5p		3		-		84.6p		13		2
Net cash from operating activities	1,897		7				4,049		15
Free cash flow	1,276		6				1,644		29

 

Emma Walmsley, Chief Executive Officer, GSK said: “Performance in the quarter showed continued progress with sales growth and improved operating margins. This was driven by targeted cost savings and restructuring and integration benefits, which particularly benefited Vaccines and Consumer Healthcare, and also supported investment in our new products and R&D pipeline. Adjusted earnings per share for Q3 were 32.5p and we remain on course for our full-year earnings guidance, with cash generation continuing to improve. We are also pleased that we have secured major approvals for Trelegy Ellipta in COPD and Shingrix, our shingles vaccine.”

 

The Total results are presented under ‘Income Statement’ on page 36 and Adjusted results reconciliations are presented on pages 16, 22 and 55 to 58. The definitions of £% or AER% growth, CER% growth, Adjusted results, free cash flow, other non-IFRS measures are set out on page 33. All expectations and targets regarding future performance should be read together with “Assumptions related to 2017 guidance and 2016-2020 outlook” and “Assumptions and cautionary statement regarding forward-looking statements” on page 34.

 

 

Contents	Page
Sales performance	3
Financial performance – Q3 2017	14
Financial performance – nine months ended 30 September 2017	20
2017 guidance	26
Research and development	30
Definitions	33
Outlook assumptions and cautionary statements	34
Contacts	35
Income statements	36
Statement of comprehensive income – three months ended 30 September 2017	37
Statement of comprehensive income – nine months ended 30 September 2017	38
Pharmaceuticals turnover – three months ended 30 September 2017	39
Pharmaceuticals turnover – nine months ended 30 September 2017	40
Vaccines turnover – three months ended 30 September 2017	41
Vaccines turnover – nine months ended 30 September 2017	41
Balance sheet	42
Statement of changes in equity	43
Cash flow statement – nine months ended 30 September 2017	44
Segment information	45
Legal matters	47
Taxation	47
Additional information	48
Reconciliation of cash flow to movements in net debt	52
Net debt analysis	52
Free cash flow reconciliation	52
Non-controlling interests in ViiV Healthcare	53
Adjusted results reconciliations	55
Independent review report	59

 

 

Sales performance

 

Group turnover by business and geographic region – Q3 2017

 

Group turnover by business	Q3 2017
	£m		Growth £%		Growth CER%
Pharmaceuticals	4,190		3		2
Vaccines	1,689		5		-
Consumer Healthcare	1,964		5		2
Group turnover	7,843		4		2

 

Group turnover increased 4% AER, 2% CER to £7,843 million, with continued growth in Pharmaceuticals and Consumer Healthcare.   Pharmaceuticals sales were up 3% AER, 2% CER, reflecting continued strong growth of the new Respiratory and HIV products, partly offset by a decline in the older products and the impact of recent divestments.   Vaccines sales were up 5% AER, but flat CER, with a strong performance from Meningitis vaccines and continued delivery from influenza products offset by the impact of increased competitive pressures on Infanrix, Pediarix as well as the reversal of the beneficial phasing of shipments in Emerging Markets earlier in the year.   Consumer Healthcare sales were up 5% AER, 2% CER, reflecting strong performances from power brands in the Pain and Oral health categories, partly offset by a continuing backdrop of slower global growth in key categories. In addition, reported growth was impacted by the Nigerian beverages business divestment and the Goods & Service Tax (GST) implementation in India on 1 July.   Sales of New Pharmaceutical and Vaccine products in the quarter were £1,746 million, up 44% AER, 40% CER.

 

 

Group turnover by geographic region	Q3 2017
	£m		Growth £%		Growth CER%
US	3,076		8		4
Europe	1,989		2		(2)
International	2,778		2		1
Group turnover	7,843		4		2

 

The US sales growth of 8% AER, 4% CER was driven by continued strong performances from Triumeq and Tivicay, growth in the Respiratory portfolio and Hepatitis vaccines, which benefited from a continuing competitor supply shortage.   Europe sales grew 2% AER, but fell 2% CER reflecting continued generic competition to Epzicom and Avodart and increased competition to Infanrix, Pediarix following a new market entrant. Growth in the new Respiratory products offset the decline in Seretide.   In International, sales growth of 2% AER, 1% CER reflected strong growth in Triumeq, Tivicay and the Respiratory portfolio, was partly offset by the reversal of favourable Vaccines phasing, which benefited earlier quarters, and the impact of lower pricing on Synflorix, together with the impact of divestments on Established Pharmaceuticals. Sales in Emerging Markets were flat at AER, but fell 1% CER, also impacted by divestments.

 

 

Group turnover by business and geographic region – 9 months 2017

 

Group turnover by business	9 months 2017
	£m		Growth £%		Growth CER%
Pharmaceuticals	12,736		10		3
Vaccines	3,952		14		5
Consumer Healthcare	5,859		10		2
Group turnover	22,547		11		3

 

Group turnover increased 11% AER, 3% CER to £22,547 million, with growth delivered by all three businesses.   Pharmaceuticals sales were up 10% AER, 3% CER, reflecting the continued strong growth of the new Respiratory and HIV products, partly offset by a decline in the older products and the impact of recent divestments.   Vaccines sales were up 14% AER, 5% CER, reflecting a strong performance from Meningitis vaccines and higher demand for Established Vaccines as well as the benefit of favourable year-on-year US CDC stockpile movements.   Consumer Healthcare sales grew 10% AER, 2% CER reflecting a strong performance from power brands in the Pain and Oral health categories, partly offset by the impact of continued competitive pressure in the US allergy category and a broader slow down in global growth of key categories. In addition, reported growth was impacted by the Nigerian beverages business divestment and the implementation of the Goods & Service Tax (GST) in India on 1 July.   Sales of New Pharmaceutical and Vaccine products in the nine months were £4,865 million, up 58% AER, 46% CER.

 

 

Group turnover by geographic region	9 months 2017
	£m		Growth £%		Growth CER%
US	8,417		15		6
Europe	5,950		8		-
International	8,180		9		2
Group turnover	22,547		11		3

 

The US sales growth of 15% AER, 6% CER was driven by continued strong performances from Triumeq and Tivicay and growth in the Respiratory portfolio, together with strong performances in the US from Hepatitis and Meningitis vaccines.   Europe sales grew 8% AER, but were flat CER as growth from Triumeq, Tivicay and Meningitis vaccines was partly offset by the decline in Established Pharmaceuticals, reflecting in part the disposal of the Romanian distribution business. Respiratory sales were up 5% AER, but down 2% CER, as the decline in Seretide more than offset the continued progress in transitioning to the new Respiratory products.   In International, sales growth of 9% AER, 2% CER reflected strong growth in Triumeq, Tivicay and the Respiratory portfolio, which was partly offset by the impact of divestments on Established Pharmaceuticals. Growth in Emerging Markets of 10% AER, 2% CER was also impacted by divestments.

 

 

Turnover – Q3 2017

 

Pharmaceuticals

 

	Q3 2017
	£m		Growth £%		Growth CER%
Respiratory	1,611		1		-
HIV	1,093		16		13
Immuno-inflammation	95		12		8
Established Pharmaceuticals	1,391		(4)		(4)
	4,190		3		2
US	1,831		7		4
Europe	946		(4)		(7)
International	1,413		3		5
	4,190		3		2

 

Pharmaceuticals turnover in the quarter was £4,190 million, up 3% AER, 2% CER, driven by the growth in HIV sales, which were up 16% AER, 13% CER, to £1,093 million, reflecting the continued strong performances of Triumeq and Tivicay. Respiratory sales grew 1% AER, but were flat at CER at £1,611 million, as growth from the new Ellipta portfolio and Nucala was offset by lower sales of Seretide/Advair, Flovent and Ventolin. Sales of Established Pharmaceuticals fell 4% AER, 4% CER, the decline entirely due to recent divestments. These divestments reduced overall Pharmaceuticals CER growth by one percentage point and also impacted the contribution from Emerging Markets.   In the US, sales growth of 7% AER, 4% CER was driven by the HIV portfolio and new Respiratory products. Europe sales declined 4% AER, 7% CER, reflecting continued generic competition to Epzicom and Avodart, the continuing transition of the respiratory portfolio, and the disposal of the Romanian distribution business in Q4 2016, which impacted Europe sales by four percentage points. International sales growth was impacted by two percentage points from the disposal of the thrombosis and anaesthesia businesses to Aspen in Q1 2017, which also reduced growth in Emerging Markets by three percentage points to 4% AER, 4% CER. Sales in Japan declined 2% AER, but grew 4% CER.   Respiratory Total Respiratory portfolio sales were up 1% AER, but flat CER, with the US up 1% AER, but declining 1% CER. Europe was up 2% AER, but down 1% CER and International was up 2% AER, 3% CER. Growth of the new Respiratory products was offset by declines in Seretide/Advair, Flovent and Ventolin.   The new Respiratory products recorded combined sales of £465 million in the quarter with sales of Ellipta products up 57% AER, 54% CER, driven by continued strong growth in all regions and the ongoing roll-out across Europe and International. Sales of Nucala were £91 million in the quarter, a Sterling increase of £60 million over Q3 2016, and included sales of £61 million in the US.   The aggregate growth of the Ellipta products was driven primarily by the contribution of the US, where sales grew 61% AER, 57% CER, on the back of further market share gains partly offset by continued pricing pressures and the negative impact in the quarter of payer rebate adjustments related to prior periods. Relvar/Breo Ellipta sales grew 44% AER, 43% CER, to £225 million, helped by ongoing launches but primarily the growth in the US, up 49% AER, 47% CER to £127 million. Anoro Ellipta sales grew 62% AER, 57% CER to £86 million, also reflecting market share gains in the US. All Ellipta products, Breo, Anoro, Incruse and Arnuity, continued to grow market share in the US during the quarter.   Seretide/Advair sales declined 13% AER, 15% CER to £743 million. Sales of Advair in the US declined 13% AER, 15% CER (4% volume decline and an 11% negative impact of price) reflecting continued pricing pressures partly offset by a positive benefit to sales from payer rebate adjustments in the quarter. In Europe, Seretide sales were down 16% AER, 18% CER to £164 million (12% volume decline and a 6% negative impact of price), reflecting continued competition from generics and the transition of the Respiratory portfolio to newer products. In International, sales of Seretide were down 11% AER, 11% CER, at £191 million, reflecting increased generic competition and the transition to the newer Respiratory products.   Pricing pressures also affected other older products with Ventolin sales declining 13% AER, 13% CER to £159 million, including the negative impact of payer rebate adjustments related to prior periods in the US. Flixotide/Flovent sales declined 21% AER, 22% CER to £125 million, with the US down 34% AER, 34% CER. Europe and International combined were broadly flat.   The net impact of adjustments to prior quarters for payer rebates across the Respiratory portfolio was broadly neutral to reported US sales.   HIV HIV sales increased 16% AER, 13% CER to £1,093 million in the quarter, with the US up 21% AER, 18% CER, Europe up 4% AER, but down 1% CER and International up 24% AER, 24% CER. The growth was driven by continued increases in market share for Triumeq and Tivicay, partly offset by the impact of generic competition to Epzicom/Kivexa, particularly affecting the European market. The ongoing increase in patient numbers for both Triumeq and Tivicay resulted in sales of £621 million and £364 million, respectively, in the quarter.   Epzicom/Kivexa sales declined 64% AER, 65% CER to £51 million, reflecting the continued increase in generic competition since Q3 2016.   Immuno-inflammation Benlysta sales grew 27% AER, 24% CER to £94 million, driven by a strong US performance.   Established Pharmaceuticals Sales of Established Pharmaceuticals in the quarter were £1,391 million, down 4% AER, 4% CER, impacted by the disposals of the Romanian distribution business in Q4 2016 and the thrombosis and anaesthesia businesses to Aspen during the first quarter. The impact of the disposals on the growth of the Established Pharmaceuticals portfolio was approximately four percentage points.   The Avodart franchise was down 11% AER, 11% CER to £144 million primarily due to loss of exclusivity in the US and Europe.   Dermatology sales grew 20% AER, 19% CER to £115 million through improved supply in Emerging Markets and growth in Japan, while Augmentin sales grew 3% AER, 3% CER to £148 million.

 

 

Vaccines

 

	Q3 2017
	£m		Growth £%		Growth CER%
Meningitis	298		31		25
Influenza	343		6		(2)
Established Vaccines	1,048		(1)		(5)
	1,689		5		-
US	816		13		6
Europe	431		11		6
International	442		(11)		(14)
	1,689		5		-

 

Vaccines turnover grew 5% AER, but was flat CER at £1,689 million. There was continued growth in Meningitis vaccines, notably Bexsero in the US and Europe and Menveo in the US, which benefited from the favourable impact of prior year CDC stockpile movements. Established Vaccines declined 1% AER, 5% CER primarily driven by increasing competitive pressures on Infanrix, Pediarix in the US and Europe, and the reversal of Synflorix phasing benefits, partly offset by the reversal of returns provisions in International and higher demand for Hepatitis vaccines and Cervarix.   Meningitis Meningitis sales grew 31% AER, 25% CER to £298 million with Bexsero sales up 32% AER, 26% CER primarily driven by national immunisation programmes and private market sales in Europe. Further growth was driven by higher demand in the US. Menveo sales were up 56% AER, 48% CER, with reported growth benefiting from the impact of prior year CDC stockpile movements in the US and the timing of a tender in International.   Influenza Fluarix/FluLaval sales grew 6% AER, but were down 2% CER to £343 million, reflecting continued strong execution, particularly in the US, against a strong comparative performance in Q3 2016 and some phasing of US shipments in the current year into Q4 2017.   Established Vaccines Sales of DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) were down 5% AER, 9% CER to £361 million. Boostrix was up 4% AER, but down 1% CER, driven by the reversal of phasing benefits in International, partly offset by stronger demand across US and Europe. Infanrix, Pediarix sales declined 12% AER, 14% CER primarily as a result of increased competitive pressure in the US and Europe, together with a new market entrant in Europe, partly offset by the favourable impact of prior year CDC stockpile movements in the US.   Hepatitis vaccines grew 17% AER, 13% CER to £210 million, benefiting from a competitor supply shortage in the US, partly offset by the impact of supply constraints primarily in International.   Synflorix sales declined 26% AER, 28% CER to £114 million reflecting the reversal of favourable phasing earlier in the year and the impact of lower pricing in International.   Rotarix sales were up 8% AER, 5% CER to £157 million, mainly driven by the reversal of returns provisions in International and strong demand in Europe, partly offset by the unfavourable impact of phasing in International.   Priorix/Priorix Tetra/Varilrix sales were up 5% AER, 2% CER to £79 million, mainly due to higher demand in Europe, partly offset by supply constraints in International.   Cervarix sales were up 54% AER, 50% CER to £37 million, driven by the recent launch of the vaccine in China.

 

 

Consumer Healthcare

 

				Q3 2017
				£m		Growth £%		Growth CER%
Wellness				1,014		5		2
Oral health				631		11		8
Nutrition				170		(9)		(12)
Skin health				149		1		(1)
				1,964		5		2
US				429		1		(1)
Europe				612		7		3
International				923		6		4
				1,964		5		2

 

Consumer Healthcare turnover was up 5% AER, 2% CER in the quarter at £1,964 million against a backdrop of continued slower global growth in key categories. A strong performance by the power brands in the Respiratory, Pain and Oral health categories was partly offset by private label competition in US allergy. In addition, growth was impacted by the disposal of the Nigeria beverages business in 2016 and the implementation of the Goods & Service Tax (GST) in India on 1 July. Together, these reduced overall Consumer Healthcare CER growth by approximately one percentage point.   Sales from new GSK innovations (product introductions within the last three years on a rolling basis) represented approximately 12% of sales in the quarter.   Wellness Wellness sales grew 5% AER, 2% CER to £1,014 million. Respiratory sales grew strongly, up 9% AER and 6% CER, with particularly good performances in Europe and International, fuelled by a strong sell-in ahead of the season for Otrivin and Theraflu as well as the benefit of new variants launched in earlier quarters. This more than offset the private label impact on Flonase OTC.   Pain relief continued to perform well in the quarter, up 6% AER, 3% CER. Panadol grew in double digits with a very strong performance in International markets and benefiting from a favourable comparator for Panadol Osteo in Australia. Voltaren continued to gain share, but was impacted in Europe by increased competition in the quarter.   A generic competitor to Transderm Scop, a prescription motion sickness treatment with annual sales of approximately £80 million, was launched in the US during the quarter.   Oral health Oral health sales grew 11% AER, 8% CER to £631 million. Sensodyne continued to drive performance, reporting growth of 12% AER, 11% CER with strong delivery in all regions following the roll out of next generation Sensodyne Rapid and the launch of Pronamel Strong & Bright. Emerging market growth was strong, particularly in India and China with the launch of Sensodyne Deep Clean. Sales of parodontax grew in double digits following the launch in the US earlier in the year and double-digit growth in Europe and International, mainly due to the brand relaunch driving accelerated consumption growth. Denture care returned to stronger growth with the fixative format delivering strong results in the US and Japan following the introduction of new marketing programmes.   Nutrition Nutrition sales declined 9% AER, 12% CER to £170 million, adversely impacted by the sale of the Nigerian beverages business in 2016 and the implementation of GST on 1 July as well as continued competitive pressures for Horlicks in India. The divestment and GST reduced Nutrition CER growth by approximately eight percentage points.   Skin health Skin health sales grew 1% AER but declined 1% CER to £149 million with a strong performance in the US driven by seasonal lip care sales being more than offset by a challenging quarter in Europe and International. Physiogel and Lamisil declined slightly, impacted by competitor activity, while Fenistil was impacted by an early end to the season.

 

 

Turnover – 9 months 2017

 

Pharmaceuticals

 

	9 months 2017
	£m		Growth £%		Growth CER%
Respiratory	5,095		11		3
HIV	3,194		26		16
Immuno-inflammation	280		23		13
Established Pharmaceuticals	4,167		-		(6)
	12,736		10		3
US	5,536		16		7
Europe	2,947		3		(4)
International	4,253		9		3
	12,736		10		3

 

Pharmaceuticals turnover in the 9 months was £12,736 million, up 10% AER, 3% CER. Respiratory sales grew 11% AER, 3% CER to £5,095 million, driven by the Ellipta portfolio and Nucala, while HIV sales were up 26% AER, 16% CER to £3,194 million, driven by increases in market share for Triumeq and Tivicay. Sales of Established Pharmaceuticals were flat at AER, but declined 6% CER, reflecting a four percentage point impact of recent divestments. These divestments reduced overall Pharmaceuticals CER growth by one percentage point and also impacted the contribution from Emerging Markets.   In the US, sales growth of 16% AER, 7% CER was driven by the HIV portfolio and new Respiratory products. Europe sales grew 3% AER but declined 4% CER, reflecting the continued transition of the Respiratory portfolio and generic competition to Epzicom as well as the disposal of the Romanian distribution business in Q4 2016. International sales growth was impacted by the benefit to Q1 2016 of the accelerated sale of inventory under supply agreements to Novartis as well as the disposal of the thrombosis and anaesthesia businesses to Aspen in Q1 2017, which reduced growth in International by two percentage points and Emerging Markets by two percentage points to 9% AER, 4% CER. Sales in Japan grew 10% AER, 3% CER.   Respiratory Total Respiratory portfolio sales were up 11% AER, 3% CER, with the US up 13% AER, 4% CER, Europe up 5% AER but down 2% CER and International up 12% AER, 4% CER. Growth of the new Respiratory products more than offset the decline in Seretide/Advair.   The new Respiratory products recorded combined sales of £1,329 million in the 9 months with sales of Ellipta products up 76% AER, 62% CER driven by continued strong growth in the US and the ongoing roll-out across Europe and International. Sales of Nucala were £223 million, a Sterling increase of £165 million, and included sales of £153 million in the US.   The aggregate growth of the Ellipta products was driven primarily by the contribution of the US, where sales were up 83% AER, 68% CER on the back of further market share gains. Total Relvar/Breo Ellipta sales grew 72% AER, 59% CER to £710 million, with the US up 90% AER, 75% CER to £421 million. Anoro Ellipta sales grew 77% AER, 63% CER to £233 million, also reflecting market share gains in the US. All Ellipta products, Breo, Anoro, Incruse and Arnuity, continued to grow market share in the US over the nine months.   Seretide/Advair sales declined 7% AER, 13% CER to £2,343 million. Sales in the US declined 5% AER, 13% CER (7% volume decline and a 6% negative impact of price), with payer rebate adjustments related to prior periods favourably impacting sales in the nine months. In Europe, Seretide sales were down 13% AER, 19% CER to £552 million (11% volume decline and an 8% negative impact of price), reflecting continued competition from generics and the transition of the Respiratory portfolio to newer products. In International, sales of Seretide declined 2% AER, 9% CER to £588 million, also reflecting increased generic competition and the transition to the newer Respiratory products.   Pricing pressures also affected other older products with Ventolin sales increasing 2% AER, but declining 5% CER to £552 million, including the negative impact of payer rebate adjustments related to prior periods in the US. Flixotide/Flovent sales were down 3% AER, 10% CER to £434 million, with the US down 12% AER, 19% CER.   The net impact of adjustments to payer rebates for prior quarters across the US Respiratory portfolio was broadly neutral to reported US Respiratory sales.   HIV HIV sales increased 26% AER, 16% CER to £3,194 million in the nine months, with the US up 32% AER, 22% CER, Europe up 10% AER, 1% CER and International up 36% AER, 26% CER. The growth in all three regions was driven by continued increases in market share for Triumeq and Tivicay, partly offset by the impact of generic competition to Epzicom/Kivexa, particularly affecting the European market. The ongoing increase in patient numbers for both Triumeq and Tivicay resulted in sales of £1,808 million and £1,005 million, respectively, in the 9 months.   Epzicom/Kivexa sales declined 58% AER, 61% CER to £192 million, reflecting the continued increase in generic competition since Q3 2016.   Immuno-inflammation Benlysta sales grew 28% AER, 18% CER to £278 million, driven by a strong US performance.   Established Pharmaceuticals Sales of Established Pharmaceuticals in the 9 months were £4,167 million, flat at AER, but down 6% CER, impacted by the accelerated sale of inventory under supply agreements to Novartis in Q1 2016 as well as the disposal of the thrombosis and anaesthesia businesses to Aspen in Q1 2017 and the disposal of the Romanian distribution business in Q4 2016. The impact of these disposals on the growth of the Established Pharmaceuticals portfolio was approximately four percentage points.   The Avodart franchise declined 1% AER, 9% CER to £464 million primarily due to the loss of exclusivity in the US and Europe and the impact of favourable RAR adjustments in 2016.   Dermatology sales grew 21% AER, 14% CER to £339 million through improved supply in Emerging Markets and growth in Japan, while Augmentin sales grew 6% AER, 2% CER to £444 million.

 

 

Vaccines

 

	9 months 2017
	£m		Growth £%		Growth CER%
Meningitis	689		41		29
Influenza	377		7		(1)
Established Vaccines	2,886		10		2
	3,952		14		5
US	1,495		20		11
Europe	1,214		15		7
International	1,243		7		(1)
	3,952		14		5

 

Vaccines turnover grew 14% AER, 5% CER to £3,952 million, primarily driven by Meningitis vaccines, both Bexsero and Menveo, across all regions. Growth also benefited from the performance of Established Vaccines, driven by higher demand for Boostrix and Hepatitis, partly offset by increasing competitive pressures on Infanrix, Pediarix in Europe and the US. Favourable year-on-year CDC stockpile movements for Infanrix, Pediarix, Menveo and Hepatitis vaccines in the US also contributed to the growth.   Meningitis Meningitis sales grew 41% AER, 29% CER to £689 million. Bexsero sales growth of 51% AER, 39% CER was primarily driven by new national immunisation programmes, private market sales and regional tenders in Europe as well as growing demand and share gains in the US, together with continued progress in private market sales in International. Menveo sales grew 38% AER, 26% CER driven by the impact of favourable prior year CDC stockpile movements in the US, strong demand in Europe and a tender in International.   Influenza Fluarix/FluLaval sales were up 7% AER, but down 1% CER to £377 million, reflecting continued strong execution, particularly in the US, against a strong comparative performance last year and the phasing of deliveries in the US and International.   Established Vaccines Sales of the DTPa-containing vaccines (Infanrix, Pediarix and Boostrix) were up 13% AER, 4% CER to £1,012 million. Boostrix sales grew 24% AER, 14% CER, benefiting from higher demand across all regions. Infanrix, Pediarix sales were up 7% AER, but down 2% CER, mainly driven by increased competitive pressures in the US and Europe, together with a new market entrant in Europe, partly offset by favourable year-on-year CDC stockpile movements in the US.   Hepatitis vaccines grew 20% AER, 11% CER to £532 million, benefiting from a competitor supply shortage and higher demand in the US, partly offset by the impact of supply constraints in Europe and International.   Synflorix sales were up 4% AER, but down 4% CER to £398 million, due to lower pricing in developing countries, partly offset by stronger demand in International.   Rotarix was up 10% AER, 1% CER to £398 million, reflecting higher demand in Europe, partly offset by the unfavourable impact of phasing in International.   Cervarix sales increased by 24% AER, 16% CER to £72 million, driven by the recent launch of the vaccine in China.

 

 

Consumer Healthcare

 

				9 months 2017
				£m		Growth £%		Growth CER%
Wellness				3,009		10		1
Oral health				1,864		14		6
Nutrition				517		(1)		(10)
Skin health				469		9		-
Total				5,859		10		2
US				1,386		7		(1)
Europe				1,789		11		3
International				2,684		11		2
				5,859		10		2

 

Consumer Healthcare turnover was up 10% AER, 2% CER in the 9 months at £5,859 million, against a backdrop of slower global growth in key categories. A strong performance by power brands in Pain and Oral health was partly offset by competitive pressures in the US allergy category impacting Flonase OTC performance, as well as lower sales of tail brands across the Nutrition and Skin categories. In addition, growth was impacted by the disposal of the Nigeria beverages business in 2016 and the implementation of the Goods & Service Tax (GST) in India in July. The divestment and GST reduced overall Consumer Healthcare CER growth by approximately one percentage point.   Sales from new GSK innovations (product introductions within the last three years on a rolling basis) represented approximately 13% of sales in the period. Notable launches this year included parodontax and Flonase Sensimist in the US, the continued global roll out of Flonase OTC and next generation Sensodyne Rapid.   Wellness Wellness sales grew 10% AER, 1% CER to £3,009 million. This reflected a strong performance from Voltaren, Panadol and Cold & flu seasonal products partly offset by a weaker US allergy performance. Respiratory sales were up 10% AER, 1% CER as heightened competitive pressure in the US for Flonase OTC from private label products and new market entrants offset strong growth on Theraflu and Otrivin, particularly in Europe and International.   Pain relief sales were up 12% AER, 3% CER, driven significantly by Voltaren which saw growth across the regions, benefitting from momentum in the 12-hour variant, strong in-store and marketing activation and expansion of expert detailing. Panadol also grew strongly in Europe, benefiting from new advertising campaigns, and in International following the annualisation of the removal of Panadol Osteo from the prescription reimbursement scheme in Australia.   Oral health Oral health sales grew 14% AER, 6% CER to £1,864 million. Sensodyne continued to drive performance, reporting growth of 16% AER, 9% CER, with strong delivery in all regions following the roll out of next generation Sensodyne Rapid and the launch of Pronamel Strong & Bright. Sales of parodontax continued to grow strongly, reflecting double-digit performances in Europe and International, driven by a brand reset and increases in dentist recommendations as well as the US launch in the first quarter. Denture care grew in mid-single digits with double-digit growth in emerging markets partly offset by slower consumption growth in the US and Germany.   Nutrition Nutrition sales declined 1% AER, 10% CER to £517 million, adversely impacted by the sale of the Nigeria beverages business in 2016 and the implementation of GST on 1 July, as well as continued competitive pressure for Horlicks in India. The divestment of the Nigeria beverages business and the implementation of GST reduced Nutrition CER growth by approximately nine percentage points.   Skin health Skin health sales grew 9% AER, and were flat CER at £469 million, with low single-digit growth in Europe and the US offset by competitor activity in International. Fenistil sales grew strongly, with good performances in Central & Eastern Europe, Germany and the Middle East following digital activation and new media campaigns. Physiogel and Lamisil continued to be impacted by competitor activity whilst Lip care sales grew in mid-single digits.

 

 

Sales from new Pharmaceuticals and Vaccine products

 

	Q3 2017						9 months 2017
	£m		Growth £%		Growth CER%		£m		Growth £%		Growth CER%
Pharmaceuticals
Respiratory
Anoro Ellipta	86		62		57		233		77		63
Arnuity Ellipta	7		>100		>100		23		>100		>100
Incruse Ellipta	56		>100		>100		140		84		71
Nucala	91		>100		>100		223		>100		>100
Relvar/Breo Ellipta	225		44		43		710		72		59
CVMU
Eperzan/Tanzeum	22		(24)		(28)		73		(12)		(19)
HIV
Tivicay	364		46		41		1,005		52		40
Triumeq	621		33		29		1,808		50		38
	1,472		45		41		4,215		60		47
Vaccines
Bexsero	176		32		26		441		51		39
Menveo	98		56		48		209		38		26
	274		40		33		650		46		35
Total	1,746		44		40		4,865		58		46

 

In 2015, GSK identified a series of New Pharmaceutical and Vaccine products that were expected to deliver at least £6 billion of revenues per annum on a CER basis by 2020. Those products, plus current pipeline asset, Shingrix, are as set out above. The Group has previously announced its plans to withdraw Tanzeum.   Sales of the New Pharmaceutical and Vaccine products are now expected to reach £6 billion of revenues per annum on a CER basis in 2018.   Q3 2017 Sales of New Pharmaceutical and Vaccine products were £1,746 million, grew £534 million in Sterling terms (44% AER, 40% CER) and represented approximately 30% of Pharmaceuticals and Vaccines turnover in the quarter.   9 months 2017 Sales of New Pharmaceutical and Vaccine products were £4,865 million, grew £1,782 million in Sterling terms (58% AER, 46% CER) and represented approximately 29% of Pharmaceuticals and Vaccines turnover in the nine months.

 

 

Financial performance – Q3 2017

 

Total results

 

The Total results for the Group are set out below.

 

	Q3 2017 £m		Q3 2016 £m		Growth £%		Growth CER%
Turnover	7,843		7,542		4		2
Cost of sales	(2,652)		(2,525)		5		3
Gross profit	5,191		5,017		3		1
Selling, general and administration	(2,308)		(2,292)		1		(2)
Research and development	(1,047)		(922)		14		11
Royalty income	107		107		-		(3)
Other operating income/(expense)	(66)		(479)
Operating profit	1,877		1,431		31		27
Finance income	13		16
Finance expense	(194)		(179)
Profit on disposal of associates	8		-
Share of after tax profits of associates    and joint ventures	7		6
Profit before taxation	1,711		1,274		34		30
Taxation	(316)		(389)
Tax rate %	18.5%		30.5%
Profit after taxation	1,395		885		58		53
Profit attributable to non-controlling interests	183		77
Profit attributable to shareholders	1,212		808
	1,395		885		58		53
Earnings per share	24.8p		16.6p		49		46

 

Cost of sales Cost of sales as a percentage of turnover was 33.8%, up 0.3 percentage points in Sterling terms and up 0.5 percentage points in CER terms compared with Q3 2016. This primarily reflected the phasing of costs of manufacturing restructuring programmes, including non-cash write downs as a result of plant closures, as well as continued adverse pricing pressure in Pharmaceuticals, primarily Respiratory, and continued supply chain investments. This was partly offset by a more favourable product mix across all three businesses, particularly the impact of higher HIV sales and the disposal of the distribution business in Romania in Pharmaceuticals, together with a favourable year-on-year comparison to inventory adjustments in Q3 2016 in Vaccines and a further contribution from integration and restructuring savings in all three businesses.   Selling, general and administration SG&A costs were 29.4% of turnover, 1.0 percentage point lower than in Q3 2016 in Sterling terms and 1.0 percentage point lower on a CER basis. This primarily reflected lower restructuring costs as well as tight control of ongoing operating costs, particularly in Consumer Healthcare, continued cost reductions in Pharmaceuticals, including the benefits of the Pharmaceuticals restructuring programme, and integration benefits in Vaccines and Consumer Healthcare. The cost reductions were partly offset by an increased investment in promotional product support, particularly for new launches in Respiratory, HIV and Vaccines.   Research and development R&D expenditure was £1,047 million (13.3% of turnover), 14% higher than in Q3 2016 on a Sterling basis and 11% higher on a CER basis. This primarily reflected the impact of higher restructuring costs, largely as a result of the decision to terminate rights to sirukumab, as well as increased investment in the progression of a number of mid and late-stage programmes.   Royalty and other operating income/(expense) Net other operating income of £41 million (Q3 2016: £372 million expense) primarily reflected the £16 million net total of further accounting charges arising from the re-measurement of the contingent consideration liabilities related to the former Shionogi-ViiV Healthcare joint venture and the acquisition of the former Novartis Vaccines business, the value attributable to the Consumer Healthcare Joint Venture put option and the liabilities for the Pfizer put option and Pfizer and Shionogi preferential dividends in ViiV Healthcare. These re-measurement charges were driven primarily by the unwinding of the discount applied to these future liabilities, partly offset by changes in exchange rate assumptions and lower multiples on the Consumer Healthcare Joint Venture put option. This compares with £776 million of equivalent transaction-related charges in Q3 2016. Royalty income was £107 million (Q3 2016: £107 million).   Operating profit Total operating profit was £1,877 million in Q3 2017 compared with £1,431 million in Q3 2016. The increase in operating profit reflected the reduced impact of accounting charges related to re-measurement of the liabilities for contingent consideration, put options and preferential dividends, together with an improved operating margin driven by more favourable mix in the Pharmaceutical business, continued benefits from restructuring and integration and tight control of ongoing costs across all three businesses. This was partly offset by continued price pressure, particularly in Respiratory, supply chain investments and increased restructuring costs and asset impairments, including increased charges for the write down of assets primarily as a result of announced plans to reduce the manufacturing site network, and provisions for future R&D obligations as a result of the decision to terminate our rights to sirukumab.   Net finance costs Net finance expense was £181 million compared with £163 million in Q3 2016, the increase primarily reflecting the translation impact of exchange rate movements on the reported Sterling costs of foreign currency denominated interest-bearing instruments.   Taxation A tax charge of £316 million represented an effective tax rate of 18.5% (Q3 2016: 30.5%) and reflected the differing tax effects of the various adjusting items.   Non-controlling interests The allocation of earnings to non-controlling interests amounted to £183 million (Q3 2016: £77 million), including the non-controlling interest allocations of Consumer Healthcare profits of £77 million (Q3 2016: £68 million) and the allocation of ViiV Healthcare profits, which increased to £100 million (Q3 2016: £5 million) including the impact of changes in the proportions of preferential dividends due to each shareholder. The increase in allocation of ViiV Healthcare profits primarily reflect the impact of re-measurement charges on Q3 2016.The increase in allocation also reflected comparison with the reduction in the allocation to non-controlling interests due to higher net losses in some of the Group’s other entities with non-controlling interests in Q3 2016.   Earnings per share The Total earnings per share was 24.8p, compared with earnings per share of 16.6p in Q3 2016. The increase in earnings per share primarily reflected a reduced impact of charges arising from increases in the valuations of the liabilities for contingent consideration and the put options associated with increases in the Sterling value of the Group’s HIV and Consumer Healthcare businesses, as well as improved performance, partly offset by increased restructuring costs and intangible asset impairments.

 

 

Adjusting items   GSK presents Total results and Adjusted results in order to assist shareholders in better understanding the Group’s operational performance.   Total results represent the Group’s overall performance. However, these results can contain material unusual or non-operational items that may obscure the key trends and factors determining the Group’s operational performance. GSK therefore also reports Adjusted results to help shareholders identify and assess more clearly the key drivers of the Group’s performance. This approach aligns the presentation of the Group’s results more closely with the majority of GSK’s peer group.   From Q1 2017, Adjusted results have been amended to exclude, instead of all legal charges, only significant legal charges, as set out in ‘Accounting policies and basis of preparation' on page 48. Comparative information has been revised accordingly.   Adjusted results exclude the following items from Total results: amortisation and impairments of intangible assets and goodwill; major restructuring costs; significant legal charges and expenses; transaction-related accounting adjustments; disposals and other operating income other than royalty income, together with the tax effects of all of these items.

 

The adjusting items that reconcile Total operating profit, profit after tax and earnings per share to Adjusted results are as follows:

 

	Q3 2017						Q3 2016 (revised)
	Operating profit £m		Profit after tax £m		Earnings per share p		Operating profit £m		Profit after tax £m		Earnings per share p
Total results	1,877		1,395		24.8		1,431		885		16.6
Intangible asset amortisation	149		116		2.4		165		121		2.5
Intangible asset impairment	82		67		1.4		(9)		(6)		(0.1)
Major restructuring costs	266		207		4.2		151		121		2.4
Transaction-related items	40		12		(0.7)		799		722		13.2
Divestments, significant legal    and other items	54		19		0.4		(239)		(146)		(2.9)
Adjusting items	591		421		7.7		867		812		15.1
Adjusted results	2,468		1,816		32.5		2,298		1,697		31.7

 

Full reconciliations between Total results and Adjusted results are set out on pages 55 to 58 and the definition of Adjusted results is set out on page 33.

 

Intangible asset amortisation and impairment Intangible asset amortisation was £149 million, compared with £165 million in Q3 2016. There were also intangible asset impairments of £82 million (Q3 2016: reversal of £9 million) to a number of commercial and R&D assets. Both of these charges were non-cash items.

 

Major restructuring and integration Major restructuring and integration charges incurred in the quarter were £266 million (Q3 2016: £151 million). Non-cash charges were £77 million in the quarter, primarily reflecting the write down of assets largely as a result of announced plans to reduce the manufacturing site network. Cash charges were £189 million in the quarter, including charges as a result of the decision to terminate our rights to sirukumab. Cash payments made in the quarter were £117 million (Q3 2016: £198 million) including the settlement of certain charges accrued in previous quarters. The programme delivered incremental annual cost savings in the quarter of £0.2 billion, including £0.1 billion of currency benefits.   Transaction-related adjustments Transaction-related adjustments resulted in a net charge of £40 million (Q3 2016: £799 million). This primarily reflected accounting charges for the re-measurement of the liability and the unwinding of the discounting effects on the contingent consideration related to the acquisition of the former Shionogi-ViiV Healthcare joint venture, the contingent consideration related to the acquisition of the former Novartis Vaccines business, and the value attributable to the Consumer Healthcare Joint Venture put option held by Novartis.

 

Charge/(credit)	Q3 2017 £m		Q3 2016 £m
Consumer Healthcare Joint Venture put option	(28)		146
Contingent consideration on former Shionogi-ViiV Healthcare Joint Venture    (including Shionogi preferential dividends)	59		427
ViiV Healthcare put options and Pfizer preferential dividends	(38)		220
Contingent consideration on former Novartis Vaccines business	26		(19)
Other adjustments	21		25
Total transaction-related charges	40		799

 

The aggregate impact of unwinding the discount on these future and potential liabilities was £260 million (Q3 2016: £243 million), including £142 million on the Consumer Healthcare Joint Venture put option and £105 million on the contingent consideration related to the former Shionogi-ViiV Healthcare Joint Venture. This was offset by a credit of £220 million which was driven primarily by the impact of updated exchange rate assumptions on those forecasts for the relevant businesses as well as changes to the multiples used in the valuation of the Consumer Healthcare Joint Venture put option and adjustments to trading forecasts.   Contingent consideration cash payments which are made to Shionogi and other companies reduce the balance sheet liability and hence are not recorded in the income statement. Total contingent consideration cash payments in the quarter amounted to £189 million (Q3 2016: £121 million). This included cash payments made by ViiV Healthcare to Shionogi in relation to its contingent consideration liability (including preferential dividends) which amounted to £186 million (Q3 2016: £121 million).   An explanation of the accounting for the non-controlling interests in ViiV Healthcare is set out on page 53.   Divestments, significant legal charges and other items Divestments and other items included the profit on disposal of a number of other asset disposals, equity investment impairments and certain other adjusting items. A credit of £1 million (Q3 2016: charge of £46 million) for significant legal matters included the benefit of the settlement of existing matters as well as provisions for ongoing litigation. Significant legal cash payments were £137 million (Q3 2016: £23 million).

 

 

Adjusted results

 

	Q3 2017
	£m		% of turnover		Growth £%		Growth CER%
Turnover	7,843		100		4		2
Cost of sales	(2,304)		(29.4)		1		(2)
Selling, general and administration	(2,280)		(29.1)		4		2
Research and development	(898)		(11.4)		3		1
Royalty income	107		1.4		-		(3)
Adjusted operating profit	2,468		31.5		7		5
Adjusted profit before tax	2,298				7		5
Adjusted profit after tax	1,816				7		4
Adjusted profit attributable to shareholders	1,588				3		1
Adjusted earnings per share	32.5p				3		-