20-F 1 b822393.htm Prepared and filed by St Ives Financial

As filed with the Securities and Exchange Commission on March 3, 2006

Washington D.C. 20549


Registration statement pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
For the fiscal year ended December 31, 2005


Commission file number 1-15170

GlaxoSmithKline plc
(Exact name of Registrant as specified in its charter)

(Jurisdiction of incorporation or organization)

980 Great West Road, Brentford, Middlesex TW8 9GS England
(Address of principal executive offices)

Securities registered or to be registered pursuant to Section 12(b) of the Act:

  Title of Each Class Name of Each Exchange On Which Registered
American Depositary Shares, each representing 2 Ordinary Shares, Par value 25 pence New York Stock Exchange

Securities registered or to be registered to Section 12(g) of the Act:

(Title of class)

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act:

(Title of class)

     Indicate the number of outstanding shares of each of the issuer’s classes of capital or common stock as of the close of the period covered by the annual report.

     Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

    Yes      No 

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

    Yes      No 

Note – Checking the box above will not relieve any registrant required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 from their obligations under those Sections.

     Indicate by check mark whether the registrant (1) has filed all reports to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

    Yes      No 

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (check one):

Large accelerated filer           Acccelerated filer           Non-accelerated filer  

Indicate by check mark which financial statement item the registrant has elected to follow.

  Item 17        Item 18

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

  Yes        No

Annual Report 2005






  Do more, feel better, live longer


JP Garnier (left) and Sir Christopher Gent (right)

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“Thanks to the efforts of our employees around the world,
2005 was a very successful year for GSK. Not only
was it our best year ever from a financial standpoint,
we also made substantial progress with our pipeline

of innovative medicines and vaccines.”

JP Garnier, Chief Executive Officer

An interview with Sir Christopher Gent, Chairman and JP Garnier, Chief Executive Officer

2005: a year of success and progress

GSK delivered an excellent financial performance in 2005. Turnover of £21.7 billion grew by 7% at constant exchange rates (CER). Earnings per share (EPS) were 82.6p, with growth of 18% at CER, putting GSK in the top tier of global pharmaceutical companies in terms of performance.

“These figures confirm the excellent growth of our key products and the efficiency of our global operations,” says JP.

GSK’s performance was driven by sales of key pharmaceutical products. “Sales of Seretide/Advair, Avandia, Coreg, Lamictal and Valtrex all continued their impressive growth,” says JP. “We also saw good performance from a number of newer products, including Avodart for enlarging prostate, Boniva/Bonviva for osteoporosis and Requip for Restless Legs Syndrome, which all show great promise for the future, both for patients and GSK.’

“Looking into 2006, the strong growth seen from key products and from our vaccines business is expected to continue and we anticipate an EPS growth of around 10% at CER.”

Pipeline progress
GSK continues to meet the challenge of increasing Research & Development (R&D) productivity to discover new medicines faster and more economically. The company’s pipeline is one of the largest and most promising in the industry, with 149 projects in clinical development (as at the end of February 2006), including 95 new chemical entities (NCEs), 29 product line extensions (PLEs) and 25 vaccines.

“In 2006, we anticipate further good news on GSK’s late-stage pipeline, which is developing at a fast pace. Eight major new assets are scheduled to enter phase III in 2006, doubling our late-stage pipeline,” says JP.

Year of the vaccine
2005 was a landmark year for GSK’s vaccines business. Sales increased by 15% and the company made a number of significant strategic acquisitions. “The acquisition of ID Biomedical was an important move for GSK,” says JP, “which strengthened our position in the global flu vaccine market, and increased our ability to prepare for and respond to a potential flu pandemic.”

“The pharmaceutical industry is making a
positive improvement to people’s lives. It
has a noble purpose. It develops medicines
and vaccines that save lives and make
people feel better.”
Sir Christopher Gent, Chairman

“We also acquired a plant in Marietta, Pennsylvania which will give us access to tissue culture technology in our vaccine manufacturing. The acquisition of Corixa gives us valuable adjuvant technology, enabling us to boost human immune response to our vaccines.”

GSK also made good progress on its pipeline of new vaccines. “We expect five major vaccine launches in the next five years,” says JP. “Perhaps most exciting is Cervarix for cervical cancer, which we expect to file for approval in Europe in March 2006 and in the USA by the end of the year.”

Improving access to medicines
GSK continues to seek new ways of improving access to its medicines for people who need them, but are least able to obtain them. This challenge is particularly acute in the developing world, where GSK has been offering many of its medicines and vaccines at not-for-profit prices for some years.


GSK Annual Report 2005

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However, addressing this challenge is something GSK cannot do alone. The work of GSK with organisations such as the Bill & Melinda Gates Foundation highlights the benefits of public-private partnerships. They provide a way for companies such as GSK and the private sector to work together. Typically, GSK provides the R&D, technology, manufacturing and distribution expertise, while other partners and governments help fund the development and delivery costs.

In 2005, GSK entered three groundbreaking public-private partnerships to develop vaccines against the biggest causes of death in the developing world today – AIDS, malaria and tuberculosis.

“Public-private partnerships use the
respective strengths of the partners
and bring out the best of each. Most
importantly, it is a model that works.”

Reaching out to patients
In 2005, GSK introduced and strengthened a number of initiatives aimed at improving patients’ understanding of GSK’s medicines, and programmes to help gain access to them. These initiatives include GSK’s pioneering Clinical Trial Register, which was expanded to contain 2,125 summaries of clinical trials by the end of 2005.

In the USA, GSK is placing more emphasis on education and the patient in direct-to-consumer advertising, and providing people with advice on GSK’s programmes and the industry’s Partnerships for Prescriptions Assistance which help people gain access to the medicines they need.

“Through these and other initiatives, we are seeking to differentiate GSK as a company finding solutions to the healthcare challenges that society faces. I believe we are well on the way to achieving that,” says Sir Christopher.

A broader contribution
GSK's global community investment activities in 2005 were valued at £380 million, equivalent to 5.6% of Group profit before tax.

The year saw a number of natural disasters, including the Asian tsunami, the Guatemalan hurricane, the New Orleans floods and the earthquake that struck parts of India and Pakistan. GSK was quick to respond to help victims of these tragedies. “My thanks go to our employees for their response to these crises. It makes me proud to lead an organisation with such committed and compassionate people, who can respond so effectively to help people in real need,” says JP.

For these disasters alone, GSK contributed more than £3 million in cash and donated medicines and vaccines valued at over £14 million towards the relief efforts.

“The tragedies during the year brought home to me the extent to which the pharmaceutical industry is making a positive improvement to people’s lives,” says Sir Christopher. “It has a noble purpose. It develops medicines and vaccines that save lives and make people feel better.”

Being human
We continue to meet the challenges of improving productivity in R&D and ensuring patients have access to medicines, even in the poorest parts of the world. This Report highlights some of the work we have done to implement our strategies to meet these challenges. Behind each one is a human story.

We thank all our employees for their efforts in 2005. Their commitment and passion, both individually and through their teamwork, have helped us make GSK the success it is today. We also appreciate the great support our employees receive from their families for the work they are doing at GSK.

We are grateful for the significant contribution of Tachi Yamada, Chairman of R&D and Executive Director, who is to retire in June 2006, and we welcome Moncef Slaoui, who will succeed Tachi with effect from 1st June 2006. We would also like to thank Jack Ziegler, President of GSK Consumer Healthcare, who retired from the company in January 2006, and welcome his successor, John Clarke. We also thank Dr Lucy Shapiro, who is to retire as a Non-Executive Director at the company’s Annual General Meeting in May 2006, and we welcome Tom de Swaan, who joined the Board in January 2006 as a new Non-Executive Director.


Sir Christopher Gent JP Garnier 
Chairman Chief Executive Officer




GSK Annual Report 2005


Report of the Directors  
Financial summary 4
Description of business 5
Corporate governance 27
Remuneration Report 37
Operating and financial review and prospects 55

Financial statements  
Directors’ statements of responsibility 82
Independent Auditors’ report 83
Consolidated income statement 84
Consolidated balance sheet 85
Consolidated cash flow statement 86
Consolidated statement of recognised income and expense
Notes to the financial statements 89

Investor information  
Financial record 166
Shareholder information 176
Taxation information for shareholders 180
Glossary of terms 181
Cross reference to Form 20-F 182

The Annual Report was approved by the Board of Directors on 1st March 2006 and published on 3rd March 2006.
GlaxoSmithKline’s website, www.gsk.com gives additional information on the Group. Information made available on the website does not constitute part of this Annual Report.  


GSK Annual Report 2005

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Financial summary

  2005   2004  
  £m   £m   CER%   £%  

Turnover 21,660   19,986   7   8  

Operating profit 6,874   5,756   16   19  

Profit before taxation 6,732   5,779   13   16  

Profit after taxation for the year 4,816   4,022   17   20  

Profit attributable to minority interests 127   114          

Profit attributable to shareholders 4,689   3,908          

Earnings per share 82.6 p 68.1 p 18   21  

Diluted earnings per share 82.0 p 68.0 p        

Dividends per share 44 p 42 p        

Net cash inflow from operating activities 5,958   4,944          

Net assets 7,570   5,937          


History and development of the company
GlaxoSmithKline plc is a public limited company incorporated on 6th December 1999 under English law. Its shares are listed on the London Stock Exchange and the New York Stock Exchange. On 27th December 2000 the company acquired Glaxo Wellcome plc and SmithKline Beecham plc, both English public limited companies, by way of a scheme of arrangement for the merger of the two companies. Both Glaxo Wellcome and SmithKline Beecham were major global healthcare businesses.

GSK plc and its subsidiary and associated undertakings constitute a major global healthcare group engaged in the creation, discovery, development, manufacture and marketing of pharmaceutical and consumer health-related products.

GSK has its corporate head office in London. It also has operational headquarters in Philadelphia and Research Triangle Park, USA, and operations in some 119 countries, with products sold in over 130 countries. The principal research and development (R&D) facilities are in the UK, the USA, Japan, Italy, Spain and Belgium. Products are currently manufactured in some 37 countries.

The major markets for the Group’s products are the USA, France, Japan, the UK, Italy, Germany and Spain.

Business segments
GSK operates principally in two industry segments:
Pharmaceuticals (prescription pharmaceuticals and vaccines) 
Consumer Healthcare (over-the-counter medicines, oral care and nutritional healthcare). 

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.

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 71 to 74 of this Annual Report.


GSK Annual Report 2005

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Description of business

  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.  

Annual Report and Review
This report is the Annual Report of GlaxoSmithKline plc for the year ended 31st December 2005, prepared in accordance with United Kingdom requirements.

A summary report on the year, the Annual Review 2005, intended for the investor not needing the full detail of the Annual Report, is produced as a separate document.

The Annual Review includes the joint statement by the Chairman and the Chief Executive Officer, a summary review of operations, summary financial statements and a summary remuneration report.

The Annual Review is issued to all shareholders. The Annual Report is issued to shareholders who have elected to receive it. Both documents are available on GlaxoSmithKline’s corporate website at www.gsk.com.

The Description of business discusses the strategy, activities, resources and operating environment of the business and identifies developments and achievements in 2005, under the following headings:

Strategy and business drivers 6
Business drivers  
   Build the best product pipeline in the industry 7
   Achieve commercial and operational excellence 14
   Improve access to medicines 15
   Be the best place for the best people to do their best work 16
Global manufacturing and supply 17
Corporate responsibility and community investment 18

Products and competition  
Pharmaceutical 20
Consumer Healthcare 23

Regulatory environment  
Regulation 24
Intellectual property 25
Responsibility for environment, health and safety 26

Discussion of the Group’s management structures and corporate governance procedures is set out in Corporate governance (pages 27 to 36).

The Remuneration Report gives details of the Group’s policies on Directors’ remuneration and the amounts earned by Directors and senior management in 2005 (pages 37 to 54).

Discussion of the Group’s operating and financial performance and financial resources is given in the Operating and financial review and prospects (pages 55 to 80).


In this report:

‘GlaxoSmithKline’, the ‘Group’ or ‘GSK’ means GlaxoSmithKline plc and its subsidiary undertakings.
The ‘company’ means GlaxoSmithKline plc.
‘GlaxoSmithKline share’ means an Ordinary Share of GlaxoSmithKline plc of 25p.
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 2005 (or later where available). These are GSK’s 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 GSK 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, Boniva/Bonviva, a trademark of Roche, Entereg, a trademark of Adolor Corporation in the USA, Hepsera, a trademark of Gilead Sciences in some countries including the USA, Integrilin, a trademark of Millennium Pharmaceuticals, Micropump, a trademark of Flamel Technologies, Natrecor, a trademark of Scios and Janssen, Navelbine, a trademark of Pierre Fabre Médicament, Nicoderm, a trademark of Sanofi-Aventis, Elan, Novartis or GlaxoSmithKline in certain countries, Pritor, a trademark of Boehringer Ingelheim and Vesicare, a trademark of Yamanouchi Pharmaceuticals, and in Japan and South Korea a trademark of Astellas Pharmaceuticals, all of which are used in certain countries under license by the Group.


GSK Annual Report 2005

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Description of business
Strategy and business drivers

GlaxoSmithKline is addressing the key challenges that face both the pharmaceutical industry and society as a whole:

improving productivity in research and development
ensuring patients have access to new medicines

The strategies to meet these challenges focus on several business drivers:

Build the best product pipeline in the industry
The Group is aiming to create the best product pipeline in the industry for the benefit of patients, consumers and society. This includes developing a focused portfolio strategy to support the pipeline and manage the full life cycle of compounds from their launch as prescription medicines through to becoming over-the-counter products where appropriate. This strategy includes selective in-licensing and efficient execution of development, commercialisation and the supply chain processes.

GSK’s R&D organisation measures productivity by the number and innovation of the products it creates, and also by the commercial value of these products and their ability to address the unmet needs of all consumers. This includes patients, healthcare professionals, budget holders and regulators, each with their own perspective on what constitutes a valuable new product.

Further details are given on pages 7 to 13.

Achieve commercial and operational excellence
GSK links research and commercial operations closely in order to maximise the value of the portfolio. As compounds are developed and tested, marketing campaigns and sales efforts are planned. Where appropriate within markets, the Group aims to build strong relationships with patients and consumers as the ultimate users of its medicines.

Common approaches to management processes and business functions are used by an internationally diverse and talented management team in order to create and sustain competitive advantage in all markets. Further details are given on page 14.

Improve access to medicines
GSK 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 15).

Be the best place for the best people to do their best work
The single greatest source of competitive advantage of any organisation is its people. The Group’s ambition is to be the place where great people apply their energy and passion to make a difference in the world. Their skills and intellect are key components in the successful implementation of the Group’s strategy. The work environment supports an informed, empowered and resilient workforce, in which the Group values and draws on the diverse knowledge, perspectives, experience, and styles of the global community. Further details are given on page 16.

Corporate Responsibility
In working to meet these challenges and implement these business drivers, GSK recognises that it has a responsibility to support the delivery of better healthcare and education in under-served communities and to connect business decisions to ethical, social and environmental concerns. GSK’s commitment to these is outlined on pages 18 to 19, with more information available in the Corporate Responsibility Report, which is available on the website at www.gsk.com



GSK Annual Report 2005

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Description of business
Build the best product pipeline in the industry

Research and Development – Pharmaceuticals

GSK’s strategic intent is to become the indisputable leader in the industry. This success depends on the bedrock of the Group’s business – a vibrant and productive Research and Development (R&D) function that develops new ways to help patients while supporting existing products.

Focus on the Patient
R&D’s focus on the patient involves seeking the views of patients and their families for an understanding of the most important aspects of their disease and the impact it has on their lives. This information, in conjunction with discussions with key opinion leaders, is then used to shape drug development programmes so that new medicines are likely to benefit patients.

Finding candidate compounds
Two components are needed in the early stages of finding new medicines – targets that can be shown to affect mechanisms of important pathological processes in human disease and compounds able to modulate the behaviour of specific targets.

Many diseases arise through complex interactions between gene variants and environmental factors. Within GSK, Genetics Research aims to take advantage of this by identifying genes which influence common diseases with large unmet medical needs and major patient burdens. These insights help in the search for targets with known relevance to the disease, and hence a greater chance of delivering benefit to the patients.

Discovery Research (DR) produces the lead compounds that may influence targets which form the basis of drug discovery efforts in GSK’s Centres of Excellence for Drug Discovery (CEDDs). In 2005, DR performed over 90 million assays and provided the CEDDs with 50 high-quality new lead compounds. Investment in DR has been focused on increasing the quality and quantity of the lead compounds available.

Selecting the best candidate molecules
The fundamental steps in turning a lead compound into a drug candidate are optimising it for potency, efficacy and safety and then demonstrating the validity of the therapeutic hypothesis through early clinical trials of the resulting candidate.

These steps are helped by rapid, informed decision making and creative solutions to the issues that inevitably arise in this phase of development. GSK has designed the CEDDs, which are focused on specific disease areas, to be nimble and entrepreneurial. There are seven CEDDs, based in Europe and the USA:

Biopharmaceuticals – Stevenage, UK
Cardiovascular & Urogenital Diseases – Upper Merion, USA
Metabolic & Viral Diseases – Research Triangle Park, USA
Microbial, Musculoskeletal & Proliferative Diseases, including cancer –  Upper Providence, USA
Neurology & Gastrointestinal Diseases – Harlow, UK
Psychiatry – Verona, Italy
Respiratory and Inflammation – Stevenage, UK.

Each CEDD is responsible for assessing the safety and other development characteristics of lead compounds in preclinical screens, some of which may involve using animals. This allows the selection of the best candidate for a new medicine. Once this is achieved, the CEDDs are responsible for demonstrating that the compound has satisfied a proof of therapeutic concept during mid-stage clinical trials.

A decision is then made on whether the information available justifies the compound’s progression into late-stage drug development, where large-scale clinical trials are conducted to register and commercialise the product.

During 2005 18 compounds entered clinical trials for the first time.

A GSK research facility focusing on new therapies in the treatment of neurodegenerative illnesses, such as Alzheimer’s disease, was opened in Singapore in 2005.

The application of experimental medicine is a major opportunity for the industry. An important tool in this field is clinical imaging, which enables visualisation of changes in the body made in response to the administration of a new medicine. In 2005 world-class imaging experts were recruited from both the USA and UK, as GSK prepared to open the Clinical Imaging Centre at the Hammersmith Hospital in London in 2006. In addition, R&D has established global collaborations with academic imaging centres that make it a leader in application of imaging for drug discovery and development.

Converting candidates to medicines
Preclinical Development (PCD) includes a wide range of activities throughout the entire drug development process. It is also involves the enhancement of existing products by devising more convenient formulations. Early in the development process, the metabolism and safety of compounds are evaluated in laboratory animals before testing in humans. The testing required in animals is highly regulated (see Animals and research, page 10).

PCD researchers investigate appropriate dosage forms (for example, tablets or inhalers) and develop formulations to enhance a drug’s effectiveness and ease of use by the patient. Processes and supporting analytical methods for drug synthesis and product formulation and delivery are scaled up to meet increasing supply requirements. This leads to the technical transfer of the processes and methods to manufacturing. The New Product Supply process, a partnership between R&D and Global Manufacturing and Supply, ensures that a robust product is developed for large-scale commercial manufacturing and launch.

To provide focus for the development process, all the major functional components of clinical, medical, biomedical data, regulatory and safety are integrated into a single management organisation, Worldwide Development (WWD).

GSK’s Medicine Development Centres (MDCs), which provide a focus for late-stage development, are responsible for creating value through the delivery of full product development plans, managing the day-today operational activities for the late-stage development portfolio and ensuring strong partnerships with the CEDDs and Global Commercial Strategy (GCS).



GSK Annual Report 2005

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Description of business
Build the best product pipeline in the industry


The MDCs are based at the major USA and UK sites and are aligned with the following therapeutic areas:

Infectious Diseases including Diseases of the Developing World (DDW)
Neuroscience (Psychiatry/Neurology) 

These teams are responsible for maximising the worldwide development opportunities for each product within their remit so that all the information needed to support the registration, safety programmes, pricing and formulary negotiations is available when needed. Commercial input from Global Commercial Strategy ensures that regional marketing needs are integrated into any development plans at an early stage.

In addition, R&D is investigating new ways of operating to enable it to respond to the variety of external pressures on the industry, such as increasing regulatory stringency, so that it is positioned to ensure that effective new medicines reach patients as soon as possible.

GSK believes that pharmacogenetic research, which correlates genetic data with response to medicine, will help to reduce pipeline attrition and improve productivity. R&D is collecting DNA samples in clinical studies to identify pharmacogenetic information that can help predict a patient’s response. This information is intended to define patient groups likely to gain benefit from treatment, or to suffer a side effect, as the compound progresses through development in the clinic. Ultimately, pharmacogenetics promises to provide physicians with information to help them select the medicine and dose most likely to benefit their patient.

During 2005, R&D has taken several approaches to improving productivity in clinical trials, including an increasing use of countries outside Western Europe and the USA and the introduction of direct electronic data capture in most new clinical trials. These improvements in productivity will continue going forward.

All clinical trials sponsored by GSK, irrespective of where they take place, are conducted according to international standards of good clinical practice and applicable laws and regulations. The protocols are reviewed by the external regulatory agencies in the relevant countries where required and all protocols are considered by an Ethics Review Committee, whose remit covers the site where the study will take place. Safety data is routinely collected throughout development programmes and is reported to national and regional regulatory agencies in line with applicable regulations.

The GSK Global Safety Board is responsible internally for approving pivotal studies and investigating any issues related to patient safety arising during the development programme. During 2005, GSK took a further step in making information from its clinical trials widely and easily available by extending its Clinical Trial Register, a public website on which clinical trials data are published. Regulatory authorities will continue to be informed of the data generated so they may be reassured of the safety and efficacy of GSK’s products. The Clinical Trial Register will enhance the ability of clinicians to make informed clinical judgements to benefit their patients.

Extending the use of existing products
Once a product is launched, it is important to establish additional ways in which patients can be helped. This can be through investigating whether any other illnesses may be treated with the product or by the development of additional, more convenient dosage forms. Some developments reflect feedback from patients and the medical professions, while others are the result of continuing research into disease and its causes.

Examples of the importance of lifecycle management to GSK include the new indication of restless leg syndrome for Requip and monthly dosing of Boniva to simplify its administration for prevention of osteoporosis. Line extensions add significant value to the product portfolio. Recent examples, such as Augmentin ES/XR, Seroxat/Paxil CR and Wellbutrin XL, achieved sales of £888 million in 2005.

The challenge of increasing R&D productivity continued in 2005. Programmes to identify associations between diseases and genes have helped point to areas of research more likely to produce new ways of helping patients. Increased automation in screening has provided higher quality lead compounds more quickly.

Progress of the portfolio is communicated to investors and the media at regular intervals during the year. A major presentation on the vaccine portfolio was held in June and on the oncology and supportive care portfolio in November 2005. Details of GSK’s product development pipeline are given on pages 11 to 13.

Managing the portfolio
With improved productivity, more compounds are progressed into later phases of development. This progress, however, puts demands on our R&D resources and it is important to look objectively at the portfolio. Key projects reaching significant milestones are reviewed each month by the Product Management Board (PMB), which is responsible for determining if an asset has met criteria for passing into the next phase of development.

GSK continues to identify compounds from other companies that would enhance the portfolio and to create innovative collaborations to ensure that the Group is regarded as the partner of choice for large and small companies.

In 2005 a specific Centre of Excellence for External Drug Discovery was created. This small internal management team is responsible for delivering compounds with clinical proof of concept by establishing and managing long-term strategic collaborations with biotechnology companies, small- and mid-sized pharmaceutical companies, and academic institutions. The Group has committed funding for two years to these collaborations, with an option to renew for an additional three years.

In-licensing or co-marketing/co-promotion agreements concluded in 2005 were:

The development and commercialisation of Vertex Pharmaceuticals Inc.’s VX-409, Nav1.8 Na-channel blocker plus back-up molecules for pain (preclinical)  
The development and promotion of Allergan Inc.’s Botox in Japan and China
The development and commercialisation of a renin inhibitor program (preclinical) with Vitae Pharmaceuticals Inc.


GSK Annual Report 2005

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Description of business
Build the best product pipeline in the industry

The exercise of an option for Theravance Inc.’s inhaled muscarinic antagonist / beta 2 agonist programme (preclinical)
The exercise of options for Human Genome Science Inc.’s LymphoStat B (completed Phase IIa) for rheumatoid arthritis and systematic lupus erythematosus and mapatumumab TRAIL R1 monoclonal antibody for various cancer indications (Phase II).

All R&D carries a risk of failure. Lead compounds showing positive activity against a validated target may prove insufficiently safe to introduce to humans or impossible to manufacture on a commercial scale. Also, compounds may not show the expected benefits in patients in large scale clinical testing. These discontinuations occur despite extensive predictive testing.

Late-stage projects terminated during 2005 in Phase III included aplaviroc (873140) and 695634, both for HIV, Avandia for psoriasis and Lamictal XR for schizophrenia.

Research and development – GSK vaccines
The majority of GSK’s vaccine R&D activities are conducted at its biologicals headquarters in Rixensart, Belgium. These include clinical development, regulatory strategy, commercial strategy, scaling up, vaccine production, packaging and all other support functions. Over 1,500 scientists are devoted to developing new vaccines and more cost-effective and convenient combination vaccines to prevent infections that cause serious medical problems worldwide. GSK is also targeting therapeutic vaccines that may prevent relapse in cancer patients.

Vaccine discovery involves many collaborations with academia and the biotech industry worldwide and allows identification of new vaccine antigens which are then expressed in yeast, bacteria or mammalian cells and purified to a very high level.

This is followed by formulation of the clinical lots of the vaccine. This may involve mixing antigens with selected novel proprietary adjuvants, which are designed to stimulate a good immune response. The first step is to evaluate the safety and efficacy of the candidate vaccine in a preclinical setting, usually involving an animal model. The candidate vaccine is then tested in clinical trials in healthy individuals to evaluate safety and effectiveness in inducing an immune response to protect the body from infection encountered later in a natural setting (Phase I/II). Large-scale field trials in healthy individuals follow to establish safety and efficacy in a cross section of the population (Phase III).

The results obtained during clinical trials and data regarding the development of a quality and large-scale production process and facilities are then combined into a regulatory file which is submitted to the authorities in the various countries where the vaccine is to be made available.

After launch, post marketing studies of considerable size are set up to assess vaccination programmes’ impact and to monitor vaccine safety (Phase IV).

Vaccine manufacturing is particularly complex as it requires the use of living micro-organisms. Sophisticated quality assurance and quality control procedures are in place to ensure both quality and safety of the vaccines and this commonly includes animal use. Due to their biological nature, health authorities may subject vaccines to a second control to guarantee the highest quality standards.

In 2005, GSK made a number of investments that strengthen its vaccine capabilities:

a significant increase in flu vaccine manufacturing and development capacity by:
    acquiring ID Biomedical, a North American developer of vaccines for infectious diseases and producer of influenza vaccines with sites in Canada and the USA, for £874 million
    investing over £64 million in extending its German vaccine facility 
    purchasing a vaccine R&D and manufacturing site in the USA 
acquiring US based Corixa Corporation, a developer of innovative vaccine adjuvants, for approximately £150 million 
entering into three groundbreaking public-private partnerships to develop vaccines against the three biggest killers in the developing world, AIDS, malaria and tuberculosis. 
GSK expects to launch five major new vaccines within the next five years:
a human papilloma virus vaccine preventing cervical cancer
the USA and EU launch of a vaccine against rotavirus induced gastroenteritis and the strengthening of its presence in international markets 
a vaccine against pneumococcal disease 
an improved vaccine for influenza 
vaccine combinations against meningitis. 

The strength of GSK’s vaccine pipeline is expected to provide opportunities for GSK to deliver new vaccines for many years to come.

Research and development – Consumer Healthcare
R&D has aligned itself closely with the new Consumer Healthcare operating model and structure. For the Global brands, it now mirrors the commercial structure with R&D teams paired with commercial teams and located in the principal centres for Consumer Healthcare R&D at Weybridge in the UK and in Parsippany in the USA; with this co-location, these sites are now termed Innovation Centres. The focus of R&D is on the identification and rapid development of novel products that bring benefits to consumers in the over-the-counter (OTC), oral care and nutritional healthcare markets.

Diseases of the developing world
Continued investment in research into diseases that disproportionately affect the developing world is essential if there is to be a long-term improvement in the health of people who live in these regions. As part of GSK’s response to this challenge, it operates 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 GSK is addressing the prevention and treatment of all three of the World Health Organization’s (WHO) top priority diseases.



GSK Annual Report 2005

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Description of business
Build the best product pipeline in the industry

GSK currently has 14 clinical programmes of relevance to the developing world, eight of which are aimed at producing vaccines and medicines for diseases that disproportionately affect developing countries.

Public/private partnerships (PPP) remain essential to fund research where there is no commercially viable market for a potential product. GSK is a leader in working with PPP and continues to collaborate closely with many governments, academic centres, United Nations’ agencies and other global funding bodies in this area, to maximise expertise and knowledge. This has the dual benefit of encouraging research and development and accelerating access to the medicines in the developing world. For example, in 2005, GSK announced partnerships with the Global Alliance for TB Drug Development, the Aeras Global TB Vaccine Foundation and the International AIDS Vaccine Initiative. GSK’s malaria ‘falcipain inhibitors’ project was chosen for the Medicines for Malaria Venture ‘project of the year’ award.

Animals and research
For ethical, regulatory and scientific reasons, research using animals remains a small but vital part of research and development of new medicines and vaccines. GSK only uses animals where there is no alternative and only in the numbers required for each test. The Group strives to exceed regulatory standards in the care and use of the animals it uses and undergoes internal and external review to assure these standards.

The vast majority of the experimental methods do not use animals. GSK is actively engaged in research to develop and validate more tests that either avoid the use of animals in research or reduce the numbers needed. When animals are used in research unnecessary pain or suffering is scrupulously avoided.

GSK understands that use of animals for research purposes commands a high level of public interest. The GlaxoSmithKline Public Policy Position ‘The care and ethical use of animals in research’, and further information and reports, are available on the website, www.gsk.com, or from Secretariat.

GSK’s pipeline
The chart on the right shows new chemical entities (NCE) and product line extensions (PLE) for projects in the clinic in 2001 and 2005. At the end of February 2006, GSK had nearly 200 pharmaceutical and vaccine projects in development. Of these, 149 are in the clinic comprising 95 NCEs, 29 PLEs and 25 vaccines, compared with 118 in 2001. Since 2001 the number of projects in the late stages of development has increased from 31 to 57.

This maturity in the late stage pipeline is expected to lead to an increase in registrations in the coming years. 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. Phase I NCEs with multiple indications are counted only once. NCEs in later phases are counted by each indication. For competitive reasons, new projects in pre-clinical development have not been disclosed and some project types may not have been identified.

GSK’s submissions to the regulatory authorities in the USA and EU for the first time and approvals during 2005 were:

  USA   Europe  

Submission 5   7  
Approval 6   6  

  11   13  


In 2006, the late-stage pipeline is expected to expand further with eight major assets anticipated to enter phase III development. Also, in 2006, GSK anticipates seven products will be approved and/or launched and seven product filings are planned. For further details of these developments expected in 2006 see the GSK outlook on page 71.

GSK’s policy is to obtain patent protection on all significant products discovered or developed through its R&D activities. Patent protection for new active ingredients is available in all significant markets. Protection can also be obtained for new pharmaceutical formulations and manufacturing processes, and for new medical uses and special devices for administering products.

(v) Vaccine
(p) Pharmaccine
* Compounds in Shionogi-GlaxoSmithKline Pharmaceuticals LLC joint
In-license or other alliance relationship with third party
S Date of first submission
A Date of first regulatory approval (for MAA, this is the first EU
  approval letter)
AL Approvable letter indicates that ultimately approval can be given
  subject to resolution of deficiencies
MAA Marketing authorisation application (Europe)
NDA New drug application (USA)
Phase I Evaluation of clinical pharmacology, usually conducted in volunteers
Phase II Determination of dose and initial evaluation of efficacy, conducted in a small number of patients
Phase III Large comparative study (compound versus placebo and/or established treatment) in patients to establish clinical benefit and safety


GSK Annual Report 2005

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Description of business
Build the best product pipeline in the industry

              Estimated filing dates  
Compound/Product Type   Indication   Phase   MAA   NDA  

Cardiovascular & Metabolic      
256073 high affinity nicotinic acid receptor
(HM74A) agonist
  dyslipidaemia   I          
681323 p38 kinase inhibitor   atherosclerosis (also rheumatoid arthritis & chronicobstructive pulmonary disease, COPD)   I          
813893 factor Xa inhibitor   prevention of stroke in atrial fibrillation   I          
856553 p38 kinase inhibitor   atherosclerosis (also rheumatoid arthritis & COPD)   I          
rilapladib lipoprotein-associated phospholipase A2 (Lp-PLA2) inhibitor   atherosclerosis   I          
501516 peroxisome proliferator-activator receptor(PPAR) delta agonist   dyslipidaemia   II          
590735 PPAR alpha agonist   dyslipidaemia   II          
odiparcil indirect thrombin inhibitor   prevention of thrombotic complications of cardiovascular disease   II          
darapladib Lp-PLA2 inhibitor   atherosclerosis   ll/III          
Arixtra synthetic factor Xa inhibitor   treatment of acute coronary syndrome   III   2006   2006  
Coreg CR beta blocker   hypertension & congestive heart failure – once-daily   Submitted   N/A   S:Dec05  
Metabolic projects                    
625019 PPAR pan agonist   type 2 diabetes   I          
716155 glucagon-like peptide 1 agonist   type 2 diabetes   I          
856464 melanin concentrating hormone antagonist   obesity   I          
radafaxine noradrenaline/dopamine re-uptake inhibitor   obesity (also fibromyalgia, neuropathic pain & depression)   I          
189075 sodium dependent glucose transport (SGLT2) inhibitor   type 2 diabetes   II          
677954 PPAR pan agonist   type 2 diabetes   II          
869682 SGLT2 inhibitor   obesity   II          
denagliptin dipeptidyl peptidase lV (DPP IV) inhibitor   type 2 diabetes   II          
solabegron beta3 adrenergic agonist   type 2 diabetes (also overactive bladder)   II          
Avandamet XR PPAR gamma agonist + metformin   type 2 diabetes – extended release   III       2007  
Avandia + simvastatin PPAR gamma agonist + statin   type 2 diabetes   III       2007  
Avandaryl PPAR gamma agonist + sulphonylurea   type 2 diabetes – fixed dose combination   Approved   S:May05   A:Dec05  

Infectious Diseases                  
565154 oral pleuromutilin   treatment of bacterial infections   I          
742510 oral pleuromutilin   treatment of bacterial infections   I          
270773 phospholipid anti-endotoxin emulsion   sepsis   II          
farglitazar PPAR gamma agonist   hepatic fibrosis   II          
sitamaquine 8-aminoquinoline   treatment of visceral leishmaniasis   II       N/A  
chlorproguanil, dapsone + antifolate + artemisinin   treatment of uncomplicated malaria   IIl   2007   N/A  
artesunate (CDA)                    
Etaquine 8-aminoquinoline   malaria   III          
Altabax (retapamulin) topical pleuromutilin   bacterial skin infections   Submitted   2006   S:Nov05  
825780 DNA antiviral vaccine   HIV infection   I          
brecanavir aspartyl protease inhibitor   HIV infection   II          
Relenza neuraminidase inhibitor   influenza prophylaxis   Submitted   S:Nov05   S:Nov05  

Musculoskeletal, Inflammation, Gastrointestinal & Urology            
221149 oxytocin antagonist   threatened pre-term labour   I          
232802 3G-selective oestrogen receptor modulator   treatment of menopausal symptoms   I          
267268 vitronectin integrin antagonist   age-related macular degeneration   I          
366074 potassium channel opener   overactive bladder   I          
relacatib cathepsin K inhibitor   osteoporosis & osteoarthritis (also bone metastases)   I          
751689 calcium antagonist   osteoporosis   I          
768974 parathyroid hormone agonist   osteoporosis   I          
786034 tyrosine kinase inhibitor   psoriasis   I          
842470 PDE IV inhibitor (topical)   atopic dermatitis   I          
876008 corticotrophin releasing factor (CRF1) antagonist   irritable bowel syndrome (also depression & anxiety)   I          
dutasteride + testosterone 5-alpha reductase inhibitor + testosterone   hypogonadism – fixed dose combination   I          
solabegron beta3 adrenergic agonist   overactive bladder (also type 2 diabetes)   I          
270384 endothelial cell adhesion molecule inhibitor   inflammatory bowel disease   II          
274150 selective iNOS inhibitor   rheumatoid arthritis (also migraine)   II          
681323 p38 kinase inhibitor   rheumatoid arthritis (also atherosclerosis & COPD)   II          
683699 dual alpha4 integrin antagonist (VLA4)   inflammatory bowel disease (also multiple sclerosis)   II          
856553 p38 kinase inhibitor (oral)   rheumatoid arthritis (also atherosclerosis & COPD)   II          
casopitant NK1 antagonist   overactive bladder (also depression & anxiety, chemotherapy induced & postoperative nausea & vomiting)   II          
mepolizumab anti-IL5 monoclonal antibody   eosinophilic esophagitis (also asthma & nasal polyposis)   II          
rosiglitazone XR PPAR gamma agonist   rheumatoid arthritis (also Alzheimer’s disease)   II          
Avodart + alpha blocker 5-alpha reductase inhibitor + alpha blocker   benign prostatic hyperplasia – fixed dose combination   III   2007   2007  
Avodart 5-alpha reductase inhibitor   reduction in the risk of prostate cancer   III          
Entereg/Entrareg peripheral mu-opioid antagonist   opioid induced GI symptoms   III   2007   2007  
mepolizumab anti-IL5 monoclonal antibody   hypereosinophilic syndrome (also asthma & nasal polyposis)   III   2006   2006  
Entereg/Entrareg peripheral mu-opioid antagonist   post operative ileus   Approvable   2007   AL:Jul05  
Boniva/Bonviva bisphosphonate   treatment of postmenopausal osteoporosis   Approved   S:Apr05   A:Jan06  
      – i.v. injection              

GSK Annual Report 2005

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Description of business
Build the best product pipeline in the industry

              Estimated filing dates  
Compound/Product Type   Indication   Phase   MAA   NDA  

163090 presynaptic mixed 5HT1 antagonist   depression & anxiety   I          
189254 histamine H3 antagonist   dementia   I          
234551 endothelin A antagonist   stroke   I          
406725 gap junction blocker   migraine, epilepsy & neuropathic pain   I          
644784 dual-acting COX-2 inhibitor   acute & chronic pain conditions (including neuropathic pain) & schizophrenia   I          
737004 endothelin A antagonist   stroke   I          
823296 NK1 antagonist   depression & anxiety   I          
842166 non-cannabinoid CB2 agonist   inflammatory pain   I          
876008 CRF1 antagonist   depression & anxiety (also irritable bowel syndrome)   I          
radafaxine noradrenaline/dopamine re-uptake inhibitor   fibromyalgia & neuropathic pain (also obesity)   I          
274150 selective iNOS inhibitor   migraine (also rheumatoid arthritis)   II          
372475 triple (5HT/noradrenaline/dopamine) re-uptake inhibitor   depression and attention deficit hyperactivity disorder   II          
468816 glycine antagonist   smoking cessation   II          
683699 dual alpha4 integrin antagonist (VLA4)   multiple sclerosis (also inflammatory bowel disease)   II          
705498 transient receptor potential vanilloid-1 (TRPV1) antagonist   acute migraine   II          
742457 5HT6 antagonist   dementia   II          
773812 mixed 5HT/dopaminergic antagonist   schizophrenia   II          
casopitant NK1 antagonist   depression & anxiety (also overactive bladder, chemotherapy induced & postoperative nausea & vomiting)   II          
radafaxine noradrenaline/dopamine re-uptake inhibitor   depression (also obesity)   II          
rosiglitazone XR PPAR gamma agonist   Alzheimer's disease (also rheumatoid arthritis)   II          
talnetant NK3 antagonist   schizophrenia   II          
vestipitant + paroxetine NK1 antagonist + selective serotonin re-uptake inhibitor   depression & anxiety   II          
406381 dual-acting COX-2 inhibitor   acute & chronic pain   III          
Lamictal sodium channel inhibitor   bipolar disorder – acute treatment   III   N/A   2006  
Lamictal XR sodium channel inhibitor   epilepsy – once-daily   III       2006  
Requip extended release non-ergot dopamine agonist   restless legs syndrome   III       2006  
Requip Modutab/XL non-ergot dopamine agonist   Parkinson’s disease – once-daily controlled release   Submitted   S:Dec05   2006  
24 hour     formulation              
Trexima 5HT1 agonist + naproxen   migraine – fixed dose combination   Submitted   N/A   S:Aug05  
Wellbutrin XL noradrenaline/dopamine re-uptake inhibitor   seasonal affective disorder   Submitted       S:Dec04  
Wellbutrin XL noradrenaline/dopamine re-uptake inhibitor   depression   Approved   2006   A:Aug03  

559448 thrombopoietin agonist   thrombocytopaenia   I          
743921 kinesin spindle protein (KSP) inhibitor   cancer   I          
elacridar oral bioenhancer   cancer   I          
relacatib cathepsin K inhibitor   bone metastases (also osteoporosis & osteoarthritis)   I          
casopitant NK1 antagonist   postoperative nausea & vomiting (also overactive bladder, depression & anxiety)   II   2007   2007  
casopitant NK1 antagonist   chemotherapy induced nausea & vomiting (also overactive bladder, depression & anxiety)   II          
ethynylcytidine selective RNA polymerase inhibitor   solid tumours   II          
iboctadekin recombinant human IL18 immunomodulator   immunologically-sensitive cancers (melanoma & renal cell)   II          
ispinesib KSP inhibitor   non-small cell lung cancer & other tumours   II          
pazopanib vascular endothelial growth factor (VEGF) tyrosine kinase inhibitor   solid tumours   II          
vestipitant NK1 antagonist   postoperative nausea & vomiting   II          
eltrombopag thrombopoietin agonist   thrombocytopaenia   III   2006/07   2006/07  
Hycamtin topo-isomerase I inhibitor   ovarian cancer first-line therapy   III   2007   2007  
Hycamtin topo-isomerase I inhibitor   small cell lung cancer second-line therapy – oral formulation   III   2007   2007  
Tykerb/Tycerb ErbB-2 and epidermal growth factor receptor (EGFR) dual kinase inhibitor   breast cancer (also renal, head & neck cancers)   III   2006/07   2006/07  
Hycamtin topo-isomerase I inhibitor   cervical cancer second-line therapy   Submitted   2006   S:Dec05  
Arranon guanine arabinoside prodrug   acute lymphoblastic leukaemia & lymphomas   Approved   2006   A:Oct05  
Hycamtin topo-isomerase I inhibitor   small cell lung cancer second-line therapy   Approved   A:Jan06   A:Nov98  

GSK Annual Report 2005

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Description of business
Build the best product pipeline in the industry

              Estimated filing dates  
Compound/Product Type   Indication   Phase   MAA   NDA  

256066 PDE IV inhibitor (inhaled)   asthma, COPD & allergic rhinitis   I          
656398 muscarinic acetylcholine antagonist   COPD   I          
856553 p38 kinase inhibitor (oral)   COPD (also atherosclerosis & rheumatoid arthritis)   I          
870086 novel glucocorticoid agonist   asthma   I          
961081 muscarinic antagonist, beta2 agonist   COPD   I          
159797 long-acting beta2 agonist   COPD, also COPD & asthma in combination with a glucocorticoid agonist   II          
159802 long-acting beta2 agonist   COPD, also COPD & asthma in combination with a glucocorticoid agonist   II          
233705 muscarinic acetylcholine antagonist   COPD   II          
597901 long-acting beta2 agonist   COPD, also COPD & asthma in combination with a glucocorticoid agonist   II          
642444 long-acting beta2 agonist   COPD, also COPD & asthma in combination with a glucocorticoid agonist   II          
678007 long-acting beta2 agonist   COPD, also COPD & asthma in combination with a glucocorticoid agonist   II          
681323 p38 kinase inhibitor (oral)   COPD (also rheumatoid arthritis & atherosclerosis)   II          
685698 glucocorticoid agonist   asthma & COPD in combination with a long-acting beta2 agonist (also allergic rhinitis)   II          
799943 glucocorticoid agonist   asthma & COPD in combination with a long-acting beta2 agonist   II          
mepolizumab anti-IL5 monoclonal antibody   asthma & nasal polyposis (also hypereosinophilic syndrome & eosinophilic esophagitis)   II          
Avamys/Allermist 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  
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  

Paediatric Vaccines                    
Hib-MenCY-TT conjugated   Neisseria meningitis groups C & Y disease & Haemophilus influenzae type b disease prophylaxis   II          
MenACWY-TT conjugated   Neisseria meningitis groups A, C, W & Y disease prophylaxis   II          
Globorix conjugated   diptheria, tetanus, pertussis, hepatitis B, Haemophilus influenzae type b disease, Neisseria meningitis groups A & C disease prophylaxis   lll   2006      
Streptorix conjugated   S.pneumoniae disease prophylaxis for children   lll   2007      
Priorix-Tetra live attenuated   measles, mumps, rubella & varicella prophylaxis   Submitted   S:Apr04      
Rotarix live attenuated – oral   rotavirus induced gastroenteritis prophylaxis   Submitted   S:Dec04      
Menitorix conjugated   Neisseria meningitis group C disease & Haemophilus influenzae type b disease prophylaxis   Approved   A:Dec05      

Other Vaccines                    
HIV recombinant   HIV infection prophylaxis   l          
S. pneumoniae elderly recombinant   S. pneumoniae disease prophylaxis   l          
S. pneumoniae paediatric recombinant   S. pneumoniae disease prophylaxis   l          
Varicella Zoster virus recombinant   Varicella Zoster prevention   l          
Tuberculosis recombinant   tuberculosis prophylaxis   I/II          
Dengue fever attenuated tetravalent vaccine   Dengue fever prophylaxis   ll          
Epstein-Barr virus recombinant   EBV infection prophylaxis   ll          
Flu improved inactivated split-adjuvanted   influenza prophylaxis   ll          
Flu intranasal (FluINsure) inactivated split-adjuvanted   influenza prophylaxis   ll          
Hepatitis E virus recombinant   hepatitis E prophylaxis   ll          
Mosquirix recombinant   malaria prophylaxis   ll          
Cervarix recombinant   human papilloma virus infection prophylaxis   lll   2006   2006  
Fluviral inactivated split   influenza prophylaxis   lll       2006  
Simplirix recombinant   genital herpes prophylaxis   lll          
Flu pandemic inactivated whole-aluminium salt adjuvant   influenza prophylaxis   Submitted   S:Dec05      

P501 recombinant   treatment of prostate cancer   l          
Her2 recombinant   treatment of breast cancer   l/II          
MAGE-3 recombinant   treatment of non-small cell lung cancer & melanoma   ll          

GSK Annual Report 2005

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Description of business
Achieve commercial and operational excellence


GSK undertakes a range of activities to maximise the commercial potential of its intellectual property, by introducing innovative products into as many markets as possible, accelerating the process of bringing new products to market, increasing brand recognition and ensuring that patients have access to new medicines. Both the pharmaceutical and consumer healthcare businesses focus on ways to improve existing performance through commercial and operational excellence initiatives. Some of these are:

Worldwide pharmaceutical sales force excellence
GSK’s sales force has always ranked high on surveys with healthcare professionals. Worldwide sales force excellence (WSFE) aims to improve customer satisfaction even further.

The time available for physicians to learn about new medicines and clinical studies is precious. Through the WSFE initiative, sales representatives strengthen product knowledge and learn to deliver patient-specific treatment options more efficiently and more effectively. Research shows that a sales visit is highly effective when a representative engages the physician in dialogue around patient types and supports the message with visual aids that illustrate clinical results.

The Group has introduced a single global sales call model that focuses on treating the patient through a dialogue about ”when“ a GSK medicine is appropriate, “why” it is effective and “how” to administer it safely. All field people in the Group’s key markets had been trained in the new “When? Why? How?” approach. The entire sales organisation is now involved in WSFE to bring about a cultural change that raises ethical standards and helps build long-term, trusting relationships with the healthcare community.

Pharmaceutical marketing excellence
Large numbers of patients suffering the effects of their disease continue to be unable to benefit from innovative medicines and treatments. One of GSK’s goals is to provide accurate and balanced information on the Group’s products to allow as many people as possible to benefit from GSK’s medical advances. For example within Europe, around 50% of patients suffering from Chronic Obstructive Pulmonary Disease (COPD) are diagnosed and, of those, only 60% receive regular maintenance drug therapy. GSK’s marketing initiative implements programmes to overcome the barriers to proper diagnosis and treatment. As these programmes begin to show effects, the societal costs of disease will decrease. To the extent that a GSK product is chosen for patients’ treatment, the Group will benefit as well.

Marketing codes
GSK is committed to ethical, responsible and patient-centred marketing. The Group’s Pharmaceutical Marketing and Promotional Activity policy governs marketing activities and apply to all employees, suppliers, contractors and agents. This policy requires that all marketing and promotional activities are based on valid scientific evidence, and comply with applicable laws and regulations.

This policy is supported by regional marketing practices codes in Europe, GSK’s International region, Japan and the USA. These codes apply the same ethical standards but reflect differences in market structures, national healthcare systems and regulations. They incorporate the principles of industry codes of practice such as the European Federation of Pharmaceutical Industries Associations, the International Federation of Pharmaceutical Manufacturers Associations, Japan Pharmaceutical Manufacturers Association and Pharmaceutical Research and Manufacturers of America marketing codes.

Consumer Healthcare marketing excellence
The structure of this business was redesigned in 2004 in order to focus on brands and their growth opportunities. For those brands that have sales in multiple markets a new team called the Future group has been created to develop a global approach to support these global brands. For those brands that are large and marketed in several territories, but generally with one lead market, one anchor market team leads development of these lead market brands. The remaining valuable local brands are managed through a new model, which retains local responsibility for the brand, communications and innovation. These local enterprise brands are also supported globally and regionally to ensure the application of best practice and cross pollination of innovation.

Maintaining high standards
GSK expects employees to meet high ethical standards in all aspects of business by conducting activities with honesty and integrity, adhering to corporate responsibility principles and complying with applicable laws and regulations. GSK audits its operations to ensure relevant standards expected, such as those in marketing practices, are reached or exceeded.

Commitment to the GSK Code of Conduct is reinforced each year by a senior management certification programme, and in 2005 over 12,000 managers certified they had complied with “Performance with Integrity” principles.

Patient advocacy
The Patient advocacy initiative has demonstrated significant progress since its inception in 2002. The rationale for the strategy centres on enhancing access for the Group’s medicines by connecting with patient groups to ensure that they are informed of disease treatments, as well as improving GSK’s reputation as a patient-centric group.

Initially launched as a US programme, it is now a critical initiative in strategic plans throughout the world. Patient advocacy teams in the USA and Europe have shared best practices and established processes to optimise interaction with patient groups. In 2005, Patient advocacy Leaders Summits were held in the USA, Europe and Canada, with over 1,000 patient advocates attending GSK sponsored meetings throughout the world. Two diabetes summits were held with minority legislative groups in the USA in the hopes of developing a base for future legislation and awareness activities.

Vision Factory
GSK introduced the Vision Factory initiative in Global Manufacturing and Supply which is identifying improvements in productivity and cost reduction. This will increase operational excellence in the manufacturing operations to ensure product quality and patient safety are paramount.

GSK non-production operations are supported by a number of third party purchases; worldwide this covers all areas including media, travel, R&D, IT and marketing. These purchases are managed by procurement, on behalf of their internal customers, and covers assurance of supply, service, quality, cost and innovation. Widely recognised by industry analysts as a global best practice leader, procurement works collaboratively with the business to develop and implement sourcing strategy that ensures GSK receives best value when buying goods and services.


GSK Annual Report 2005

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Description of business
Improve access to medicines


Access to healthcare in the developing world

Access to healthcare in developing countries remains a major challenge to the global community. The problem, which is rooted in poverty and a lack of political will, continues to demand a significant mobilisation of resources and a true spirit of partnership. GSK continues to play a vital role, through its commitment to R&D into diseases particularly prevalent in the developing world, through its programme of preferential pricing for its anti-retrovirals (ARVs), anti-malarials and vaccines, through its community investment programmes and through its willingness to seek innovative solutions, such as voluntary licencing arrangements.

Preferential pricing programme
GSK has offered its vaccines to key organisations for vaccination programmes in developing countries at preferential prices for over 20 years. The Group also sets a single not-for-profit price for each of its ARVs and anti-malarials to a wide range of customers in the Least Developed Countries (UN definition) and sub-Saharan Africa, as well as Country Coordinating Mechanism-projects fully funded by the Global Fund to Fight AIDS, TB, and Malaria and the US President’s Emergency Plan for AIDS Relief (PEPFAR).

GSK is committed to contributing to health improvements in a sustainable manner. The prices for its ARVs and anti-malarials are therefore set at levels at which no profit is made, but direct costs are covered, allowing supply to be sustained for as long as required. During 2005, GSK shipped to developing countries over 45 million tablets of preferentially-priced Combivir and over 81 million tablets of preferentially-priced Epivir.

The offer of not-for-profit prices requires a sustainable framework, combining GSK’s commitment to preferential pricing with commitments from governments of the developed world to avoid price referencing against preferentially priced medicines and to help prevent product diversion. GSK has taken steps to minimise the threat of diversion. Retrovir syrup, Epivir solution, Combivir, Epivir tablet and Trizivir are now available in special access packs in more than 50 countries. Differentiated red (as opposed to traditional white) Combivir and Epivir tablets are now registered across a number of International markets. GSK is the only company to have registered its ARVs under the European Union’s Anti-Diversion Regulation. During 2005, it also continued to encourage other countries to take the necessary steps to ensure the introduction and strict enforcement of appropriate anti-diversion measures.

Innovative solutions
GSK has shown industry leadership in granting voluntary licences to seven generic companies for the manufacture and supply of ARVs to both the public and private sectors in sub-Saharan Africa.

Looking ahead
GSK will continue to build on its products, pricing and partnership commitments to help improve healthcare in the developing world. However, a significant increase in funding from the global community is still needed. It is also important to maintain incentives for R&D through protection of intellectual property.

While much was achieved in 2005, sustainable progress will only occur if the significant barriers that stand in the way of better access to healthcare are tackled as a shared responsibility by all sectors of global society – governments, international agencies, charities, academic institutions, the pharmaceutical industry and others.

Access to medicines in the developed world

Programmes in the USA
GSK is working to provide meaningful access to medicines for people with limited financial resources and without prescription drug insurance. In 2005, GSK’s US patient assistance programs provided $464 million worth of medicines, valued at wholesale acquisition cost, to 565,000 qualifying low income US residents.

For uninsured Americans who do not qualify for Medicare or Medicaid, GSK and 11 other pharmaceutical companies created Together Rx Access, a programme for qualified individuals offering reductions in the usual pharmacy cost on more than 275 medicines. Launched in 2005, there are over 353,000 Together Rx Access cardholders, who saved about $10.1 million in 2005.

GSK participates in the Partnership for Prescription Assistance (PPA), the largest national programme dedicated to helping people in need access prescription medicines. PPA has matched more than one million US patients in need to programs providing significant help. GSK and other US pharmaceutical companies launched the program in 2005 in partnership with healthcare, physician and patient advocacy organisations.

Programmes in other countries
The Group has also introduced Orange Cards providing discounts on certain GSK prescription medicines for eligible patients in Bulgaria, Lithuania and Ukraine. The nature of the discounts varies between countries, depending on the needs of the patient and the way in which the healthcare system operates.

Preparing for a flu pandemic
The Group is committed to doing everything it can to support governments and health authorities around the world in planning responses to a possible global influenza pandemic. GSK was the first company to submit a “mock-up” dossier to the EMEA to apply for a pandemic influenza vaccine marketing authorisation in the EU, which allows for an accelerated final registration once a pandemic is declared. GSK is also developing an H5N1 prototype pandemic vaccine and clinical trials testing of this vaccine against the H5N1 flu strain are taking place in 2006. To increase the performance of its prototype pandemic vaccine, GSK has developed an innovative adjuvant that may allow lower amounts of antigen to be used, which is essential for manufacturing large number of doses in the event of a pandemic.


GSK Annual Report 2005

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Description of business
Be the best place for the best people to do their best work


GlaxoSmithKline people

GlaxoSmithKline is committed to creating the best place for the best people to do their best work to deliver the Group’s business strategy. The Group employs over 100,000 people in over 116 countries.

Recruitment, talent management and leadership development
Attracting the best people in the industry is critical to enhancing and sustaining GSK’s performance. The Group’s recruiters in the USA and UK are focussed on pro-active identification of talented external candidates for key jobs, acting as an internal headhunting function.

The annual performance and development planning (PDP) process ensures that employees set objectives aligned with corporate strategies, set behavioural goals and create a development plan. PDPs are reviewed throughout the year, culminating with an end of year review that is factored into compensation decisions.

The annual talent management cycle identifies the highest performing people in each business and function. Individuals are given feedback on development needs and key talent is developed through exceptional management and leadership programmes (for more detail see the Group’s Corporate Responsibility Report), exposure to top management through programmes such as the Chief Executive Forum and via stretch assignments. A pool of successors is identified for all Vice-President positions and other critical roles in the organisation.

Performance and reward
Reward systems are designed to support a culture of high performance and to attract and retain the best people. Performance based pay, share awards and share options align employee interests with the accomplishment of business targets.

Business ethics and reputation
Performance with Integrity is central to operating at GSK. The most recent Global Leadership Survey showed over 90% believe that “people in their department show commitment to performance with integrity”. To enhance managers’ and leaders’ skills a programme on ethical decision making was run in 2005, attended by 479 people. Further training in this area is planned for 2006.

The PDP process includes an assessment of how well employees have implemented the GSK Spirit – the principles used to define the Group’s culture. This can have a significant impact on bonus payments, potentially reducing them to zero if an employee is found not to have followed the Spirit, and can also affect future career development. In this way the Group holds employees accountable for delivering performance with high standards of integrity to protect and enhance GSK’s reputation.

The GSK diversity initiative focuses on improving performance by responding to the diverse needs of employees, customers and external stakeholders. At the third annual Multicultural Marketing and Diversity Awards, 60 entrants from the USA, UK and Continental Europe highlighted innovative activities that demonstrated business impact. In 2005, the global management population was 64.5% male and 35.5% female. For more details on diversity measures, see the Employment Practices section of the Corporate Responsibility report.

The Group is committed to employment policies free from discrimination against potential or existing staff on the grounds of age, race, ethnic and national origin, gender, sexual orientation, faith or disability. GSK is committed to offering people with disabilities access to the full range of recruitment and career opportunities. Every effort is made to retain and support employees who become disabled while working with the Group.

Communication and employee involvement
Good internal communication is important in achieving GSK’s business objectives as well as creating an open and inclusive work environment. There are a range of communication channels to keep employees up-to-date with GSK’s news and enable them to give feedback. These include:

myGSK, the global intranet site, provides news and updates and a Q&A section where employees put questions directly to the Chief Executive Officer and other senior executives. Up to 100 questions are answered each month. Behind the News, a section of the GSK intranet, gives the Group’s position on important issues linked to press stories about GSK 

Spirit, GSK’s internal magazine, reaches around 50,000 employees throughout the world four times a year

confidential feedback mechanisms enable employees to raise concerns. These include GSK’s integrity helpline. 

The Group conducts a Global Leadership Survey (GLS) every two years. The last GLS was conducted in 2004 among more than 10,000 managers to gauge opinion on critical issues such as culture and confidence in the Group’s future. Results showed significant improvement on 29 of 31 items compared with 2002 results. Compared with global benchmarks, managers rate highly on fostering alignment between personal goals and the GlaxoSmithKline mission and fostering an environment of ethics and integrity. In the survey, 80% of managers were “proud to be part of GlaxoSmithKline” and would “gladly refer a friend or family member to work for GSK”.

Between Leadership Surveys many business areas conduct surveys of all employees to gauge levels of engagement, satisfaction and motivation. Each business and function has developed action plans to address areas for improvement based on results from the GLS and these other surveys.

The Group also consults employees on changes that affect them and discusses developments in the businesses with the European Employee Forum and similar committees in countries where this is national practice.

Health and well-being
Healthy employees and healthy ways of working contribute to GSK’s sustained performance. Global policies on Employee Health are supported by mandatory standards that integrate employee health and safety and environmental requirements. These standards are applied to all the Group’s facilities and operations worldwide.

A commitment to flexible working through flexi-time, tele-conferencing, remote working and flexible work schedules, recognises that employees work best in an environment that helps them integrate their work and personal lives. During 2005 the Group’s Employee Health Management function won Personnel Today’s Managing Health at Work award in the UK in recognition of its impact in promoting a healthy workplace.


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Description of business
Global manufacturing and supply


GSK has a large portfolio of products, ranging from tablets and toothpaste to inhalers and complex capsules, in over 28,000 different pack sizes and presentations.

Manufacture of medicines begins with the development of a therapeutic active ingredient (bulk active) in a selected formulation. Global Manufacturing and Supply (GMS) develops manufacturing processes for full scale volume production of active compounds at primary manufacturing sites. Converting active compounds into a finished dosage formulation is the responsibility of the secondary manufacturing sites.

GMS operates as a single global network of 80 sites in 37 countries. Each year GMS produces around 6,000 tonnes of bulk actives and over four billion packs, which are packaged and delivered for sale in over 160 countries. Throughout the world it also supports about 2,000 new product and line extension launches a year.

By adopting leading edge practices and developing its people GMS expects to derive benefits from:

a secure source of supply of high quality products
compliance with regulatory requirements and customer expectations 
best in class cost.


Supply divisions
There are four supply divisions, with sites grouped together based upon common business drivers, areas of expertise and the commercial activities that they support. These four divisions are described below:

Primary supply and Antibiotics
Primary supply and Antibiotics focuses on ensuring the supply of high quality and competitively priced bulk actives and on driving improvements in primary technologies and processes. It also supports the delivery of maximum value from the antibiotics franchise through a combined primary and secondary approach to cost competitive supply and response to market opportunities and customer needs. There are 17 sites in eight countries in Primary supply and Antibiotics.

Consumer Healthcare supply
Consumer Healthcare supply focuses on delivering high quality, competitively produced products and offering the capability for rapid new product introduction in a highly innovative and competitive business which has far shorter time frames than pharmaceuticals. New technologies have become a fundamental platform for lowering costs and providing flexibility in operations. There are 24 sites in 17 countries in Consumer Healthcare supply.

Regional pharma supply
Regional pharma supply focuses on several key activities, the supply of products that are key in one or more regions, the supply of products that are important in a particular market and the tailoring of packaging to meet specific local requirements. A key focus for the regional pharma supply team is on reducing costs so that GSK can compete more effectively in all its markets. There are 31 sites in 23 countries in Regional pharma supply.


New product and global supply
New product and global supply focuses on ensuring that the appropriate technical competencies exist to support rapid and successful new product introduction. It works closely with R&D’s development team to do this. It also ensures secure supply of the key brands that are sold across many markets and have global distribution. This division is the focal point for developing and introducing new secondary manufacturing technologies for GMS. It co-ordinates with Primary supply operations to ensure alignment between the two divisions and a full value stream approach to introducing new products. There are eight sites in six countries in New product and global supply.

Operational excellence
GMS has developed a set of measures and a uniform way of working to drive business improvement. These activities are mainly focused on increasing the quality of products supplied to customers. Extensive leadership education has been carried out to reinforce a culture of continuous improvement, with staff involved in solving problems in a rigorous, controlled and structured way. All this has provided the capability to improve significantly performance, and to accelerate delivery of benefits across the manufacturing network.

Since the formation of GSK, merger rationalisation and operational excellence initiatives have reduced the number of manufacturing sites by 35 (30%).

External suppliers
Manufacturing spends over £2 billion with many external suppliers every year, including on the purchase of active ingredients, chemical intermediates and part-finished and finished products. GMS takes appropriate steps to protect its supply chains from any disruption resulting from interrupted external supply through appropriate stock levels, contracting and alternative registered suppliers.

Vaccines supply chain
In Europe, vaccine manufacturing is located primarily at Rixensart and Wavre in Belgium, with three other sites in France, Germany and Hungary. In 2005, GSK strengthened its global production network in North America through three major acquisitions: US based Corixa Corporation, which produces an important component in many of GSK’s vaccines under development, a vaccine production site in Marietta, Pennsylvania and ID Biomedical with flu vaccine manufacturing facilities in Canada. In Asia, new vaccine production facilities are being built in India and Singapore. GSK’s vaccine division also has two joint ventures in China and Russia. Managing the vaccine supply chain involves anticipating market needs and using a flexible approach to be able to meet fluctuations in demand. These are 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 result from disease outbreaks or increased demand from the public owing to disease awareness campaigns.


GSK Annual Report 2005

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Description of business
Corporate responsibility and community investment


Commit to corporate responsibility
GSK is committed to connecting business decisions to ethical, social and environmental concerns. Thus, corporate responsibility is an integral and embedded part of the way GSK does business.

In 2003, GSK published a set of Corporate Responsibility principles to provide guidance on the standards to which the Group is committed. This sets out the approach to ten areas: standards of ethical conduct, research and innovation, products and customers, access to medicines, employment practices, human rights, community investment, caring for the environment, leadership and advocacy, and engagement with stakeholders. The Group reports annually on progress in upholding these principles in its Corporate Responsibility Report, which is available on the website at www.gsk.com.

Partnership success
GSK works as a partner with under-served communities in the developed and developing world. It supports programmes that are innovative and sustainable and that bring real benefits to these communities. The Group engages with numerous external stakeholders, funds community-led initiatives around the world and donates medicines to support humanitarian efforts and community based healthcare.

Community investment
GSK’s global community investment activities in 2005 were valued at £380 million, equivalent to 5.6% of Group profit before tax. This comprised product donations of £296 million, cash giving of £61 million, other in-kind donations of £2 million and costs of £21 million to manage and deliver community programmes in more than 100 countries.

Product donations in 2005 were as follows:

1. Product donations

GSK’s cash giving was targeted primarily at health and education initiatives.

2. Breakdown of cash giving


In the UK, GSK contributed £4 million in 2005 to its continuing corporate programme of charitable activities supporting over 80 organisations in health, medical research, science education, the arts and the environment. In addition, Group companies in the UK provided a further £8 million for charitable purposes.


Corporate programmes in North America focused on improving public education and access to better healthcare for children and seniors with funding of almost £8 million. In addition, the Group’s US-based businesses donated £14 million to regional community activities.

GSK does not operate a single charitable foundation for its community investment programmes, but has a number of country based foundations. The grants made by these foundations in 2005 are included in the investment total.

Global Health Programmes
Eliminating lymphatic filariasis

The Group’s effort to help rid the world of the disabling disease, lymphatic filariasis (LF), continued in close partnership with the governments of countries where the disease is endemic, the WHO and over 40 partner organisations. GSK is committed to donate as much of the anti-parasitic drug albendazole as required to treat the one billion people at risk in 80 countries by 2020. In 2005, 136 million albendazole treatments, worth over £14 million at wholesale acquisition cost, were donated to 36 countries. Since the global elimination programme started in 2000, a cumulative total of 442 million albendazole treatments have been donated and the programme is now reaching over 100 million people. During 2005, GSK opened a new $3 million manufacturing facility in Cape Town, South Africa to produce albendazole.

Positive Action on HIV/AIDS
Positive Action is GSK’s pioneering global programme working with communities affected by AIDS. Started in 1992, it supports community-based organisations to deliver effective HIV and AIDS education, prevention and healthcare services. During 2005, Positive Action worked with 29 partners to support programmes in 30 countries. The programme also supported the participation of community involvement at regional and international AIDS conferences.

The GlaxoSmithKline African Malaria Partnership
Since 2002, this partnership has supported three behavioural development programmes working in eight African countries. The programmes are targeting nearly two million people and focus particularly on young children and pregnant women, encouraging effective prevention measures, prompt treatment and antenatal malaria management. Extending this programme in 2005, the Group announced a three-year grant of £900,000 to the Malaria Consortium for a new initiative ‘Mobilising for Malaria’. Through increased and sustained advocacy activities in the UK, Europe and African countries, the programme aims to increase awareness of malaria and mobilise resources.

The PHASE initiative (Personal Hygiene And Sanitation Education), initiated by GSK in 1998, is now providing education to thousands of school children in Kenya, Uganda, Zambia, Nicaragua and Peru to improve their health and hygiene to fight infectious diseases. In 2005 the Group committed three year funding of £300,000 to extend the programme to Bangladesh in partnership with Save the Children, USA.


GSK Annual Report 2005

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Description of business
Corporate responsibility and community investment


Humanitarian product donations
During 2005, GSK donated essential products, such as antibiotics, through non-profit partners including AmeriCares, MAP International and Project HOPE, to support humanitarian relief efforts and community healthcare. In December 2004, medicines donated by the Group were among the first to be shipped to support the south Asia tsunami relief efforts. In 2005, GSK continued to donate these lifesaving medicines to tsunami-affected countries and to those affected by other disasters, including hurricanes in the USA.

In 2005 the total value of the Group’s international humanitarian product donations was £27 million. This excludes albendazole donated as part of the Group’s commitment to the lymphatic filariasis elimination programme. Product donations are valued at wholesale acquisition cost which is the wholesale list price, not including discounts, and is a standard industry method.

Community initiatives
GSK is dedicated to strengthening the fabric of communities where we live and work through providing health and education initiatives and support for local civic and cultural institutions that improve the quality of life.

GSK’s contribution to improve healthcare includes a new grant of $2.65 million over three years to the Children’s Health Fund to expand their Referral Management Initiative (RMI) to sites in Philadelphia, including the Delaware Valley Community Health Center. The RMI ensures continuity of specialist medical care for high-risk children who are often homeless.

The annual Impact Awards recognise excellence in the work of non-profit community health organisations across the UK and in the Greater Philadelphia area of the USA. Over 20 charities receive unrestricted awards for their work dealing with diverse issues such as domestic and community violence, sexual health services for young people and bereavement and counselling services.

To further medical research, over £470,000 was provided to four UK medical charities, The Alzheimer’s Research Trust, The British Liver Trust, Meningitis UK and The Samantha Dickson Research Trust for childhood brain tumours.

As part of GSK’s support for the arts, the Group sponsored the popular ‘Gardens of Glass: Chihuly at Kew‘, an innovative exhibition of the work of Dale Chihuly, the contemporary glass artist, at the Royal Botanic Gardens, Kew near London.

Education initiatives
GSK’s efforts to improve public and science education included a three-year grant of $300,000 to the National Board for Professional Teaching Standards to increase the number of science teachers pursuing certification in the North Carolina and Philadelphia areas.

During 2005 GSK led a group of companies to come together to create the US Business Education Network (BEN). BEN is a new business coalition staffed by the Center for Corporate Citizenship of the US Chamber of Commerce, and is dedicated to harnessing the power of the business community to address issues facing the US education system.


GSK continued to support the Innovative Scheme for Post-docs in Research and Education (INSPIRE), developed in partnership with Imperial College London and the Specialist Schools and Academies Trust, with a £1 million donation over four years. INSPIRE places post-doctoral researchers in specialist science schools to assist with science teaching.

‘Science in the Summer’, a free library-based science education programme in the Philadelphia area teaching basic scientific concepts, continued to receive support with a grant of $300,000. Science Across the World is an award-winning international education programme that uses web-based resources to promote discussion of science issues between 3,600 teachers, 100,000 children and schools in more than 115 countries. A further grant of £110,000 was made in 2005 bringing GSK’s total contribution to this programme to £670,000 over five years.

Employee involvement
GSK employees are encouraged to contribute to their local communities through employee volunteering schemes. Support varies around the world, but includes employee time, cash donations to charities where employees volunteer and a matching gifts programme.

In 2005 in the USA, the Group matched more than 20,000 employee and retiree gifts at a value of over $5 million. The Group also matched more than $1.3 million of employee donations to GSK’s annual United Way campaign. GSK’s GIVE program provided grants of over $300,000 to more than 350 organisations where US employees have volunteered.

GSK’s Making a Difference programme in the UK provided grants of almost £300,000 to over 440 non-profit organisations and registered charities based on employee involvement.


GSK Annual Report 2005

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Description of business

Products and competition



Pharmaceutical products
GlaxoSmithKline’s principal pharmaceutical products are currently directed to nine therapeutic areas. An analysis of sales by these therapeutic areas, and a description of the principal products, are set out below:

Turnover by therapeutic area 2005   2004   2003   
£m £m £m

Respiratory 5,054   4,394   4,390  
Central nervous system 3,219   3,462   4,446  
Anti-virals 2,598   2,359   2,345  
Anti-bacterials/anti-malarials 1,519   1,547   1,800  
Metabolic 1,495   1,251   1,077  
Vaccines 1,389   1,194   1,121  
Oncology and emesis 1,016   934   1,000  
Cardiovascular and urogenital 1,331   932   770  
Other 1,040   1,027   1,165  

  18,661   17,100   18,114  


Sales in 2005 were 8% higher in CER terms and 9% in sterling terms than in 2004.

Products and all their formulations may not be approved for all indications in all markets where they are available.

Seretide/Advair, a combination of Serevent and Flixotide, offers a long-acting bronchodilator and an anti-inflammatory in a single inhaler. It is approved for the treatment of asthma and COPD.

Flixotide/Flovent and Becotide/Beclovent are inhaled steroids for the treatment of inflammation associated with asthma and COPD.

Serevent is a long-acting bronchodilator used to treat asthma and COPD, and Ventolin is a selective short-acting bronchodilator used to treat bronchospasm.

Flixonase/Flonase and Beconase are steriod intra-nasal preparations for the treatment of perennial and seasonal rhinitis.

Central nervous system (CNS)
Seroxat/Paxil is a selective serotonin re-uptake inhibitor (SSRI) for the treatment of depression, panic, obsessive compulsive disorder, post traumatic stress disorder, social anxiety disorder, premenstrual dysphoric disorder and generalised anxiety disorder.

Wellbutrin is an anti-depressant, available in the USA and some international markets in normal, sustained-release (SR) and once daily formulations.

Imigran/Imitrex is a 5HT1 receptor agonist used for the treatment of severe or frequent migraine and cluster headache and has become the reference product in this sector. Naramig/Amerge is 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 and is the first approved product for Restless Leg Syndrome (RLS).

Combivir, a combination of Retrovir and Epivir, has consolidated the position of these two reverse transcriptase inhibitors as the cornerstone of many multiple anti-HIV product regimens. Physician acceptance has clearly demonstrated the value placed on minimising the pill burden faced by patients.

Ziagen is a reverse transcriptase inhibitor. The product’s potency, ease of use and resistance profile allow it to play a significant role in a variety of highly active, well tolerated and simplified HIV treatment regimens.

Trizivir is a combination of Combivir and Ziagen, combining three anti-HIV therapies in one tablet, for twice daily administration.

Epzicom/Kivexa, approved for use in the USA and Europe, is a combination of Epivir and Ziagen that is taken as one tablet with once-daily dosing for HIV/AIDS in combination with at least one other anti-HIV drug.

Lexiva/Telzir is a protease inhibitor for the treatment of HIV that is well tolerated and more convenient than Agenerase which it supersedes. Lexiva may be taken twice daily or once daily when boosted with ritonavir.

Zeffix has been approved for marketing in the USA, Europe, China and other markets for the treatment of chronic hepatitis B.

Valtrex is a treatment for episodic genital herpes as well as the long term suppression and reduction of transmission of genital herpes, zoster (shingles), cold sores and chicken pox. Valtrex supersedes Zovirax, which is also used to treat herpes infections.

Anti-bacterials and anti-malarials
Augmentin is a broad-spectrum antibiotic suitable for the treatment of a wide range of common bacterial infections and is particularly effective against respiratory tract infections. Augmentin ES-600 is an extra strength suspension specifically designed to treat children with recurrent or persistent middle ear infections. Augmentin XR is an extra strength tablet form for adults to combat difficult to treat infections.

Zinnat is an oral antibiotic used primarily for community-acquired infections of the lower respiratory tract.

Malarone is an oral anti-malarial used for the treatment and prophylaxis of malaria caused by Plasmodium falciparum.

Lapdap is an effective and well tolerated therapy for the treatment of malaria, which has been developed through a public/private collaboration.



GSK Annual Report 2005

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Description of business
Products and competition


Avandia is a potent insulin sensitising agent which acts on the underlying pathophysiology of type 2 diabetes.

Avandamet is a combination of Avandia and metformin HCI; it is the first medicine that targets insulin resistance and decreases glucose production in one convenient pill.

Avandaryl is a fixed-dosed combination of Avandia and Amaryl, a Sanofi-Aventis product.

Bonviva/Boniva is a once-monthly oral bisphosphonate for the treatment of osteoporosis. It was launched in the USA and several EU markets in 2005.

GSK markets over 25 vaccines worldwide. In GSK’s hepatitis vaccines range, Havrix protects against hepatitis A and Engerix-B against hepatitis B.

Twinrix is the only available combined hepatitis A and B vaccine, protecting against both diseases with one vaccine and available in both adult and paediatric strengths. In 2005, GSK received European approval for Fendrix, a vaccine to prevent hepatitis B in patients with renal insufficiency including high-risk groups such as pre-haemodialysis and haemodialysis patients, from 15 years of age onwards.

Fluarix is indicated for prevention of certain types of influenza. It is distributed in 79 countries and was approved in the USA in 2005. Fluarix is the first vaccine to receive FDA approval under the agency’s accelerated approval regulations.

Infanrix is GSK’s range of paediatric vaccine combinations. Infanrix provides protection against diphtheria, tetanus and pertussis (whooping cough). Infanrix PeNta/Pediarix provides additional protection against hepatitis B and polio, and Infanrix hexa further adds protection against Haemophilus influenzae type b, which is a cause of meningitis. In 2005, GSK launched Boostrix in the USA, a vaccine that adds protection against pertussis (whooping cough) to the routine tetanus/diptheria booster administered to teenagers.

GSK also markets Priorix, a measles, mumps and rubella vaccine, Typherix, a vaccine for protection against typhoid fever, and Varilrix, a vaccine against varicella or chicken pox. In addition, the Group markets a range of vaccines to prevent meningitis under the umbrella name Mencevax. GSK recently received approval in the UK for a new Hib-MenC vaccine, Menitorix. GSK’s meningitis vaccine portfolio wil be complimented by new meningitis conjugate vaccines in the near future.

As part of its paediatric franchise, GSK has also developed a vaccine against rotavirus induced gastroenteritis. Since its launch in Mexico in 2005, Rotarix has been licensed in several additional countries worldwide among them a number of Latin American countries including Brazil, with the Philippines and Singapore being the first Asian countries.

Oncology and emesis
Zofran is used to prevent nausea and vomiting associated with chemotherapy and radiotherapy for cancer, and is available in both oral and injectable forms. It is also approved for use in the prevention and treatment of post-operative nausea and vomiting.

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.

Cardiovascular and urogenital
Coreg is an alpha/beta blocker which has been proven to be effective in treating patients with mild, moderate and severe heart failure, heart attack or hypertension. GSK has sole marketing rights in the USA and Canada. Generic versions of the product are available in Canada.

Levitra is a PDE-5 inhibitor indicated for male erectile dysfunction. GSK has co-promotion rights in the USA and more than 20 other markets.

Avodart is a 5-ARI inhibitor currently indicated for benign prostatic hyperplasia. A large clinical outcome study is underway examining its efficacy in the prevention of prostate cancer.

Arixtra and Fraxiparine were acquired in 2004 as part of the divestitures required for the merger of Sanofi and Aventis.

Arixtra, a selective Factor Xa inhibitor, is indicated for the prophylaxis of deep vein thrombosis, which may lead to pulmonary embolism, in hip fracture surgery, knee replacement, hip replacement surgery and abdominal surgery. It is also indicated for the treatment of deep vein thrombosis and pulmonary embolism.

Fraxiparine is a low-molecular weight heparin indicated for prophylaxis of thromboembolic disorders (particularly deep vein thrombosis and pulmonary embolism) in general surgery and in orthopedic surgery, treatment of deep vein thrombosis and prevention of clotting during hemodialysis.

Integrilin is a GP IIb-IIIa inhibitor, approved in the EU for the prevention of early myocardial infarction in patients with unstable angina or non-Q-wave MI.

This category includes Betnovate, the higher potency Dermovate and the newer Cutivate, which are anti-inflammatory steroid products used to treat skin diseases such as eczema and psoriasis, Relafen, a non-steroidal anti-inflammatory drug for the treatment of arthritis, and Zantac, for the treatment of peptic ulcer disease and a range of gastric acid related disorders.



GSK Annual Report 2005

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Description of business

Products and competition



Pharmaceuticals competition

The pharmaceutical industry is highly competitive. GSK’s principal competitors range from small to large international pharmaceutical companies with substantial resources. Some of these companies and their major products are mentioned below.

Pharmaceuticals may be subject to competition from other products during the period of patent protection and, once off patent, from generic versions. The manufacturers of generic products typically do not bear significant research and development or education and marketing development costs and consequently are able to offer their products at considerably lower prices than the branded competitors. A research and development based pharmaceutical company will normally seek to achieve a sufficiently high profit margin and sales volume during the period of patent protection to repay the original investment, which is generally substantial, and to fund research for the future. Competition from generic products generally occurs as patents in major markets expire. Increasingly patent challenges are made prior to patent expiry, claiming that the innovator patent is not valid and/or that it is not infringed by the generic product. Following loss of patent protection, generic products rapidly capture a large share of the market, particularly in the USA.

GSK believes that remaining competitive is dependent upon the discovery and development of new products, together with effective marketing of existing products. Within the pharmaceutical industry, the introduction of new products and processes by competitors may affect pricing levels or result in changing patterns of product use. There can be no assurance that products will not become outmoded, notwithstanding patent or trademark protection. In addition, increased government and other pressures for physicians and patients to use generic pharmaceuticals, rather than brand-name medicines, may increase competition for products that are no longer protected by patent.

GSK’s respiratory franchise is driven by the growth of Seretide/Advair, gaining patients from competitor products and the cannibalisation of Serevent and Flixotide/Flovent. Major respiratory competitors are Singulair from Merck, especially in the USA and in Europe, Symbicort from AstraZeneca and Spiriva from Pfizer/ Boehringer Ingelheim.

CNS disorders
Major competitors in the USA to Paxil are its generic forms, as well as generic fluoxetine, the generic form of Eli Lilly’s Prozac, Zoloft from Pfizer, Forest Laboratories’ Celexa and Lexapro, and Effexor from Wyeth. The principal competitors in the USA for Wellbutrin are generic forms of bupropion, the generic forms of SSRIs and Effexor XR, a Wyeth product. Paxil CR and the once-daily Wellbutrin XL help to retain a strong presence in the anti-depressant market, given the availability of both generic paroxetine and bupropion in the USA. Generic competition for Seroxat/Paxil has also commenced in the UK and a number of other markets.

GSK is a pioneer in the HIV market, launching AZT (Retrovir) in 1987 and Epivir in 1995, which today are available as Combivir in a single tablet, a cornerstone of HIV combination therapy. The launches of Ziagen, Agenerase, Trizivir, Lexiva and Epzicom have broadened the Group’s portfolio of HIV products. Major competitors in the HIV market include Gilead, Bristol Myers Squibb, Abbott, Merck and Pfizer.

Valtrex has strengthened the Group’s position in the anti-herpes area, where GSK’s Valtrex and Zovirax compete with Novartis’ Famvir. Valtrex is the market leader, whilst Zovirax faces competition from generic acyclovir. In the hepatitis B market, GSK’s Zeffix was the first anti-viral on the market. Gilead’s Hepsera was the second. The Group has secured marketing rights to Hepsera in some key markets.

Anti-bacterials and anti-malarials
Generic versions of both Augmentin and Ceftin/Zinnat are available in the USA. Augmentin also faces generic competition in various European countries. Augmentin XR and Augmentin ES compete against a broad range of other branded and generic antibiotics. Malarone’s safety profile and convenient dosing regimen have helped put this product in a strong position versus mefloquine for malaria prophylaxis.

The major competitor for Avandia is Takeda Chemical’s Actos, which is co-promoted with Eli Lilly in the USA.

Monthly Boniva/Bonviva competes with Merck’s weekly Fosamax and Proctor & Gamble/Sanofi-Aventis’s weekly Actonel. Generic Fosamax (alendronate) is available in a few markets such as the UK and Canada.

The vaccine market is dominated by four key players. GSK’s major competitors include Sanofi Pasteur (SP), Merck and Wyeth. In the hepatitis market, Engerix-B and Havrix compete with vaccines produced by SP and Merck – respectively Comvax and Recombivax HB for hepatitis B, and Vaqta and Avaxim for hepatitis A. Within the paediatric vaccine field, Infanrix’s main competitor is SP’s range of DTPa-based combination vaccines, although the Infanrix hexa combination is the only available hexavalent paediatric combination in Europe.

Oncology and emesis
Zofran presently provides GSK with a leadership position in the anti-emetic market where competitor companies include Roche, Sanofi-Aventis and more recently MGI and Merck. Major competitors in the diverse cytotoxic market include Bristol Myers Squibb, Sanofi-Aventis, Pfizer and Novartis. GSK’s cytotoxic portfolio, led by Hycamtin, currently holds a relatively small market position.

Cardiovascular and urogenital
GSK markets Coreg in the USA where its major competitors are Toprol XL and generic betablockers. Avodart competes directly with Merck’s Proscar within the BPH market. The Group has co-promotion rights in the USA for Levitra, which faces competition from Pfizer’s Viagra and Lilly/Icos’ Cialis.



GSK Annual Report 2005

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Description of business
Products and competition


Consumer Healthcare products

GlaxoSmithKline’s principal consumer healthcare products are in three major areas. An analysis of sales by these areas is set out below:

  2005   2004   2003  
  £m   £m   £m  

OTC medicines 1,437   1,400   1,472  
Oral care 943   913   915  
Nutritional healthcare 619   573   569  

  2,999   2,886   2,956  


In 2005 sales were 2% higher in CER terms and 4% higher in sterling terms than in 2004.

Major products, which are not necessarily sold in all markets, are:

Category Product

Over-the-counter medicines  
Analgesics Panadol
Dermatologicals Zovirax
Gastro-intestinal Tums
Respiratory tract Contac
Smoking control Commit
  NicoDerm CQ
  NiQuitin CQ
  Nicabate CQ
Natural wellness support Abtei

Oral care Aquafresh
  Dr Best
  Odol Med 3

Nutritional healthcare Lucozade

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.

Oral care
The leading Oral care products are toothpastes and mouthwashes under the Aquafresh, Sensodyne, Macleans and Odol brand names, and a range of toothbrushes sold under the Aquafresh and Dr Best names. In addition, denture care products are available principally under the Polident, Poligrip and Corega brand names.

Nutritional healthcare
The leading products in this category are Lucozade glucose energy and sports drinks, Ribena, a blackcurrant juice-based drink rich in vitamin C, and Horlicks, a range of milk-based malted food and chocolate drinks.

Consumer Healthcare competition

GSK holds leading global positions in all its key consumer product areas. Worldwide it is the third largest in Oral care and in OTC medicines. In Nutritional healthcare it holds the leading position in the UK, India and Ireland.

The environment in which the Consumer Healthcare business operates has become ever more challenging:

consumers are demanding better quality, better value and improved performance
retailers have consolidated and globalised which has strengthened their negotiation power
competitors are finding conditions equally challenging and competing more aggressively across all elements of the marketing mix
cycle times for innovation have been reduced. 

The main competitors include the major international companies Colgate-Palmolive, Johnson & Johnson, Pfizer, Procter & Gamble, Unilever and Wyeth. In addition, there are many other companies that compete with GSK in certain markets.

The major competitor products in OTC medicines are:

in the USA: Metamucil (laxative), Pepcid (indigestion) and private label smoking control products
in the UK: Lemsip (cold remedy), Nurofen and Anadin (analgesics), and Nicorette and Nicotinell (smoking control treatments).

In Oral care the major competitors are Colgate-Palmolive’s Colgate and Procter & Gamble’s Crest.

In Nutritional healthcare the major competitors to Horlicks are Ovaltine and Milo malted food and chocolate drinks. The competitors to Ribena are primarily local fruit juice products, while Lucozade competes with other energy drinks.



GSK Annual Report 2005

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Description of business
Regulatory environment


Regulation – Pharmaceuticals

GSK operates within a highly regulated environment. Regional and country-specific laws and regulations define the data required to show safety and efficacy of pharmaceutical products, as well as govern testing, approval, manufacturing, labelling and marketing of drugs. These regulatory requirements are a major factor in determining whether a marketable product may be successfully developed and the amount of time and expense associated with this development.

In Europe, pharmaceutical firms and regulators are managing a transition following the implementation of new medicines legislation at the end of 2005. Significant changes are being implemented in a number of areas, including approval procedures, post marketing requirements, manufacturing controls (on active ingredients and excipients), labelling requirements, pharmacovigilance processes and an increased emphasis in involvement and availability of information for patients in the EU.

The climate of change will continue, with the expectation that a new Paediatric Regulation will be finalised in 2006, stimulating industry research into paediatric indications, via intellectual property incentives.

The European Medicines Agency (EMEA) has published the final version of its ‘Road Map’, a strategic plan to 2010. This will be an additional driver for change, covering areas such as new technologies, innovative development approaches and enhanced provision of agency advice during the development process.

In the USA, safety issues of prescription drugs are a primary focus of the FDA and congressional oversight committees since the recent withdrawal of several products from the market for safety reasons. GSK is working closely with the FDA to assess any impact this will have on any of its own current development programmes. As in Europe, evaluation of benefit and risk continues to be an important consideration for approval of a new drug by the FDA.

The FDA has introduced a new focus called the Critical Path Initiative. This is intended to facilitate 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. The pharmaceutical industry, including GSK, are collaborating with the FDA and National Institutes of Health in a number of these areas, including the use of biomarkers.

A new health information source has been launched by the US government that includes electronic labelling of all approved prescription drugs, posted within one day of an FDA approval action, for immediate access by physicians and patients. GSK is now providing labelling to the FDA for all products in this new electronic format. New regulations from the FDA will be implemented mid-2006 that will completely change the format of prescribing information in the USA.

GSK is well placed to manage effectively these changes in the external regulatory environment.

Price controls
In many countries the prices of pharmaceutical products are controlled by law. Governments may also influence prices through their control of national healthcare organisations, which may bear a large part of the cost of supplying products to consumers.

Recent government healthcare reforms in countries such as France, Spain and Germany may restrict pricing and reimbursement.

In the USA, recent legislation on healthcare reform, cross-border trade, the acceleration of generics to market and increased patient contributions have further increased the focus on pricing. Currently, there are no government price controls over private sector purchases, but federal law requires pharmaceutical manufacturers to pay prescribed rebates on certain drugs in order to be eligible for reimbursement under Medicaid and other federal healthcare programmes.

In 2006, the US Medicare program, a federally funded healthcare insurance program benefiting senior citizens and certain disabled Americans, included coverage for prescription medicines. This is a new benefit under the Medicare program and the most dramatic change in the program since its inception in the 1960s. The coverage is voluntary, includes brand-name and generic drugs and is open to the 41 million Americans with Medicare coverage.

A number of competing private organisations provide the new benefit with premiums subsidised by the government. Benefits must satisfy a minimum standard outlined in federal law. While the law provides incentives for manufacturers to negotiate prices with private plans, it does not provide for government price controls. The government provides additional help to more than 14 million people on Medicare with limited incomes and resources. Those qualifying beneficiaries pay no or reduced premiums and deductibles, and low copayments for their prescriptions.

Value for money
It is increasingly necessary to demonstrate the value for money of new products. In particular, the impact on drug budget expenditure and the burden of the disease that will be treated must be apparent.

In some markets, this requirement to satisfy healthcare purchasers as to value for money is becoming an additional hurdle for product acceptance over and above the regulatory tests of safety, efficacy and quality. This may delay bringing effective and improved medicines to the market and reduce their effective patent protection time.

In many markets, especially in the USA and Europe, it is becoming more difficult for even a significantly improved therapy to obtain a premium price over existing medication. Value-based pricing may be difficult to apply in such circumstances, although in the USA it is still possible to price products to reflect their value. It is not possible to predict whether, and to what extent, the Group’s business will be affected by future legislative and regulatory developments relating to specific pharmaceutical products or their price.

Regulation – Consumer Healthcare

The consumer healthcare industry is subject to national regulation for the testing, approval, manufacturing, labelling and marketing of products. In many countries, high standards of technical appraisal involve a lengthy approval process before a new product is launched.

National regulatory authorisation is also required to approve the switch of products from prescription to OTC. The requirements include long-term experience of the quality, safety and efficacy of the product in a wide patient population and data to confirm that the relevant condition is both self-limiting and easily diagnosed by the consumer.



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Description of business
Regulatory environment


Intellectual property

Intellectual property is a key business asset for GSK. The effective legal protection of intellectual property is critical in ensuring a reasonable return on investment in R&D. Intellectual property can be protected by patents, trademarks, registered designs, copyrights and domain name registrations. Patent and trademark rights are regarded as particularly valuable.

In many cases generic manufacturers launch, or attempt to launch, generic versions of patented drugs prior to normal patent expiry, arguing that the relevant patents are invalid and/or are not infringed by their product. Significant litigation concerning these challenges is summarised in Note 41 to the financial statements, ‘Legal proceedings’.

GSK’s policy is to obtain patent protection on all significant products discovered or developed through its R&D activities. Patent protection for new active ingredients is available in all significant markets. Protection can also be obtained for new pharmaceutical formulations and manufacturing processes, and for new medical uses and special devices for administering products.

The patent position with respect to the active ingredients in significant products is as follows:

Avandia and Avandamet. The patent on rosiglitazone is not due to expire until 2012a,c (USA) and 2013b (Europe). Patents on the commercial form of the active ingredient rosiglitazone maleate are not due to expire until 2015 (USA) and 2014b (Europe). Litigation challenging the validity of the patents protecting these products is ongoing in the USAe.

Avodart. The patent on dutasteride is not due to expire until 2015a (USA) and 2017b (Europe).

Combivir. The patent on the specific combination of lamivudine and zidovudine is not due to expire until 2012 (USA) and 2013b (Europe).

Coreg. GSK is the exclusive licensee under the US patent on carvedilol, which is not due to expire until 2007a,c.

Epivir. The patent on lamivudine is not due to expire until 2010a,c (USA) and 2011b (Europe).

Flixotide/Flovent and Flixonase/Flonase. The patents on fluticasone propionate have expired in the EU and USA. Generic competition to Flixonase exists in the EU and the FDA recently approved a generic version of Flonase in the USAe.

Imigran/Imitrex. The patent on sumatriptan is not due to expire until 2009c (USA) and generally 2006b (Europe, except 2008b (Italy)). Litigation challenging the validity of the patent protecting this product is ongoing in the USAe.

Lamictal. The patent on lamotrigine is not due to expire until 2009a,c (USA). Litigation challenging the validity of this patent in the USA has been settlede. In Europe, the corresponding patent has expired and generic competition exists.

Levitrad. GSK has co-promotion rights under the US patent on vardenafil which is not due to expire until 2018 in the USA.

Lexiva/Telzir. GSK is the exclusive licensee under the patent on fosamprenavir, which is not due to expire until 2017 (USA) and 2019b (Europe).

Paxil/Seroxat. The patent on the commercial form of paroxetine is not due to expire until 2007c (USA) and 2006 (Europe). Litigation relating to the validity and infringement of the patents protecting this product is ongoing in the USAe. Generic competition has commenced in the USA, Europe and certain other markets. Paxil CR is protected by a formulation patent that is not due to expire until 2012. A generic manufacturer has applied for FDA approval of a generic form of Paxil CR asserting non-infringement of this patente.

Requip. The patent on ropinirole is not due to expire until 2007a (USA) and 2008b (Europe). A patent relating to the use of ropinirole in Parkinson’s disease is not due to expire until 2008 (USA) and 2011b (Europe). Litigation challenging the validity of these patents is ongoing in the USAe.

Retrovir. There are no patents on zidovudine. Patents covering pharmaceutical formulations containing zidovudine and their medical use have expired in the USA and will expire in 2006 in Europe.

Seretide/Advair. The patent on the specific combination of salmeterol xinafoate and fluticasone propionate is not due to expire until 2010 (USA) and 2013b (Europe). An application for re-issue of the US patent has been filed by GSKe with the US Patent and Trademark Office (USPTO). In January 2006, the USPTO issued a final office action rejecting this application. GSK will seek reconsideration of this rejectione. The UK patent has been revoked by the UK courts. Patents on the individual ingredients have expired in the UK. In the USA, the patent on salmeterol xinafoate does not expire until 2008.

Serevent. The patent on salmeterol xinafoate is not due to expire until 2008 in the USA. In Europe, the patent has expired, except France (2008b) and Italy (2009b).

Trizivir. The patent on the method of treatment using a combination of lamivudine, zidovudine and abacavir does not expire until 2016 (USA) and 2016 (Europe).

Valtrex. The patent on valaciclovir is not due to expire until 2009a (USA) and 2009b (Europe). Litigation challenging the validity of the patent protecting this product is ongoing in the USAe.

Wellbutrin SR, Wellbutrin XL and Zyban. The patent on the active ingredient has expired. There is now generic competition for the sustained release (SR) and instant release (IR) forms in the USA. In Europe, regulatory data exclusively provides protection until 2009 in some markets. In the USA, Wellbutrin XL is protected by formulation patents that expire in 2018. Litigation relating to the validity and infringement of these patents is ongoing in the USAe.

Ziagen. The patent on abacavir is not due to expire until 2012a,c (USA) and 2014b (Europe).

Zofran. The patent on ondansetron has expired in the USA and Europe, (except France (2007b) and Italy (2010b)). A patent on use in treating emesis expires in 2006. Litigation challenging the validity of the emesis use patent is ongoing in the USAe.

a) Including patent term restoration under the Hatch-Waxman Act
b) Including extension of term by national or European supplementary protection certificates
c) Including granted or pending extension of term for paediatric exclusivity

A registered trademark of Bayer AG

e) See Note 41 to financial statements ‘Legal proceedings’.



GSK Annual Report 2005

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Description of business
Regulatory environment


All of GSK’s pharmaceutical products are protected by registered trademarks in major markets. There may be local variations, for example, in the USA the trademark Paxil is used instead of Seroxat and Advair is used instead of Seretide.

Trademark protection may generally be extended for as long as the trademark is used by renewing it when necessary. GSK’s trademarks on pharmaceutical products are important for maintaining the brand identity of the product upon expiration of the patent.

The Consumer Healthcare trademarks are particularly important, as the business is very brand orientated and many products do not have patent protection.

Responsibility for environment, health and safety

Environment, health and safety (EHS) is a key element of corporate responsibility for the Group and has a high priority. Responsibility for EHS is at the highest level. There is a corporate group reporting to the General Counsel that has overall responsibility for providing governance and leadership on EHS issues. The head of this group makes regular reports to the Corporate Executive Team (CET) and the Audit and Corporate Responsibility Committees of the Board of Directors. Within the businesses, operations managers are responsible for EHS and are supported by site-based EHS and occupational health staff.

EHS strategy and plan
GSK has a strategic planning process for EHS that looks forward 10 years but is reviewed every year. The plan is aligned with the GSK business drivers and includes both management and performance measures and targets. Progress has been made in all areas of the plan, with particular success in incorporating EHS into the selection and management of contract manufacturers and key suppliers, in developing and maintaining an open and effective dialogue with external stakeholders, in providing EHS data for decision making on new products and processes and in ensuring safety and health concerns are properly addressed at GSK’s facilities to minimise risk and avoid disruption of product supply. Some areas for additional focus are driver safety, occupational chemical exposure, machine guarding, pharmaceuticals in the environment from patient excretion, energy conservation and the use of hazardous chemicals in manufacturing.

Strategic focus in 2005
The plan provides an area of special focus each year. In 2005, the focus was on completing core programmes. These programmes are essential to prevent injury or illness or harm to the environment and to ensure the continuity of GSK’s business. Some of them will be common to all operating locations. Operations with different risks may have different core needs and therefore different core programmes. For a programme to be complete it must have a management system in place, acceptable audit scores and acceptable progress against the EHS targets.

There is a need to operate and maintain the programmes, monitor their performance and continually look for improvements. Progress in this strategic focus area may be seen in the audit scores and progress to targets.

EHS management
GSK takes a systematic approach to managing EHS risks and impacts. A framework of information and programmes based on the global EHS standards guides the management of key aspects, impacts and risks throughout the organisation.

EHS audits
As part of its governance responsibility, GSK conducts EHS audits of its sites, assessing performance against the EHS standards and assigning quantitative performance scores. In 2005, when 36 sites were audited, 70% of these achieved audit scores of 70% or better. As part of the continuous improvement process, progress was monitored on actions arising from issues raised on all audits.

As part of the commitment to corporate responsibility and the pro-active management of the GSK manufacturing and supply base, 41 suppliers were also assessed, representing about 20% of priority suppliers. This process evaluated the management of key EHS risks and impacts, as well as human rights issues, based on the Group’s requirements for priority suppliers. Recommendations were made for improvements where needed.

EHS targets
As part of the EHS plan, targets are set every five years and 2005 is the end of the first five-year target period. Targets were set for 10 environmental measures and for one measure of occupational health and safety.

Progress towards meeting these targets has been tracked every year. Final data for 2005 showing the level of achievement of targets will be published on the website www.gsk.com. Significant progress has been made towards achieving eight of the 10 EHS targets with some of the progress due to outsourcing some processes to contract manufacturers. For hazardous waste disposed and the proportion of waste recycled, the targets have not been achieved. The targets have not been achieved because of products transferred to facilities without appropriate recycling systems in place, other recycling systems that were down for maintenance and new products coming into manufacturing.

GSK selects its measures of performance improvement based on the potential for adverse impact on people or the environment, business continuity or business reputation. Most of the measures selected are similar to those reported by other companies and are recommended by the Global Reporting Initiative, a long-term, multi-stakeholder, international undertaking to develop and disseminate globally applicable sustainability reporting guidelines.

In the work towards eventual sustainability, GSK is addressing economic, environmental and social issues in research, manufacturing, sales and distribution of its medicines. Sustainability starts with healthcare solutions found by R&D and continues with sustainable solutions in manufacturing and sales. R&D is considering improving operational efficiency for new products. In the future, the EHS plan for excellence proposes investigating the use of renewable resources and the overall balance of its impact on society and the environment. The Group seeks dialogue with external stakeholders and considers their views when developing approaches to sustainable development. More information on EHS programmes and performance may be found on the website.


GSK Annual Report 2005

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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.

The Board 28
Corporate Executive Team 29
Governance and policy 30
Dialogue with shareholders 31
Annual General Meeting 32
Internal control framework 33
Committee reports 34
The Combined Code 35
US law and regulation 36


GSK Annual Report 2005

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Corporate governance


The Board

Sir Christopher Gent (Aged 57)
Appointed on 1st June 2004. Chairman. Sir Christopher was the Chief Executive Officer of Vodafone plc, until his retirement in July 2003. He is a Non-Executive Director of Lehman Brothers Holdings Inc, a member of the Financial Reporting Council, a Senior Adviser at Bain & Co. and Chairman of the advisory board of Reform.

Dr Jean-Pierre Garnier (Aged 58)
Appointed on 23rd May 2000. Chief Executive Officer. Dr Garnier was appointed an Executive Director of SmithKline Beecham plc in 1992, and became Chief Executive Officer in April 2000. He is a Non-Executive Director of United Technologies Corporation and a member of the Board of Trustees of the Eisenhower Exchange Fellowships. He holds a PhD in pharmacology from the University of Louis Pasteur in France and an MBA from Stanford University in the USA.

Lawrence Culp (Aged 42)
Appointed on 1st July 2003. Non-Executive Director. Mr Culp is President and Chief Executive Officer of Danaher Corporation. Prior to joining Danaher, he held positions in Accenture, previously Andersen Consulting.

Sir Crispin Davis (Aged 56)
Appointed on 1st July 2003. Non-Executive Director. Sir Crispin is Chief Executive of Reed Elsevier PLC. Prior to that, he was Chief Executive of Aegis Group plc, which he joined from Guinness plc, where he was a member of the main board and Group Managing Director of United Distillers. He spent his early career with Procter & Gamble.

Julian Heslop (Aged 52)
Appointed on 1st April 2005. Chief Financial Officer. Mr Heslop joined Glaxo Wellcome as Financial Controller in April 1998. In January 2001, following the merger, he was appointed Senior Vice President, Operations Controller. Prior to joining Glaxo Wellcome, he held senior finance roles at Grand Metropolitan PLC.

Sir Deryck Maughan (Aged 58)
Appointed on 1st June 2004. Non-Executive Director. Sir Deryck is a Managing Director of Kohlberg Kravis Roberts & Co. He was formerly Chairman and CEO of Citigroup International and of Salomon Brothers Inc. He is a Non-Executive Director of Reuters Group plc, as well as serving on the Boards of Directors of Carnegie Hall, Lincoln Center and NYU Medical Center. He is also an International Advisory Board member of British American Business Inc. and a Board member of the Trilateral Commission. He served as Vice Chairman of the New York Stock Exchange from 1996 to 2000.

Sir Ian Prosser (Aged 62)
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 and ultimately Chairman of the demerged InterContinental Hotels Group plc. He was Chairman of the World Travel and Tourism Council and the London Stock Exchange Listed Advisory Council. He is Non-Executive Deputy Chairman of BP plc, a Non-Executive Director of Sara Lee Corporation and a member of the CBI President’s Committee.

Dr Ronaldo Schmitz (Aged 67)
Appointed on 23rd May 2000. Non-Executive Director. Dr Schmitz was formerly a Non-Executive Director of Glaxo Wellcome plc. He is a Non-Executive Director of Legal & General Group plc and a member of the Board of Directors of Rohm and Haas Company and Cabot Corporation.

Dr Lucy Shapiro (Aged 65)
Appointed on 23rd May 2000. Non-Executive Director. Dr Shapiro was formerly a Non-Executive Director of SmithKline Beecham plc. She is Ludwig Professor of Cancer Research in the Department of Developmental Biology and Director of the Beckman Center for Molecular and Genetic Medicine at the Stanford University School of Medicine and a Non-Executive Director of Anacor Pharmaceuticals, Inc. She holds a PhD in molecular biology.

Tom de Swaan (Aged 59)
Appointed on 1st January 2006. Non-Executive Director. Mr de Swaan is a member of the Managing Board of ABN AMRO, of which he was Chief Financial Officer until 31st December 2005. He will retire from the Board of ABN AMRO on 1st May 2006. He is a Non-Executive Director of the Financial Services Authority, a member of the Board of the Institute of International Finance, Chairman of the Board of the Netherlands Opera and a member of the Board of the Royal Concertgebouw Orchestra.

Sir Robert Wilson (Aged 62)
Appointed on 1st November 2003. Non-Executive Director. Sir Robert is Non-Executive Chairman of BG Group plc and the Economist Group and was previously Executive Chairman of Rio Tinto.

Dr Tachi Yamada (Aged 60)
Appointed on 1st January 2004. Retiring on 1st June 2006. Chairman, Research & Development. Dr Yamada was a Non-Executive Director, and subsequently an Executive Director, of SmithKline Beecham plc. Prior to joining SmithKline Beecham, he was Chairman of the Department of Internal Medicine at the University of Michigan Medical School and Physician-in-Chief of the University of Michigan Medical Center. He is a Trustee of the Rockefeller Brothers Fund and a member of the Advisory Board of Quaker BioVentures, Inc.

Moncef Slaoui (Aged 46)
Chairman Designate, Research & Development. Dr Slaoui, Senior Vice President, Worldwide Business Development, has been appointed to the Board with effect from 17th May 2006, and will succeed Dr Yamada as Chairman, Research & Development on 1st June 2006. Dr Slaoui joined GSK Biologicals in 1988 where he engineered the development of a robust vaccines pipeline. He has a PhD in Molecular Biology and Immunology from Université Libre de Bruxelles.

Other Directors
Mr John Coombe, formerly Chief Financial Officer, retired from the Board on 31st March 2005.

Details of membership of the Board Committees may be found on page 31.


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Corporate governance


Corporate Executive Team (CET)

JP Garnier
Chief Executive Officer
As Chief Executive Officer, Dr Garnier is responsible for the management of the Group. He oversees all operational aspects of the Group, including establishing policies, objectives and initiatives, and he directs long-term strategy. He was formerly Chief Executive Officer of SmithKline Beecham, having joined the Group in 1990.

Rupert Bondy
Senior Vice President and General Counsel
Mr Bondy is responsible for legal matters across the Group, together with environmental, health and safety issues, insurance and security. He was a lawyer in private practice before joining SmithKline Beecham in 1995.

Ford Calhoun
Chief Information Officer
Dr Calhoun is responsible for information technology, a global function that enables key business processes across all parts of the Group. With doctoral and post-doctoral training in microbiology, genetics, biomathematics and computer science, he joined Smith Kline & French in 1984.

John Clarke
President, Consumer Healthcare
Mr Clarke succeeded Mr Ziegler as President, Consumer Healthcare on 31st January 2006. He joined Beecham in 1976 and progressed through roles in Australasia, South Africa, The Far East, Japan, Canada and the UK. From 1998 to 2003, John was President, Consumer Healthcare Europe, and in 2004, appointed President, Futures Group.

Marc Dunoyer
President, Pharmaceuticals Japan
Mr Dunoyer was appointed President, Pharmaceuticals Japan in March 2003. He joined the Group in 1999 and was Senior Vice President and Regional Director, Japan until his current appointment.

Russell Greig
President, Pharmaceuticals International
Dr Greig leads the pharmaceutical operations outside the USA, Japan and most of Europe, covering more than 100 countries. He joined the Group in 1980 and was Senior Vice President, Worldwide Business Development for R&D prior to his current appointment in March 2003.

Julian Heslop
Chief Financial Officer
Mr Heslop became Chief Financial Officer on 1st April 2005. As head of the finance function Mr Heslop is responsible for activities such as financial reporting and control, tax and treasury, investor relations, finance systems, internal audit and real estate. He joined Glaxo Wellcome as Financial Controller in April 1998.

Dan Phelan
Senior Vice President, Human Resources
Mr Phelan is responsible for benefits, compensation, recruitment, organisation development, leadership development and succession planning, human resource information systems and employee health management. He was a lawyer in private practice before joining Smith Kline & French in 1981.

David Pulman
President, Global Manufacturing and Supply
Dr Pulman is responsible for the Global Manufacturing and Supply 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.

David Stout
President, Pharmaceutical Operations
Mr Stout is responsible for all pharmaceuticals and vaccines operations worldwide, including the USA, Europe, International, Japan and Global Manufacturing and Supply. He joined SmithKline Beecham in 1996 and was President, US Pharmaceuticals, until his current appointment in January 2003.

Chris Viehbacher
President, US Pharmaceuticals
Mr Viehbacher is responsible for US Pharmaceuticals. He joined Wellcome in 1988 and was responsible for GSK’s European Pharmaceuticals business before his current appointment in 2003.

Andrew Witty
President, Pharmaceuticals Europe
Mr Witty is responsible for the Group’s pharmaceuticals operations in Europe. He joined Glaxo in 1985 and was Senior Vice President, Asia Pacific until his current appointment in 2003.

Tachi Yamada
Chairman, Research & Development
Dr Yamada leads the Group’s complex business of drug discovery and development, creating new medicines through research. He joined SmithKline Beecham in 1994 as a Non-Executive Director and became Chairman, R&D Pharmaceuticals in 1999.

Jennie Younger
Senior Vice President, Corporate Communications & Community Partnerships
Mrs Younger is responsible for the Group’s internal and external communications, its image and partnerships with global communities. She joined Glaxo Wellcome in 1996 as Director of Investor Relations and was appointed to her current position in 2001.

Moncef Slaoui
Chairman Designate, Research & Development
Dr Slaoui will succeed Dr Yamada as Chairman, Research & Development on 1st June. He will join the CET on 17th May. He joined the Group in 1988 and is currently Senior Vice President, Worldwide Business Development.

Other members
Mr Combe retired as Chief Financial Officer on 31st March 2005.

Mr Ziegler retired as head of the Consumer Healthcare business on 31st January 2006.

Mr Ingram continues to work part-time as Vice Chairman of Pharmaceuticals, acting as a special advisor to the Group and attending CET meetings in that capacity.


GSK Annual Report 2005


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Corporate governance


Governance and policy

The Board and Corporate Executive Team
The Directors are listed under ‘The Board’ (page 28).

The Board is responsible for the Group’s system of corporate governance and is ultimately accountable for the Group’s activities, strategy and financial performance.

The Chief Executive Officer (CEO) is responsible for executive management of the Group and is assisted by the CET. The CET meets 11 times per year and otherwise as necessary. The members and their responsibilities are listed under “Corporate Executive Team” (page 29).

The Board comprises three Executive and nine Non-Executive Directors. Whilst the Board considers all its Non-Executive Directors to be independent in character and judgement, it has determined that one Non-Executive Director, Dr Shapiro, should not be considered as ’independent’ under the Combined Code. Dr Shapiro is not considered to be independent due to the remuneration that she receives from the Group as a member of the GlaxoSmithKline Scientific Advisory Board. When Sir Christopher Gent was appointed to the Board as Deputy Chairman, he was determined by the Board to be independent. Upon taking up the chairmanship of the Board on 1st January 2005, in accordance with the Combined Code, he was excluded from the determination of whether at least half the Board are independent Non-Executive Directors. Neither Dr Shapiro nor Sir Christopher Gent hold positions on a Board Committee where independence is required under the Combined Code.

The Board considers that Mr Culp, Sir Crispin Davis, Sir Deryck Maughan, Sir Ian Prosser, Dr Schmitz, Mr de Swaan and Sir Robert Wilson are independent in accordance with the recommendations of the Combined Code.

At the date of publication and throughout 2005, a majority of the Board members, excluding the Chairman, were independent Non-Executive Directors.

Sir Christopher Gent succeeded Sir Christopher Hogg on 1st January 2005 and was Chairman throughout 2005. Dr Garnier is CEO. The Chairman leads the Board, and represents the Board to the CEO and other CET members as necessary between Board meetings. The CEO manages the Group and implements the strategy and policies adopted by the Board. The Chairman and the chairmen of Board Committees communicate regularly with the CEO and other CET members. The division of responsibilities between the role of Chairman and the CEO has been set out in writing, agreed by the Board and appears in full on the website.

Sir Ian Prosser was Senior Independent Director (SID) throughout 2005.

Board process
The Board has the authority, and is accountable to shareholders, for ensuring that the company is appropriately managed and achieves the strategic objectives it sets. The Board discharges those responsibilities through an annual programme of meetings which includes the approval of overall budgetary planning and business strategy. The Board reviews the company’s internal controls and risk management policies and approves its governance structure and code of ethics.

The Board appraises and approves major financing, investment and contractual decisions in excess of defined thresholds. In addition, the Board evaluates and monitors the performance of the Group as a whole. This includes:

engaging at Board meetings with the CEO, the other Executive Directors and members of the CET as appropriate, on the financial and operating performance of GSK and external issues material to the Group’s prospects 
evaluating progress toward the achievement of the Group’s financial and business objectives and annual plans 
monitoring, through reports received directly or from various committees, the significant risks facing the Group.

The Board has overall responsibility for succession planning for the CEO and the other Executive Directors. The Board has given the CEO broad authority to operate the business of the Group, and the CEO is accountable for, and reports to the Board on, business performance.

CET members make regular presentations to the Board on their areas of responsibility, and the Board meets with all the CET members on an annual basis to discuss collectively the Group’s strategy. A primary element of the induction process for new Non-Executive Directors is undertaken by members of the CET, and all Non-Executive Directors are encouraged to have separate informal discussions at their discretion with any CET members.

The Board met six times in 2005, with each member attending as follows:

  Number of meetings   Number of
Name held whilst a Board member   meetings attended

Sir Christopher Gent 6   6
Dr JP Garnier 6   6
Mr J Heslop 5   5
Dr T Yamada 6   6
Mr L Culp 6   5
Sir Crispin Davis 6   6
Sir Deryck Maughan 6   6
Sir Ian Prosser 6   6
Dr R Schmitz 6   6
Dr L Shapiro 6   6
Sir Robert Wilson 6   6
Mr J Coombe 1   1

In addition to the six scheduled meetings, the Board also met on a quorate basis on two occasions.

Business environment development
To ensure that the Board is kept up-to-date on important matters, including legal, governance and regulatory developments, presentations are made on a regular basis by both external and internal advisers.

Independent advice
The Board recognises that there may be occasions when one or more of the Directors feel it is necessary to take independent legal and/or financial advice at the company’s expense. There is an agreed procedure to enable them to do so. This is explained in the Corporate Governance section of the company’s website.


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Indemnification of Directors
Qualifying third party indemnity provisions (as defined in section 309B(1) of the Companies Act 1985) are in force for the benefit of the Directors and former Directors who held office during 2005.

Company Secretary
The Company Secretary is responsible to the Board and is available to individual Directors in respect of Board procedures. The Company Secretary is Simon Bicknell, who was appointed in May 2000. He is a barrister and joined the Group in 1984. He is secretary to all the Board Committees.

Board Committees
The Board has established a number of Committees and provides sufficient resources to enable them to undertake their duties. Executive Directors are not members of the Audit, Remuneration, Nominations or Corporate Responsibility Committees, although they may be invited to attend meetings. Each Director is a member of the Corporate Administration & Transactions and Financial Results Committees. Membership of these Committees is shown in the table below.

  Audit   Remuneration   Nominations   Responsibility

Sir Christopher Gent     C   C
Mr L Culp   M    
Sir Crispin Davis   M    
Sir Deryck Maughan M      
Sir Ian Prosser M     M   M
Dr R Schmitz* C   M   M  
Dr L Shapiro       M
Mr de Swaan* M      
Sir Robert Wilson M   C    

* Mr de Swaan will succeed Dr Schmitz as Chairman of the Audit Committee from September 2006.
Key: C = Chairman. M = Member.

The following is a summary of the role and terms of reference of each Committee. The current full terms of reference of each Committee may be obtained from the Company Secretary or the Corporate Governance section of the company’s website.

Audit Committee
The Audit Committee reviews the financial and internal reporting process, the system of internal controls, the management of risks and the external and internal audit process. The Committee also proposes to shareholders the appointment of the external auditors and is directly responsible for their remuneration and oversight of their work. The Committee consists entirely of independent Non-Executive Directors. It meets at least four times a year and otherwise as necessary. The Audit Committee Report is on pages 34 and 35.

Remuneration Committee
The Remuneration Committee determines the terms of service and remuneration of the Executive Directors and members of the CET and, with the assistance of external independent advisors, it evaluates and makes recommendations to the Board on overall 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 37 to 54. The Chairman of the company and the CEO are responsible for evaluating and making recommendations to the Board on the remuneration of the Non-Executive Directors.

Nominations Committee
The Nominations Committee reviews the structure, size and composition of the Board and the appointment of members of the Board and the CET, and makes recommendations to the Board as appropriate. The Committee also monitors the planning of succession to the Board and Senior Management. The Committee consists entirely of Non-Executive Directors, of whom a majority are independent, and meets at least once a year and otherwise as necessary. The Nominations Committee Report is given on page 35.

Corporate Responsibility Committee
The Corporate Responsibility Committee consists entirely of Non-Executive Directors and provides a Board-level forum for the regular review of external issues that have the potential for serious impact upon the Group’s business and for the oversight of reputation management. The Committee is also responsible for governance oversight of the Group’s worldwide donations and community support. The Committee meets formally three times a year and otherwise as necessary.

Financial Results Committee
The Financial Results Committee reviews and approves, on behalf of the Board, the Annual Report and Form 20-F, the Annual Review and the convening of the Annual General Meeting, together with the preliminary and quarterly statements of trading results. Each Director is a member of the Committee and the quorum for a meeting is any three members. To be quorate, each meeting must include the Chairman or the Chairman of the Audit Committee and the CEO or the Chief Financial Officer (CFO). The Committee meets as necessary.

Corporate Administration & Transactions Committee
The Corporate Administration & Transactions Committee reviews and approves matters in connection with the administration of the Group’s business, and certain corporate transactions. The Committee consists of the Directors, CET members and the Company Secretary. The Committee meets as necessary.

Evaluation of the Board, Board Committees and Directors
The performance evaluation of the Board, its Committees and Directors during 2005 was undertaken by the Chairman and implemented in collaboration with the Committee Chairmen, with the support of the Company Secretary. The Board considered the review conclusions at its meeting in December 2005 and agreed a number of minor improvements to its procedures and operating methodology.

The Senior Independent Non-Executive Director, Sir Ian Prosser, undertook the performance evaluation of the Chairman through a discussion with the Directors, excluding the Chairman, in December 2005.

Dialogue with shareholders

Financial results are announced quarterly.

The company reports formally to shareholders twice a year, when its half-year and full-year results are announced. The full-year results are included in the company’s Annual Report and Annual Review, which are issued to shareholders. The company’s half-year results are published in a national newspaper shortly after release. The CEO and CFO give presentations on the full-year results to institutional investors, analysts and the media.


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There are webcast teleconferences after the release of the first, second and third quarter results for institutional investors, analysts and the media. The Annual Report, Annual Review and quarterly results are available on the company’s website.

The Annual General Meeting (AGM) takes place in London, and formal notification is sent to shareholders at least one month in advance. At the Meeting, a business presentation is made to shareholders and all Directors able to attend are available, formally during the AGM, and informally afterwards, for questions. Committee Chairmen ordinarily attend the AGM to respond to shareholders’ questions. Mr Culp was unable to attend the company’s AGM in May 2005 due to other commitments. All resolutions at the AGM are decided on a poll as required by the company’s Articles of Association. The results of the poll are announced to the London Stock Exchange and posted on the company’s website. Details of the 2006 AGM are set out in the section ‘Annual General Meeting’ (see this page).

To ensure that the Non-Executive Directors are aware of and understand the views of major shareholders about the company, the Board has in place a process focusing on sector-specific issues, as well as general shareholder preferences. At its meeting in July, the Board received an external review of shareholder opinion.

The CEO and CFO maintain a dialogue with institutional shareholders on performance, plans and objectives through a programme of regular meetings.

The Group’s Investor Relations department, with offices in London and Philadelphia, acts as a focal point for contact with investors throughout the year.

The Chairman meets regularly with institutional investors to hear their views and discuss issues of mutual importance.

The Chairman of the Remuneration Committee meets with major shareholders to discuss executive remuneration policy. All Non-Executive Directors, including new appointees, are available to meet with major shareholders if requested.

The company’s website gives access to current financial and business information about the Group.

Share buy-back programme
A total of £6.5 billion has been spent by the company on buying its own shares for cancellation or to be held as Treasury shares, of which £1 billion was spent in 2005. The programme covers purchases by the company of shares for cancellation or to be held as Treasury shares, in accordance with the authority given by shareholders at the company’s AGM in 2005.

In May 2005, the company was authorised to purchase a maximum of 586.4 million shares. During 2005, 72.8 million shares, representing 1.2% of the issued share capital, were purchased and held as Treasury shares (see Note 31 to the financial statements, ‘Share capital and share premium account’).

The exact amount and timing of future purchases, and the extent to which repurchased shares will be held as Treasury shares rather than being cancelled, will be determined by the company and is dependent on market conditions and other factors.

Donations to Political Organisations and EU Political Expenditure
At the AGM in May 2001, shareholders first authorised the company to make donations to EU Political Organisations and to incur EU Political Expenditure, under the provisions of the Political Parties, Elections and Referendums Act 2000, of up to £100,000 each year. This authority has since been renewed annually. Although the company does not make and does not intend to make such payments or donations to political parties, within the normal meaning of that expression, the definition in the legislation of ’EU Political Organisation’ is wide. It may extend to bodies, which the company and its subsidiaries might wish to support including those concerned with policy review, law reform, the representation of the business community and special interest groups, such as those concerned with the environment. No donations were made to EU Political Organisations during 2005. The Group made donations to non-EU Political Organisations totalling £320,000 during 2005 (£291,000 in 2004).

Donations of £301,000 were made in the USA and £19,000 in Canada. The USA is the largest recipient of political donations, and this reflects the US political system, where candidates are sponsored solely by donations from individuals, NGOs, companies and other parties.

In line with US law, the corporate donations by GSK are not made at a federal level, but only to candidates and political parties at the state and local levels. Donations are accepted practice in the USA, and as a major employer in a heavily regulated industry, it is important for GSK to engage fully in the political process. Donations are one of the ways of doing this. GSK supports those candidates who seek an environment that appropriately rewards high-risk, high-investment industries and who believe in free market principles and intellectual property rights.

The situation is similar in Canada, and donations follow the same guidelines. In the rest of the world donations are very rare and of low value.

There is also a GSK Political Action Committee (PAC) in the USA which gives political donations. PAC’s are employee organisations which allow employees to contribute to a fund for political donations. Employees decide upon the recipients of the PAC donations. In 2005, a total of £282,000 was donated to political organisations by the GSK PAC.

Annual General Meeting

The AGM will be held at 2.30pm on Wednesday, 17th May 2006 at The Queen Elizabeth II Conference Centre, Broad Sanctuary, Westminster, London SW1P 3EE. The business to be transacted at the meeting will include:

Receiving and adopting GlaxoSmithKline's 2005 Annual Report
Approving the 2005 Remuneration Report 
  The Remuneration Report on pages 37 to 54 sets out the remuneration policies operated by GlaxoSmithKline and disclosures on Directors’ remuneration, including those required by the Companies Act 1985 and the Directors’ Remuneration Report Regulations 2002. A resolution will be proposed to approve the Remuneration Report.


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Retirement, election and re-election of Directors
  Dr Slaoui and Mr de Swaan have been appointed Directors since the 2005 AGM and will offer themselves for election to the Board. Mr Culp, Sir Crispin Davis and Dr Schmitz will retire and offer themselves for re-election to the Board under article 93 of the company’s Articles of Association. Dr Shapiro will retire at the conclusion of the AGM and will not offer herself for re-election.
Re-appointment and remuneration of Auditors
  Resolutions will be proposed to re-appoint PricewaterhouseCoopers LLP as auditors and to authorise the Audit Committee to determine their remuneration.
Special business
  The company will seek authority to:
  make donations to EU Political Organisations and incur EU Political Expenditure
  allot Ordinary Shares in the company
  give the Directors authority to disapply pre-emption rights when allotting new Shares in connection with rights issues or otherwise up to a maximum of 5% of the current issued share capital and purchase its own Ordinary Shares up to a maximum of just under 10% of the current issued share capital.

Internal control framework

The Board recognises its responsibility to present a balanced and understandable assessment of the Group’s position and prospects. The structure of accountability and audit operated in GSK is as follows.

The Board has accountability for reviewing and approving the adequacy and effectiveness of internal controls operated by the Group, including financial, operational and compliance controls and risk management. The Board has delegated responsibility for such review to the Audit Committee, which receives reports from those individuals identified in the Committee’s Report on pages 34 and 35. It is the responsibility of management, through the CET, to implement Board policies on risk and control. The CET is responsible for identifying, approving, monitoring and enforcing key policies that go to the heart of how the Group conducts business. The internal control framework includes central direction, resource allocation and risk management of the key activities of research and development, manufacturing, marketing and sales, legal, human resources, information systems and financial practice. As part of this framework, there is a comprehensive planning system with an annual budget approved by the Board. The results of operating units are reported monthly and compared to the budget. Forecasts are prepared regularly during the year.

Extensive financial controls, procedures, self-assessment exercises and risk activities are reviewed by the Group’s internal auditors. Commercial and financial responsibility, however, is clearly delegated to local business units, supported by a regional management structure. These principles are designed to provide an environment of central leadership coupled with local operating autonomy as the framework for the exercise of accountability and control within the Group.

The Group also attaches importance to clear principles and procedures designed to achieve appropriate accountability and control. A Group policy, ‘Risk Management and Legal Compliance’, mandates that business units establish processes for managing and monitoring risks significant to their businesses and the Group.

The internal control framework also relies on the following for overseeing and reporting risk and compliance issues.

Risk Oversight and Compliance Council (ROCC)
The ROCC is a council of senior executives authorised by the Board to assist the Audit Committee oversee the risk management and internal control activities of the Group. Membership comprises several CET members and some of the heads of departments with internal control, risk management, audit and compliance responsibilities.

The ROCC meets on a regular basis to review and assess significant risks and their mitigation plans. The ROCC, responding to the Group policy referred to above, has provided the business units with a framework for risk management and upward reporting of significant risks. Mitigation planning and identification of a manager with overall responsibility for management of any given risk is a requirement.

Risk Management and Compliance Boards (RMCBs)
Risk Management and Compliance Boards (RMCBs) have been established in each of the major business units. Membership often comprises members of the senior executive team of the respective business unit, augmented by specialists where appropriate. The RMCBs oversee management of all risks that are considered important for their respective business units, including those risks that are designated as significant to GlaxoSmithKline as a whole, thus increasing the number of risks that are actively managed across the Group.

Each RMCB regularly reports the status regarding its significant risks to the ROCC.

Compliance functions
In a number of risk areas, specific standards that meet or exceed requirements of applicable law have been established. Specialist audit and compliance functions (for example Corporate Environment, Health & Safety, Global Quality Assurance and Worldwide Regulatory Compliance) assist in the dissemination, implementation and audit of these standards.

Corporate Ethics & Compliance (CEC)
The ROCC is also supported by the Corporate Ethics & Compliance department which is responsible for supporting the development and implementation of practices that facilitate employees’ compliance with laws and Group policy.

The thrust of the Group’s compliance effort is due diligence in preventing and detecting misconduct and non-compliance with law or regulation by promoting ethical behaviour, compliance with all laws and regulations, corporate responsibility at all levels and effective compliance systems.

The CEC is managed by the Corporate Compliance Officer, who reports directly to the CEO. The Corporate Compliance Officer chairs the ROCC and provides summary reports on the ROCC’s activities and the Group’s significant risks to the CET and the Audit Committee on a regular basis. The Corporate Compliance Officer’s direct reporting line to the Audit Committee provides a mechanism for bypassing the executive management should the need ever arise.

Areas of potentially significant risk
For details of risks affecting the Group, see Note 41 to the financial statements, ‘Legal proceedings’ and ‘Risk factors’ on pages 71 to 74.


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Effectiveness of controls
The internal control framework has been in operation for the whole of the year under review and continues to operate up to the date of approval of this report. The system of internal controls is designed to manage rather than eliminate the risk of not achieving business objectives, and can only provide reasonable and not absolute assurance against material misstatement or loss.

The Audit Committee receives reports on areas of significant risk to the Group and on related internal controls. Following consideration of these reports, the Audit Committee reports annually to the Board on the effectiveness of controls. Such controls may mitigate but cannot eliminate risks. In addition, there are areas of the Group’s business where it is necessary to take risks to achieve a satisfactory return for shareholders, such as investment in R&D and in acquiring new products or businesses. In these cases, it is the Group’s objective to apply its expertise in the prudent management rather than elimination of risk. The Directors’ review relates to the company and its subsidiaries and does not extend to material associated undertakings, joint ventures or other investments.

The Board, through the Audit Committee, has reviewed the assessment of risks and the internal control framework that operates in GlaxoSmithKline and has considered the effectiveness of the system of internal control in operation in the Group for the year covered by this report and up to the date of its approval by the Board. The process followed by the Board in reviewing the system of internal controls accords with the guidance on internal control issued by the Turnbull Committee in 1999.

Committee reports

Audit Committee Report
The Audit Committee’s role flows directly from the Board’s oversight function and it is authorised by the Board to investigate any activity within its terms of reference. The Committee has written terms of reference which have been approved by the Board. The Committee reports regularly to the Board on the performance of the activities it has been assigned. The Committee’s main responsibilities include reviewing the corporate accounting and financial reporting process, monitoring the integrity of the financial statements, evaluating the system of internal control and the management of risks, overseeing activities of each of the Group’s compliance audit functions and overseeing compliance with laws, regulations and ethical codes of practice. The Committee’s oversight role requires it to address regularly the relationships between management and the internal and external auditors, and understand and monitor the reporting relationships and tiers of accountability between them. The Committee receives regular reports from members of the CET and senior managers covering the key compliance activities of the Group, including those concerning R&D, manufacturing, sales and marketing and EHS.

Committee members bring considerable financial and accounting experience to the Committee’s work. Members have past employment experience in either finance or accounting roles or comparable experience in corporate activities.

In respect of 2005, the Board had determined that the combined qualifications and experience of the Committee members, when taken together with its modus operandi, gave the Committee collectively the financial expertise necessary to discharge its responsibilities.

Accordingly, the Board chose not to nominate any one committee member as having recent and relevant financial experience as defined by the Combined Code, or as an Audit Committee Financial Expert as defined by Sarbanes-Oxley.

In arriving at its conclusion, the Board considered the following points. Dr Schmitz has been the Chairman of the Committee since April 2001. Prior to his appointment as a Non-Executive Director of the company, he was a Non-Executive Director of Glaxo Wellcome plc, where he served on the Audit Committee. Dr Schmitz has also been a member of the Executive Board of Directors of Deutsche Bank AG. He retired from that Board in 2000 having been in charge of investment banking. Dr Schmitz was formerly a member of the Executive Board of Directors of BASF from 1980 to 1990, including CFO from 1985 to 1990. He holds an MBA from Insead. Sir Ian Prosser was CFO and later CEO of Bass PLC and is a member of the Institute of Chartered Accountants in England and Wales. Sir Robert Wilson began his professional career as an economist. He is Chairman of BG Group plc. He held senior management positions at Rio Tinto plc culminating in his appointment as Executive Chairman, from which he retired in 2003.

Sir Deryck Maughan was appointed a member of the Committee on 21st January 2005. He is Managing Director of Kohlberg Kravis Roberts & Co (KKR) and Chairman of KKR Asia. He was Chairman and CEO of Citigroup International and Vice Chairman of Citigroup Inc. Prior to the creation of Citigroup, he was Chairman and Co-Chief Executive Officer of Salomon Smith Barney. He was also Chairman and Chief Executive Officer of Salomon Brothers.

When appointing Mr de Swaan to the Committee with effect from 1st January 2006, the Board determined that he had recent and relevant financial experience in accordance with the Combined Code. In coming to this conclusion, the Board paid particular attention to Mr de Swaan’s role as Chief Financial Officer of ABN AMRO, from which he retired on 31st December 2005. The Board also considers Mr de Swaan to be an Audit Committee Financial Expert as defined by Sarbanes-Oxley.

The Committee is supported by the Company Secretary, who attends the Committee’s meetings, and it has available to it financial resources to take independent professional advice when considered necessary. Meetings of the Committee are attended by the Chairman, CEO, CFO, General Counsel, Head of Global Internal Audit (GIA), Corporate Compliance Officer and the external auditors.

In 2005, the Committee worked to a structured programme of activities, with standing items that the Committee is required to consider at each meeting together with other matters focused to coincide with key events of the annual financial reporting cycle:

the external auditors reported to the Committee on all critical accounting policies and practices used by the company, alternative accounting treatments which had been discussed with management and the resultant conclusion by the external auditors, material written communications with management and any restrictions on access to information
the CFO reported on the financial performance of the company and on technical financial and accounting matters
the General Counsel reported on material litigation
the Company Secretary reported on corporate governance


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the Heads of each of the Group’s compliance and audit groups reported on their audit scope, annual coverage, audit resources and on the results of audits conducted throughout the year
the Corporate Compliance Officer reported on the activities undertaken by the ROCC
the Company Secretary, as Chairman of the Disclosure Committee, reported on matters that affected the quality and timely disclosure of financial and other material information to the Board, to the public markets and to shareholders. This enabled the Committee to review the clarity and completeness of the disclosures in the published annual financial statements, interim reports, quarterly and preliminary results announcements and other formal announcements relating to financial performance prior to their release by the Board.

The Audit Committee, management, internal auditors and the full Board work together to ensure the quality of the company’s corporate accounting and financial reporting. The Committee serves as the primary link between the Board and the external and internal auditors. This facilitates the necessary independence from management and encourages the external and internal auditors to communicate freely and regularly with the Committee. In 2005, the Committee met both collectively and separately with the external auditors and the Head of GIA, without members of management being present.

The Committee has primary responsibility for making a recommendation to shareholders on the appointment, reappointment and removal of the external auditors by annually assessing the qualifications, expertise, resources and independence of the external auditors and the effectiveness of the audit process.

In making its assessment, the Committee considers papers which detail the relevant regulatory requirements relating to external auditors and evaluates reports from the external auditors on their compliance with the requirements. Where the external auditors provide non-audit services, the Committee ensures that auditor objectivity and independence are safeguarded by a policy requiring pre-approval by the Audit Committee for such services. Expenditure on audit and non-audit services is set out on pages 95 and 96.

The guidelines set out in the company’s policy on engaging the external auditors to provide non-audit services include ascertaining that: the skills and experience of the external auditors make them a suitable supplier of the non-audit services; adequate safeguards are in place so that the objectivity and independence of the audit are not compromised; and the fee levels relative to the annual audit fee are within the limits set by the Committee.

The company also has well-established policies, including a Code of Ethics, which is available on its website, and a help-line facility for the reporting and investigation of unlawful conduct. No waivers to the Code were made in 2005.

The Committee met in full session five times in 2005 and five times on a quorate basis. Each full session was attended by all members except Sir Robert Wilson, who was unable to attend one meeting.

Nominations Committee Report
The Nominations Committee’s terms of reference include responsibility for proposing the appointment of Board and Committee members. During 2005, the Committee made recommendations to the Board on the appointment of Mr de Swaan as a Non-Executive Director.

The Committee also recommended to the Board the appointment of Sir Deryck Maughan to the Audit Committee in January 2005 and Dr Schmitz to the Remuneration Committee in May 2005. In February 2006, the Committee recommended to the Board that Dr Moncef Slaoui, succeed Dr Yamada as Chairman, Research & Development on his retirement from the company on 1st June 2006.

In addition, the Committee recommended to the Board that Dr Schmitz should serve a further term of three years as a Non-Executive Director and that he should remain Chairman of the Audit Committee until September 2006. The Committee also made a recommendation to the Board that Dr Ralph Horwitz be appointed a Non-Executive Director. Following the announcement of Dr Horwitz’s appointment, a potential conflict of interest was disclosed, and Dr Horwitz decided not to take up his appointment as a Non-Executive Director of the company.

When recruiting Non-Executive Directors, the Committee considers the particular skills, knowledge and experience that would benefit the Board most significantly for each appointment. Broad selection criteria are used which focus on achieving a balance between the representation of European, UK and US markets, and having individuals with CEO experience and skills developed in various sectors and specialities. During 2005, particular focus was placed upon recruiting a new Non-Executive Director with recent and relevant financial expertise, to join the Audit Committee. Professional search agencies are engaged specialising in the recruitment of high calibre Non-Executive Directors. Dossiers of potential non-executive appointees are provided to the Committee and candidates are short-listed for interview after considering their relevant qualifications.

A customised induction process is conducted for each of the new Non-Executive Directors focusing on their particular experience and taking account of their different backgrounds. This process includes meeting members of the CET and other senior executives and visiting particular operational facilities of the Group.

The Committee continued to keep under review the succession planning for senior executive positions, including that of the CEO and Chairman, Research & Development.

When appointing new Executive Directors, the Committee considers the skills, knowledge and experience required for the particular executive position. The Committee will consider potential external and internal candidates before recommending to the Board to approve the new appointment. All new Directors offer themselves for election at the company’s next AGM. Their appointments are announced publicly.

The Committee met once during 2005 in full session and twice on a quorate basis. All members were present at the full meeting.

Remuneration Report
The Remuneration Report can be found on pages 37 to 54.

The Combined Code

Throughout 2005, the company complied with the Code provisions of the Combined Code, except as follows:

B.1.1 – In designing schemes of performance-related remuneration, the Remuneration Committee should follow the provisions in Schedule A to the Code. Item 6 of Schedule A states that, in general, only basic salary should be pensionable. The company’s position is explained in the Remuneration Report on pages 37 to 54.


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C.3.1 – The Board should satisfy itself that at least one member of the Audit Committee has recent and relevant financial experience. The company’s position is explained on page 34. See page 34 for the position from 1st January 2006.
D.2.3 – The Chairman should arrange for the Chairmen of the Audit, Remuneration and Nominations Committees to be available to answer questions at the AGM and for all Directors to attend. The company’s position is explained on pages 31 and 32.

US law and regulation

A number of provisions of US law and regulation apply to GSK because the company’s shares are quoted on the New York Stock Exchange (NYSE) in the form of ADSs.

NYSE rules
In general, the NYSE rules permit the company to follow UK corporate governance practices instead of those applied in the USA, provided that the company explains any significant variations. This explanation is on the company’s website. NYSE rules that came into effect in 2005 require the company to file annual and interim written affirmations concerning the Audit Committee and the company’s statement on significant differences in corporate governance.

Sarbanes-Oxley Act of 2002
Following a number of corporate and accounting scandals in the USA, Congress passed the Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley). Sarbanes-Oxley established new standards for corporate accountability for companies listed in the USA. Although the company’s corporate governance structure was believed to be robust and in line with best practice, certain changes were necessary to ensure compliance with Sarbanes-Oxley.

As recommended by the Securities and Exchange Commission (SEC), GSK has established a Disclosure Committee. The Committee reports to the CEO, the CFO and to the Audit Committee. It is chaired by the Company Secretary and the members consist of senior managers from finance, legal, compliance, corporate communications and investor relations.

External legal counsel and the external auditors are invited to attend its meetings periodically. It has responsibility for considering the materiality of information and, on a timely basis, determining the disclosure of that information. It has responsibility for the timely filing of reports with the SEC and the formal review of the Annual Report and Form 20-F. In 2005, the Committee met eleven times.

Sarbanes-Oxley requires that the Annual Report contains a statement as to whether a member of the company’s Audit Committee is an audit committee financial expert.

For an explanation and details of the basis for the Board’s judgement on this matter, refer to page 34.

For accounting periods ending on or after 15th July 2006, Sarbanes-Oxley requires that the company’s Form 20-F contain a report stating the responsibility of management for establishing and maintaining adequate internal control over financial reporting and assessing the effectiveness of the company’s internal control over financial reporting.

Although the company is not required to report compliance in its 2005 Form 20-F, management has undertaken a process to ensure that it will be in a position to report compliance by the due date.

Sarbanes-Oxley also introduced a requirement for the CEO and the CFO to complete formal certifications, confirming that:

they have each reviewed the Annual Report and Form 20-F
based on their knowledge, it contains no material misstatements or omissions
based on their knowledge, the financial statements and other financial information fairly present, in all material respects, the financial condition, results of operations and cash flows as of the dates, and for the periods, presented in the Annual Report and Form 20-F
they are responsible for establishing and maintaining disclosure controls and procedures that ensure that material information is made known to them, have evaluated the effectiveness of these controls and procedures as at the year end, the results of such evaluation being contained in the Annual Report and Form 20-F and have disclosed in the Annual Report and Form 20-F any changes in internal controls over financial reporting during the period covered by the Annual Report and Form 20-F that have materially affected, or are reasonably likely to affect materially, the company’s internal control over financial reporting
they have disclosed, based on their most recent evaluation of internal control over financial reporting, to the external auditors and the Audit Committee all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to affect adversely the company’s ability to record, process, summarise and report financial information and any fraud (regardless of materiality) involving persons that have a significant role in the company’s internal control over financial reporting.

The CEO and CFO have completed these certifications, which will be filed with the SEC as part of the Group’s Form 20-F.

Controls and procedures
The Group carried out an evaluation under the supervision and with the participation, of the Group’s management, including the CEO and CFO, of the effectiveness of the design and operation of the Group’s disclosure controls and procedures as at 31st December 2005. There are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures.

Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their control objectives. Based upon the Group’s evaluation, the CEO and CFO have concluded that, as at 31st December 2005, the disclosure controls and procedures were effective to provide reasonable assurance that information required to be disclosed in the reports the Group files and submits under the US Securities Exchange Act of 1934, as amended, is recorded, processed, summarised and reported as and when required and that it is accumulated and communicated to management, including the CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure.

There have been no changes in the Group’s internal control over financial reporting during 2005 that have materially affected, or are reasonably likely to affect materially, the Group’s internal control over financial reporting.


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Remuneration Report


The Remuneration Report sets out the remuneration policies operated by GSK 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 nor 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.

Introduction 38
Remuneration policy 38
Executive Director terms, conditions and remuneration 42
Non-Executive Director terms, conditions and fees 44
Directors and Senior Management remuneration 44
Annual remuneration 45
Non-Executive Directors’ remuneration 46
Directors’ interests 48
Share options 49
Incentive plans 51
Pensions 53
Directors and Senior Management 54
Directors’ interests in contracts 54


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The Remuneration Committee (or ‘Committee’) is responsible for making recommendations to the Board on the company’s remuneration policy and, within the terms of the agreed policy, determining the total individual remuneration packages of the Executives.

The remuneration policy set out in this Report was finalised after undertaking an extensive consultation process with shareholders and institutional bodies during the course of 2003 and 2004.

The Chairman of the Remuneration Committee continues to have regular dialogue with institutional investors regarding GSK’s remuneration policy.

GlaxoSmithKline’s remuneration policy is designed to establish a framework for remuneration that is consistent with the company’s scale and scope of operations, meets the recruitment needs of the business and is closely aligned with UK shareholder guidelines. As at 31st December 2005, the company was the second largest pharmaceutical company in the world by revenue, with operations on five continents with products sold in over 130 countries and with around 50% of sales being generated in the USA.

Remuneration Committee
Sir Robert Wilson has been Chairman of the Committee since 17th May 2004. Sir Crispin Davis and Mr Culp were members of the Committee throughout 2005. Dr Schmitz was appointed to the Committee in May 2005. The Board deemed all of the members of the Committee to be independent Non-Executive Directors in accordance with the Combined Code.

The Committee met five times during 2005 with each member attending as follows:

Name Number of meetings
held whilst a
Committee member
  Number of meetings
attended by
Committee member

Sir Robert Wilson 5   5  
Mr L Culp 5   5  
Sir Crispin Davis 5   5  
Dr Ronaldo Schmitz 4   4  


Three quorate meetings were held to approve the formal grant of share options and performance share awards to give effect to the Committee’s decisions.

With the exception of the Company Secretary, no employees of the company were involved in the conduct of Committee meetings. Dr Garnier (CEO) and the Senior Vice President, Human Resources, were invited to attend part of some meetings of the Committee as required.

Deloitte & Touche LLP (Deloitte) have been appointed by the Committee to provide it with independent advice on executive remuneration.

Deloitte provided other consulting services to GSK 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.

Remuneration policy

The four core principles which underpin the remuneration policy for GlaxoSmithKline are:

securing outstanding executive talent 
pay for performance and only for performance 
robust and transparent governance structures
a commitment to be a leader of good remuneration practice in the pharmaceutical industry. 

In formulating the policy, the Committee also decided that:

the remuneration structure must support the needs of the business in a very competitive market place 
UK shareholder guidelines will be followed to the maximum extent consistent with the needs of the business and the company would maintain a regular dialogue with shareholders 
global pharmaceutical companies are the primary pay comparator group 
performance conditions would be based on the measurable delivery of strong financial performance and the delivery of superior returns to shareholders as compared with other pharmaceutical companies 
a high proportion of the total remuneration opportunity will be based on performance-related remuneration which will be delivered over the medium to long term 
remuneration would be determined using the projected value method (see ‘Benchmarking’ below) 
there would be one remuneration structure for Executive Directors and the CET with the same performance conditions, applying equally to their long-term incentive awards 
no ex-gratia payments will be made 
pay structures would be as simple as is consistent with the business needs. 

Overall, the policy is intended to provide median total remuneration for median performance. Poor performance will result in total remuneration significantly below the pay comparator group median, with the opportunity to earn upper quartile total remuneration for exceptional performance.

This strong alignment with performance is demonstrably in the interests of shareholders and provides the Executives with unambiguous signals about the importance of delivering success to the company’s shareholders.

The Committee will apply this policy on a consistent and transparent basis. Any significant changes in the measures used to assess performance will be discussed with shareholders. In the use of comparators for pay benchmarking, the Committee will use its discretion to ensure that remuneration levels are reasonable, and if it believes that changes may cause concern amongst shareholders, the position will be discussed with shareholders prior to implementation.


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Pay and performance comparators
The following table sets out the companies used for pay and performance comparison:

Company Country   Market Cap

Abbott Laboratories USA   35,561  
AstraZeneca UK   44,693  
Bristol-Myers Squibb USA   26,140  
Eli Lilly USA   37,396  
GlaxoSmithKline UK   85,497  
Johnson & Johnson USA   103,950  
Merck USA   40,440  
Novartis Switzerland   80,419  
Pfizer USA   99,942  
Roche Holdings Switzerland   61,334  
Sanofi-Aventis France   70,997  
Schering-Plough USA   17,915  
Takeda Pharmaceutical Company Japan   27,949  
Wyeth USA   35,952  


The merger of Aventis and Sanofi-Synthelabo during 2004 reduced the size of the comparator group to 13 companies and GlaxoSmithKline. The Committee subsequently determined that for a number of reasons, including focus of operation and market capitalisation, there was no other suitable company to add to the group.

For benchmarking purposes, total remuneration incorporates base salary, annual bonus and long-term incentives. When setting pay, the Committee has due regard to the Executives’ pension arrangements.

The global pharmaceutical industry is used as the primary pay comparator for the Executives, as it is the appropriate marketplace for the company’s most senior executive talent. In the first instance, pay is benchmarked to publicly available remuneration data for these companies.

To provide context to the above information, reference is made to the Towers Perrin annual global pharmaceutical pay survey for the Pharmaceutical Human Resources Association (PHRA). To ensure that the global pharmaceutical industry benchmark is subject to scrutiny and review, the Committee also considers pay data from other global businesses primarily in the consumer and the manufacturing sectors.

Prior to determining the annual long-term incentive opportunity, the Committee considers a range of vesting levels that may be achieved based on different assumptions, such as share price growth, performance levels etc. For performance in line with expectations, total remuneration is targeted at the median of the comparator group and the long-term incentive opportunity is set in a way which provides for positioning of total remuneration at the median.

To ensure that a stable benchmark is developed and to reduce the impact of short-term fluctuations, incentive policies for other global pharmaceutical companies are assessed over a number of years.

Valuation method
The projected value method is used to benchmark total remuneration. This method projects the future value of the remuneration package under different performance scenarios, whilst moderating the impact of market fluctuations in the short term and strengthening the focus on performance.

Following the independent review in 2003, the Committee made a deliberate and conscious decision to use the projected value method for pay benchmarking purposes as it enables a comparison of packages with different structural characteristics and provides an insight into the value gearing of different equity instruments.

Individual elements of remuneration
The balance between the fixed (base salary) and variable (annual bonus and long-term incentive) elements of remuneration changes with performance. The chart below shows the anticipated normal range of the mix between fixed and variable pay at different levels of performance for the CEO and the typical case for the other Executive Directors (“ED”). In some years, the ranges may be higher or lower, depending on the performance of the company and the individual.

Base salary
Base salaries are set by reference to the median for the relevant market. For Executives, this is the pharmaceutical pay comparator group. Actual salary levels are reviewed annually and may vary depending on an Executive’s experience, responsibility and market value. Any changes usually take effect from 1st April. Following a market data review, base salaries for Dr Garnier and Dr Yamada were increased by 5.1% to $1,600,000 and 6.9% to $775,000, respectively, with effect from 1st April 2005 in line with stated policy in relation to base salary positioning. The base salary for Mr Coombe prior to his retirement on 31st March 2005 was £509,850. The base salary on appointment for Mr Julian Heslop, who succeeded Mr Coombe, was £320,000. Following a market data review, undertaken in February 2006, the base salary for Dr Garnier and Dr Yamada was increased by 8% to $1,730,000 and by 3% to $800,000, respectively. Mr Heslop’s base salary was increased by 25% to £400,000 following the Committee’s review of his performance as CFO since his appointment to the role on 1st April 2005. Salary increases take effect 1st April 2006.

Annual bonus
All bonuses are determined on the basis of a formal review of annual performance against stretching financial targets based on profit before interest and tax and are subject to detailed assessment of individual, business unit and Group achievements against objectives. No bonus is payable if financial performance is less than 96% of the target performance. The individual performance against objectives can increase or decrease the bonus level by a factor which can range from zero to 1.5. Bonuses are subject to upper limits, which for the Executives other than the CEO, range between 100% and 200% of base salary. The CEO’s limit is 200%.

An annual bonus paid on the basis of on-target business performance together with base salary provides annual cash in line with the median of the pay comparator group.

In the case of the CEO, the bonus targets are set by the Board. In setting the objectives for the CEO, the Board takes into account the strategies that have been developed by the company, and are set out on page 6 of the Annual Report.


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The objectives set for 2005 focussed in particular on building the best product pipeline in the industry, delivering commercial and operational excellence and, in addition, formulating and updating the strategic plan for the vaccines business.

For reasons of commercial sensitivity, the specific objectives set against the strategic business drivers are kept confidential. Following the end of the financial year, the Board reviews the CEO’s performance generally and against the set objectives, and the Committee then determines the bonus payable. The CEO makes recommendations to the Committee regarding the performance level achieved against objectives for the other Executives. These recommendations are then considered by the Committee to determine the resultant bonus.

In determining bonus awards for 2005, the Committee took into account the excellent financial performance during the year and the encouraging progress in building the pipeline of new products.

In light of the low take up levels and in response to concerns expressed by institutional investors in relation to the 1 for 10 non-performance related match provided under the Annual Incentive Plan (AIP), the Committee decided to discontinue the AIP. Under the AIP, and its US equivalent, eligible employees could elect to invest their bonus in GSK shares or ADSs for a minimum period of three years. At the end of the three-year holding period, participants (including Executives) are entitled to a matching award of 10% of their deferred shareholding. The match is not subject to further performance conditions. This AIP was open to approximately 700 senior executives who all participated on the same terms. The last deferral elections under the AIP were made in respect to bonuses earned during 2005. Although the AIP has now closed, GSK will continue to manage the ongoing administration of subsisting awards as required by the AIP rules.

Long-term incentives
Executives are eligible for performance share awards and share options. The remuneration policy provides that annual long-term incentive (LTI) awards will normally be made up of a performance share award and a share option award.

The Committee considers that performance shares provide a stronger alignment to shareholder value, and therefore the remuneration policy places greater emphasis on the use of performance shares. LTI awards are determined such that for on-target performance more than half of the long-term incentive reward is derived from performance shares.

The annual grant of LTI awards using more than one plan is consistent with the practice of the pay comparator group and other leading UK companies. LTIs for the CET are provided on the same basis as the Executive Directors. The level of the annual LTI opportunity is considered carefully year-on-year by the Committee in the context of market practice.

To align the award cycles more closely with GSK’s financial year and budgeting process, the Committee decided to change the annual grant date for LTI awards for all eligible employees from the fourth quarter of each year to the first quarter of each year.

This change took effect from 2005 and thus LTI awards that would otherwise have been made in the fourth quarter of 2005 were made instead in February 2006. This change in award cycle does not affect the performance period.

Historically, the performance period for awards made in the fourth quarter started on 1st January following the date of award. For LTI awards made in 2006 and thereafter, the performance period starts on 1st January of the year of award (i.e. 1st January 2006 for awards made in February 2006).

No compensation was provided for the change in the awards cycle.

Full disclosure of LTI awards made to the Executive Directors in February 2006 will be made in the Remuneration Report for 2006. The summary details of the LTI awards made to the Executive Directors in February 2006 are set out on page 51 of the Remuneration Report.

Performance share awards and share options are delivered to US resident executives in the form of ADSs. Awards are delivered in the form of Ordinary Shares to executives resident in the UK and other countries. All awards are made under plans which incorporate dilution limits consistent with the guidelines provided by the Association of British Insurers, the National Association of Pension Funds and other shareholder representative bodies. Current estimated dilution from existing awards under all GlaxoSmithKline employee share schemes made since the merger is approximately 5% of the company’s share capital at 31st December 2005.

In 2005, the Committee, assisted by Deloitte, undertook a review of the current performance measures used under the GSK LTI plans. After extensive and careful consideration, the Committee concluded that the measures currently used under the LTI plans remain appropriate and relevant, although in the case of the Share Option Plan, it was agreed that the annualised growth in EPS to achieve 100% vesting for the awards granted in 2006, would be increased from RPI + 5% to RPI +6%.

a) Performance shares
For the Executives, the level of performance shares vesting is based on the company’s Total Shareholder Return (TSR) relative to the performance comparator group (see page 39) over a three-year measurement period. TSR was chosen as the most appropriate comparative measure since it focuses on the return to shareholders, is a well-understood and tested mechanism to measure performance and allows comparison between companies operating in different countries.

TSR is measured in sterling over the performance period and represents the change in the value of a share together with the value of reinvested dividends paid. In order to remove the impact of the varying tax treatments of dividends in different jurisdictions, all dividends are reinvested gross.

As a result of the change in the LTI award cycle for all eligible employees, no performance share awards were made in 2005 to the Executives. In respect of the performance share awards granted in December 2004 and in February 2006, with the performance periods of 1st January 2005 to 31st December 2007 and 1st January 2006 to 31st December 2008, respectively, if GSK is ranked at position seven (the mid-point) of the performance comparator group, 35% of the shares will vest. Any ranking below this point will result in no shares vesting. Only if GSK is one of the top two companies will all of the shares vest. When determining vesting levels, the Committee has regard for the company’s underlying financial performance.


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TSR rank with 13 companies &   Percentage of
GlaxoSmithKline   award vesting*

1   100%
2   100%
3   87%
4   74%
5   61%
6   48%
7   35%
Below 7   0%

* TSR is measured on a pro-rata basis. Where GlaxoSmithKline’s performance falls between two of the comparators, the level of vesting will be determined by the actual relative level of TSR rather than simple ranking. 

To provide a closer link between shareholder returns and payments to the Executives, notional dividends are reinvested and paid out in proportion to the vesting of the award. The receipt of dividends has been incorporated into the benchmarking of award levels. In addition, performance shares earned by the Executives cannot be sold, except to meet related tax liabilities, for a further two years following the end of the vesting period. The Committee believes that this further aligns the interests of the Executives with the long-term interests of shareholders.

The vesting table for the performance share awards granted in December 2003, with the performance period 1st January 2004 to 31st December 2006, is given on page 52.

b) Share options
Share options allow a holder to buy shares at a future date at the share price prevailing at the time of grant. Share options are granted to more than 12,000 managers at GlaxoSmithKline, including the Executives. The vesting of the share options granted to the Executives is linked to the achievement of compound annual EPS growth over the performance period.

The Committee considered that EPS was the key measure of the performance of the business and was also fully reflected through the business measures extended throughout the Group, ensuring organisational alignment.

When setting EPS targets, the Committee considers the company’s internal projections and analysts’ forecasts for GlaxoSmithKline’s EPS performance, as well as analysts’ forecasts for the pharmaceutical industry.

The following key principles govern the use of EPS as a performance measure:

adjustments will only be considered for major items 
adjustments will be for the judgement of the Committee 

the purpose of the adjustments is to ensure that the performance measurement is fair and reasonable to both participants and shareholders

any discretion exercised by the Committee will be disclosed to shareholders in the Annual Report. 

The Committee will set out the basis of its decision if it considers it appropriate to make any adjustment.

Following the introduction of International Financial Reporting Standards (IFRS) on 1st January 2005, the Committee considered what EPS measurement basis, either IFRS or UK GAAP, should be used for share options and performance share plan awards (prior to 2003 see page 50), with EPS performance conditions having performance periods that straddled the IFRS conversion date. The Committee agreed that for the purpose of measuring EPS growth in determining whether vesting targets had been achieved, UK GAAP would be used for the 2002 grant (performance period: 1st January 2003 to 31st December 2005) as two out of three years would be reported under UK GAAP. This would require the 2005 CER growth to be restated on a UK GAAP basis. IFRS would be used for the 2003 grant (performance period: 1st January 2004 to 31st December 2006) as two out of the three years would be reported under IFRS.

As a result of the change in the LTI award cycle for all eligible employees, no share options were granted to Executives in 2005.

For share option grants in 2006, vesting increases on a straight-line basis for EPS performance between the hurdles set out in the following graph.

This performance condition is substantially consistent with UK shareholder guidelines and expectations and is demanding when compared with those operated by other global pharmaceutical companies. This is consistent with the policy of providing pay for performance and only for performance.

Performance is measured over periods of three financial years, which commence on the basis set out on page 40. There is no performance retesting, so if the performance condition is not met after the three-year period, the options will lapse.

The Executives participate in GlaxoSmithKline senior executive pension plans. The pension arrangements are structured in accordance with the plans operated for executives in the country in which the executives are likely to retire. Benefits are normally payable at age 60. Details of individual arrangements for the Executive Directors are set out on page 43. In response to the future pensions regime in the UK, the Committee carefully considered the impact of the change in legislation and has decided the following:


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the company will continue to fulfil its obligations under existing pension arrangements
no compensation will be provided if participants are adversely affected by the new pension regime. 

In coming to these decisions, the Committee took account of the following:

new executive hires benefit from a 15%, plus 4% match opportunity, of base pay under the defined contribution plan in the UK, and a contribution equal to 5% of base salary plus under the bonus cash balance plan in the USA
in the UK, legacy final salary plans were grandfathered for existing employees and no new entrants have been allowed. For capped employees, benefits in excess of the cap are currently all provided through unfunded arrangements 
for capped employees in the USA, benefits above the cap are provided by a non-qualified plan. 

Share ownership requirements
To align the interests of executives with those of shareholders, executives are required to maintain significant holdings of shares in GlaxoSmithKline. These requirements are an important part of aligning the interests of executives with shareholders. The CEO is required to hold shares to the value of four times base salary. Other Executive Directors are required to build a shareholding to the value of three times base salary. Members of the CET are required to build a shareholding to a value of two times base salary. The other top 700 executives in the Group are required to build a shareholding to a value of one times base salary. Executives are required to continue to satisfy these shareholding requirements for a minimum of twelve months following retirement from the company.

In order for shares to qualify for these share ownership requirements they must be held personally by the Executive or their spouse or minor children or have been earned but deferred under one of the share programmes operated by the company. Unexercised share options are not included in this calculation. As at 31st December 2005, Dr Garnier’s holding was 225,896 ADSs, Dr Yamada’s was 67,512 ADSs and Mr Heslop’s was 18,885 ordinary shares. Dr Garnier’s and Dr Yamada’s holdings were in excess of the share ownership requirements. Mr Heslop has until December 2008 to build his holding to the value of three times base salary. Mr Coombe's shareholding at 31st December 2005, was in excess of the share ownership requirements following his retirement from the Board on 31st March 2005.

Other remuneration elements
The Executives participate in various legacy Glaxo Wellcome and SmithKline Beecham all-employee share plans in either the UK or the USA and in the GlaxoSmithKline plans that replaced them.

The Sharesave plan and the ShareReward plan are Inland Revenue-approved plans open to all UK employees on the same terms. Mr Heslop is a member of the Sharesave plan, into which he contributes £250 a month. This provides him with the option to buy shares at the end of the three-year savings period in line with the opportunity available to all UK employees.

Mr Heslop also contributes £125 per month to buy shares under the ShareReward plan. The company matches the number of shares bought each month.

The Executives also receive other benefits including healthcare (medical and dental), personal financial advice and life assurance. The cash value of the benefits received by the Executive Directors in 2005 is shown on page 45.

Executive Director terms, conditions and remuneration

Executive Director contracts
The policy regarding the Executive Directors’ contracts was the subject of extensive review and change during 2003. The policy provides the framework for contracts for Executive Directors appointed since and going forward.

The key aspects of GlaxoSmithKline’s contractual framework are:

Aspect Policy

Notice period on 12 calendar months
termination by the      
employing company      
or executive      

Termination payment   1x annual salary and
      1x annual ’on-target’ bonus 1
    No mitigation required 2

Benefits Governed by benefits policy, including:
    healthcare (medical and dental)
    personal financial advice
    life assurance contributions

Vesting of long-term Rules of relevant equity incentive
incentives plan 3

Pension Based on existing arrangements and
  terms of the relevant pension plan

Non-compete clause 12 months from termination
  notice date 2

1 Dr Garnier’s target bonus is 100% of salary, Dr Yamada’s is 85% of salary and Mr Heslop’s is 75% of salary.
2 The imposition of a 12-month non-compete period on the Executives is considered vitally important by the company in order to protect the Group’s intellectual 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 the contracts. When reviewing the level of severance payments, the Committee considered investor and DTI guidance. However, it determined that in line with competitive practice it is appropriate to provide for the payment of salary and target bonus on termination.
3 As approved by shareholders of GlaxoSmithKline, Glaxo Wellcome and SmithKline Beecham, as appropriate.


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Following the independent review of remuneration undertaken in 2003, Dr Garnier, Mr Coombe and Dr Yamada agreed to changes in their previous contractual terms without compensation to come broadly in line with the new contractual framework, including the 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.
In Dr Garnier’s case, these include the entitlement to reimbursement of excise tax on change of control related payments, life insurance benefit funded by the company to age 65 and the following provisions relating to the vesting of long-term incentives:
Pre-2003 awards
On termination by the company (other than for cause), on retirement or on resignation for ‘good reason’ (i.e. resignation due to not being elected or retained as a director of the company or any merged company, or as a result of a change of control provided that such resignation occurs on or within 30 days of the first anniversary of the change in control), options will vest in full and remain exercisable for the full option term, and performance shares will vest at the end of the performance period subject to performance but not time-apportioned.
2003 and thereafter
Awards for the above provisions apply, but options will be subject to performance testing in all circumstances, and any options or performance share awards made 12 months prior to the termination notice date will lapse. 
In addition, Dr Garnier and Dr Yamada are entitled to receive one year’s worth of pension contributions on termination.
Dr Garnier’s contract was executed on 3rd March 2004 and took effect from 1st January 2004. His contract will expire on 31st October 2007 being the last day of the month in which he will reach his 60th birthday. Dr Yamada’s contract was executed on 27th July 2004 and took effect from 1st January 2004. Dr Yamada will retire from the Board and the company on 1st June 2006. Mr Coombe’s contract was executed on 3rd March 2004, took effect from 1st January 2004 and expired on 31st March 2005.
Mr Heslop’s contract was executed on 16th March 2005 and took effect from 1st April 2005. Mr Heslop’s contract will expire on 31st January 2014, being the last day of the month in which he reaches his 60th birthday.
No termination payments will be made in respect of any part of a notice period extending beyond the contract expiry dates.
Individual pension arrangements
The UK plan provides for a pension based on two-thirds of final salary at age 60. The US cash balance plan provides for an annual contribution and interest on the sum accumulated in the cash balance plan but with no contractual promise to provide specific levels of retirement income.
GlaxoSmithKline makes annual contributions of 15% of Dr Garnier’s annual salary and bonus and 18% of Dr Yamada’s annual salary and bonus. The fund increases at an interest rate based on the yield on 30-year treasury bonds. The company has no liability beyond making these annual contributions.
Prior to 1999 all US employees, including Dr Garnier and Dr Yamada, were moved from a final salary pension arrangement to the current cash balance structure. For all employees in the US, cash balance plan contributions are based on combined annual salary and annual bonus.
Mr Heslop participates in the Glaxo Wellcome defined benefit plan with an accrual rate of 1/30th of final pensionable salary per annum.
In 2000 all benefits accrued under the Glaxo Wellcome UK pension arrangements were augmented by the Trustees of the plans by 5% to reflect a distribution of surplus. This augmentation will apply to that element of Mr Heslop’s pension earnings before 31st March 2000.
Other entitlements
In addition to the contractual provisions outlined above, in the event that Executive Directors service agreements are terminated by their employing company, the following would apply:
in the case of awards under the GlaxoSmithKline Annual Investment Plan, provided that their agreement is terminated other than for cause, any deferred amount, any income and gains, are automatically distributed as soon as administratively practicable after termination. If they resign, retire or the termination is for cause, then any deferred amount is not distributed until the end of the minimum three-year deferral period 
in line with the policy applicable to US senior executives, Dr Garnier and Dr Yamada are entitled to receive continuing medical and dental insurance
following the merger, those participants in the legacy share option schemes who elected to exchange their legacy options for options over GlaxoSmithKline shares will receive an additional cash benefit equal to 10% of the grant price of the original option. This additional benefit is triggered when the new option is exercised or lapses. To qualify for this additional cash benefit, participants had to retain their options until at least the second anniversary of the effective date of the merger. 
Outside appointments for Executive Directors
Any outside appointments must be approved by the Chairman on behalf of the Board. It is the company’s policy that remuneration earned from such appointments may be kept by the individual Executive Director.


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Non-Executive Director terms, conditions and fees

Non-Executive Directors of GlaxoSmithKline do not have service contracts but instead have letters of appointment. The company aims to provide Non-Executive Directors with fees that are competitive with other companies of equivalent size and complexity. The fee structure for the Non-Executive Directors is as follows:

  Per annum

Standard annual cash retainer fee £60,000

Supplemental fees  
Senior Independent Director, the Audit Committee Chairman and Scientific/Medical Experts
Chairmen of the Remuneration and Corporate Responsibility Committees

Non-Executive Director undertaking intercontinental travel to meetings
£5,000 per meeting

Automatic share allocation 
To enhance the link between Directors and shareholders GlaxoSmithKline requires Non-Executive Directors to receive a significant part of their fees in the form of shares. With effect from 1st October 2004, at least 25% of the Non-Executive Directors’ total fees, excluding the Chairman, are paid in the form of shares and allocated to a share account. The Non-Executive Directors may also take the opportunity to invest part or all of the balance of their fees into the same share account.

Exchange rate
Fees that are paid in US Dollars are converted at a rate of £1/US$1.8162, being the exchange rate that applied on 29th July 2004 when the new fee arrangements were approved by the Board.

Non-Executive Directors are not entitled to compensation if their appointment is terminated.

Sir Christopher Hogg retired as Chairman with effect from 31st December 2004. Sir Christopher Gent’s letter of appointment to the Board was dated 26th May 2004, under which it was agreed that he serve the company as Deputy Chairman until 31st December 2004 and from 1st January 2005 as Chairman until the conclusion of the Annual General Meeting following the third anniversary of his appointment. This may be extended for a further term of three years by mutual agreement. He received fees at the rate of £240,000 per annum plus an allocation of GlaxoSmithKline shares to the value of £60,000 per annum whilst Deputy Chairman, and receives £400,000 per annum plus an allocation of GlaxoSmithKline shares to the value of £100,000 per annum as Chairman.

Other Non-Executive Directors
On appointment, each Non-Executive Director is provided with a letter of appointment under which it is agreed that they serve the company as a Non-Executive Director until the conclusion of the Annual General Meeting following the third anniversary of their appointment. In each case this can be extended for a further term of three years by mutual agreement. No Directors serve a term longer than three years without offering themselves for re-election by the shareholders.

The following table shows the date of the letter of appointment of each Non-Executive Director:

Non-Executive Date of letter
Director of appointment

Mr L Culp 09.06.03
Sir Crispin Davis 09.06.03
Sir Deryck Maughan 26.05.04
Sir Ian Prosser 19.06.00
Dr R Schmitz 19.06.00
Dr L Shapiro 19.06.00
Mr T de Swaan 21.12.05
Sir Robert Wilson 09.06.03

TSR performance graph
The following graph sets out the performance of the company relative to the FTSE 100 index of which the company is a constituent and to the performance comparator group since the merger on 27th December 2000. The graph has been prepared in accordance with the Regulations and is not an indication of the likely vesting of awards granted under any of the company’s incentive plans.

Directors and Senior Management remuneration

The following tables set out for the Directors of GlaxoSmithKline plc the remuneration earned in 2005, their interests in shares of GlaxoSmithKline plc, their interests in share options and incentive plans and their pension benefits. The members of the CET and the Company Secretary, known as the Senior Management, also participate in the same remuneration plans as the Executive Directors and the aggregate remuneration and interests of the Directors and Senior Management are also provided.


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Remuneration Report


Annual remuneration

                                2005                       2004  


                                Total                       Total  
        Fees and     Other     Annual     Deferred     annual     Fees and     Other     Annual     annual  
        salary     benefits     bonus     bonus     remuneration     salary     benefits     bonus     remuneration   
  Footnote     000     000     000     000     000     000     000     000     000  

Current Executive Directors                                                          
Dr JP Garnier a,b,c   $ 1,582   $ 641   $ 2,812   $ 1,556   $ 6,591   $ 1,523   $ 786   $ 2,250   $ 4,559  
Mr J Heslop     £ 240   £ 9   £ 280       £ 529                  
Dr T Yamada a,b,c   $ 763   $ 739   $ 1,110   $ 698   $ 3,310   $ 725   $ 577   $ 1,001   $ 2,303  

Total Current Executive Directors   £ 1,528   £ 767   £ 2,436   £ 1,238   £ 5,969   £ 1,228   £ 745   £ 1,777   £ 3,750  

Former Executive Director                                                          
Mr J Coombe b,c,d   £ 139   £ 32           £ 171   £ 506   £ 9       £ 515  

Total Executive Directors     £ 1,667   £ 799   £ 2,436   £ 1,238   £ 6,140   £ 1,734   £ 754   £ 1,777   £ 4,265  

Current Non-Executive Directors                                                        
Mr L Culp     $ 136               $ 136   $ 97           $ 97  
Sir Crispin Davis     £ 70               £ 70   £ 57           £ 57  
Sir Christopher Gent     £ 500               £ 500   £ 175           £ 175  
Sir Deryck Maughan     $ 146               $ 146   $ 57           $ 57  
Sir Ian Prosser     £ 100               £ 100   £ 65           £ 65  
Dr R Schmitz     £ 95               £ 95   £ 72           £ 72  
Dr L Shapiro e   $ 230               $ 230   $ 182           $ 182  
Sir Robert Wilson     £ 90               £ 90   £ 66           £ 66  

Total Current Non-Executive Directors   £ 1,137               £ 1,137   £ 618           £ 618  

Former Non-Executive Directors                                                        
Dr M Barzach f   £ 58               £ 58   £ 78           £ 78  
Sir Christopher Hogg                         £ 369   £ 1       £ 370  
Sir Roger Hurn         £ 5           £ 5                  
Sir Peter Job         £ 5           £ 5   £ 57           £ 57  
Mr J McArthur                         $ 42   $ 18       $ 60  
Mr D McHenry                         $ 42           $ 42  
Sir Richard Sykes         £ 1           £ 1       £ 1       £ 1  

Total Former Non-Executive Directors   £ 58   £ 11           £ 69   £ 550   £ 12       £ 562  

Total Non-Executive Directors     £ 1,195   £ 11           £ 1,206   £ 1,168   £ 12       £ 1,180  

Total Remuneration     £ 2,862   £ 810   £ 2,436   £ 1,238   £ 7,346   £ 2,902   £ 766   £ 1,777   £ 5,445  

Remuneration for Directors on the US Payroll is reported in Dollars. Amounts have been converted to Sterling at the average rates for each year.
a) Following the merger, those participants in the legacy share option schemes who elected to exchange their legacy options for options over GlaxoSmithKline shares were granted an additional cash benefit equal to 10% of the grant price of the original option. This additional benefit, known as the Exchange Offer Incentive (EOI), is only payable when the new option is exercised or lapses above market value. To qualify for this additional cash benefit, participants had to retain these options until at least the second anniversary of the effective date of the merger. During the year, Dr Garnier received $174,472 (2004 – $335,730) and Dr Yamada received $167,405 (2004 – $nil) relating to options exercised (page 50).
b) Dr Garnier is a Non-Executive Director of United Technologies Corporation, in respect of which in 2005 he received $110,000 (2004 –$110,000) in the form of deferred stock units and 3,000 (2004 – 3,500) stock options with a grant price of $101.05 (2004 – $88.17). Dr Yamada is a member of the Advisory Board of Quaker BioVentures, Inc., in respect of which in 2005 he received $12,000. Dr Yamada was previously a member of the Board of Directors of diaDexus, Inc., in respect of which he received in 2004, 30,000 stock appreciation rights with a grant price of $0.40. These amounts are excluded from the table above and retained by the Executive Directors. Mr Coombe is a member of the Supervisory Board of Siemens and a Non-Executive Director of HSBC Holdings plc, for which, in the period from 1st January 2005 until his retirement from GlaxoSmithKline on 31st March 2005, he received £12,466 (2004 – £54,082 and 1,500 stock appreciation rights with a grant price of 72.54), and £4,583 (2004 – nil), respectively.
c) In 2001, following the merger, Dr Garnier, Mr Coombe and Dr Yamada were awarded a one-off special deferred bonus as members of the CET. Each was awarded an amount equivalent to his annual salary on 31st December 2001 and this was notionally invested in GlaxoSmithKline shares or ADSs on 15th February 2002 and deferred for three years. The deferred bonus vested on 15th February 2005 and the amounts paid were equivalent to the then value of GlaxoSmithKline shares or ADSs notionally acquired in February 2002 plus dividends reinvested over the period. Dr Garnier received $1,556,324, and Dr Yamada received $697,663. Mr Coombe waived his deferred bonus of £383,924. The company made a contribution to the pension plan in 2005 of £383,924 to enhance his pension entitlements. This amount is not included in the table above.

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Remuneration Report

d) Mr Coombe waived his prorated 2005 bonus of £106,870 and his 2004 annual bonus of £650,370. The company made a contribution to the pension plan in 2005 of £106,870 and £650,370 to enhance his pension entitlements. These amounts are not included within fees and salary above.
e) Dr Shapiro is a member of GlaxoSmithKline’s Scientific Advisory Board for which she received fees of $85,000 (2004 – $85,000), of which $30,000 (2004 –$30,000) was in the form of ADSs. These are included within fees and salary above.
f) Dr Barzach received fees of 84,244 (2004 – 83,005) from GlaxoSmithKline France for healthcare consultancy provided. These are included within fees and salary above.
None of the above Directors received expenses during the year requiring separate disclosure as required by the Regulations.
Mr de Swaan joined the Board as a Non-Executive Director on 1st January 2006. No remuneration is shown for him in the table above.
Mr de Swaan joined the Board as a Non-Executive Director on 1st January 2006. No remuneration is shown for him in the table above.

Non-Executive Directors’ remuneration

                2005                 2004  


    Total     Cash     Shares/ADSs     Total     Cash     Shares/ADSs  
Fees and salary   000     000     000     000     000     000  

Current Non-Executive Directors                                    
Mr L Culp $ 136       $ 136   $ 97       $ 97  
Sir Crispin Davis £ 70       £ 70     57       £ 57  
Sir Christopher Gent £ 500   £ 400   £ 100   £ 175   £ 140   £ 35  
Sir Deryck Maughan $ 146       $ 146   $ 57       $ 57  
Sir Ian Prosser £ 100   £ 50   £ 50   £ 65   £ 28   £ 37  
Dr R Schmitz £ 95   £ 57   £ 38   £ 72   £ 38   £ 34  
Dr L Shapiro $ 145   $ 109   $ 36   $ 97   $ 75   $ 22  
Sir Robert Wilson £ 90   £ 68   £ 22   £ 66   £ 52   £ 14  
Former Non-Executive Directors                                    
Dr M Barzach             £ 22   £ 19   £ 3  
Sir Christopher Hogg             £ 369   £ 150   £ 219  
Sir Peter Job             £ 57       £ 57  
Mr J McArthur             $ 42   $ 37   $ 5  
Mr D McHenry             $ 42   $ 37   $ 5  

Total £ 1,090   £ 635   £ 455   £ 1,066   £ 508   £ 558  


The table above sets out the remuneration received as Non-Executive Directors of GlaxoSmithKline. Accordingly, it does not include Dr Barzach’s fees received from GlaxoSmithKline France for healthcare consultancy provided, or Dr Shapiro’s fees received as a member of GlaxoSmithKline’s Scientific Advisory Board.

From the formation of GSK, the Non-Executive Directors, have been required to take at least a part of their total fees in the form of shares allocated to a share account. From 1st October 2004, at least 25% of Non-Executive Directors fees, except those of the Chairman, see page 44 for further details, must be taken under the fee allocation arrangement. Non-Executive Directors can then elect to receive either all or part of the remaining cash payment in the form of further shares or ADSs. The total value of these shares and ADSs as at the date of award, together with the cash payment, forms their total fees, which are included within the Annual remuneration table under ‘Fees and salary’. The table above sets out the value of their fees received in the form of cash and shares and ADSs.

The shares and ADSs are notionally awarded to the Non-Executive Directors and allocated to their interest accounts and are included within the Directors’ interests tables on page 48. The accumulated balance of these shares and ADSs, together with notional dividends subsequently reinvested, are not paid out to the Non-Executive Directors until retirement. Upon retirement, the Non-Executive Directors will receive either the shares and ADSs or a cash amount equal to the value of the shares and ADSs at the date of retirement.


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Remuneration Report

The table below sets out the accumulated number of shares and ADSs held by each Non-Executive Director in relation to their fees received as Board members as at 31st December 2005, together with the movements in their account over the year.

  Number of shares and ADSs

Non-Executive Directors’ share arrangements       Dividends      
Footnote At 31.12.04 Elected reinvested Paid out At 31.12.05

Current Non-Executive Directors                        
Sir Crispin Davis     7,333   5,192   233     12,758  
Sir Christopher Gent     2,921   7,349   116     10,386  
Sir Ian Prosser     12,520   3,728   342     16,590  
Dr R Schmitz     10,771   2,810   317     13,898  
Dr L Shapiro     1,676   47       1,723  
Sir Robert Wilson     1,337   1,665   45     3,047  
Mr L Culp     3,348   2,769   110     6,227  
Sir Deryck Maughan     1,248   2,947   47     4,242  
Dr L Shapiro     2,608   752   66     3,426  
Former Non-Executive Directors                        
Sir Christopher Hogg a   48,000       48,000    
Sir Roger Hurn     11,305     309   1,330   10,284  
Sir Peter Job a   17,638       17,638    


Dividends are notionally reinvested at the end of the financial year in which payment is made.

The table below sets out the settlement of former Non-Executive Directors’ share arrangements on their leaving the Board:

              Value of awards     Value of awards     Payments  
Date of leaving on allocation on leaving in 2005

Prior years                              
Sir Christopher Hogg a,b       31.12.04   £ 565,857   £ 586,559   £ 586,559  
Sir Roger Hurn c       05.06.03                 £18,198  
Sir Peter Job a,b       31.12.04   £ 225,360   £ 215,538   £ 215,538  

a) Awards to Sir Christopher Hogg and Sir Peter Job under the Non-Executive Directors’ share arrangements were settled in full, with a transfer of shares in January 2005.
b) The change in value of awards between allocation and leaving is attributable to dividends re-invested and the change in share price between the dates of award and the dates of leaving.
c) On leaving the Board, Sir Roger Hurn elected to receive the settlement of his Non-Executive Directors share arrangements in 40 quarterly cash payments.

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Remuneration Report

Directors’ interests

The following beneficial interests of the Directors of the company are shown in the register maintained by the company in accordance with the Companies Act 1985:

Shares ADSs

24th February 31st December 1st January 24th February 31st December 1st January
Footnote 2006 2005 2005 2006 2005 2005

Current Executive Directors                            
Dr JP Garnier a         226,538   225,896   204,430  
Mr J Heslop b,d   20,512   18,885   17,547        
Dr T Yamada a         73,626   67,512   60,923  
Former Executive Director                            
Mr J Coombe c,d,e       198,665   186,652        
Current Non-Executive Directors                            
Mr L Culp f         6,227   6,227   3,348  
Sir Crispin Davis f   17,925   17,925   12,500        
Sir Christopher Gent f   10,386   10,386   2,921        
Sir Deryck Maughan f         4,242   4,242   1,248  
Sir Ian Prosser f   17,500   17,500   13,430        
Dr R Schmitz f   13,898   13,898   10,771   2,840   2,840   2,840  
Dr L Shapiro f   1,723   1,723   1,676   7,401   7,401   5,958  
Mr T de Swaan f              
Sir Robert Wilson f   4,175   4,175   2,465        


One GlaxoSmithKline ADS represents two GlaxoSmithKline shares.

a) Includes the equivalent number of ADSs purchased in the GlaxoSmithKline Stock Fund within the 401(k) plan.
b) In the case of Mr Heslop, the opening number of shares is shown at 1st April 2005.
c) In the case of Mr Coombe, the closing number of shares is shown at 31st March 2005.
d) Includes shares purchased through the GlaxoSmithKline ShareReward Plan for Mr Heslop totalling 1,013 shares at 31st December 2005 (1st April 2005 – 829) and 1,054 shares at 24th February 2006, and for Mr Coombe 829 shares at 31st March 2005 (1st January 2005 – 763).
e) Mr Coombe left the Board on 31st March 2005, therefore his interests in the company on 24th February 2006 are not included in the table above.
f) Includes shares and ADSs received as part or all of their fees as described under Non-Executive Directors’ share arrangements on page 46. Dividends received on these shares and ADSs were converted to shares and ADSs as at 31st December 2005. These are also included in the Directors’ interests above.

The interests of the above-mentioned Directors at 24th February 2006 reflect changes between the end of the financial year and that date.

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Remuneration Report

Share options

Options – ADSs         Granted          

       Footnote   At 31.12.04 Date of grant Exercise period Grant price Number Exercised At 31.12.05  

Dr JP Garnier a   3,844,648             79,054   3,765,594  
Dr T Yamada     1,223,358             74,868   1,148,490  

Options – Shares   Granted  
  At 31.12.04 Date of grant Exercise period Grant price Number Exercised At 31.12.05  

Mr J Heslop a,b   365,719   27.10.05   01.12.08 – 31.05.09   £ 11.45   816   1,031   365,504  
Mr J Coombe c   1,434,249   n/a   n/a     n/a   n/a     1,434,249  

a) As part of the main option grant that occured on 21st February 2006, with a vesting period of 1st January 2006 to 31st December 2008, Dr Garnier was awarded 500,000 ADS options with a grant price of $51.02. As part of the same grant, Mr Heslop was awarded 231,000 share options with a grant price of £14.68. Dr Yamada did not receive a grant of options due to his impending retirement from GlaxoSmithKline.
b) Mr Heslop joined the Board on 1st April 2005. These details cover the period from 1st April 2005 to 31st December 2005. The grant included in the table above relates to the Sharesave plan.
c) Mr Coombe retired on 31st March 2005. These details cover the period from 1st January to 31st March 2005.

For those options outstanding at 31st December 2005, the earliest and latest vesting and lapse dates for those above and below the market price for a GlaxoSmithKline share at the year end are given in the table below. Those for Mr Coombe are on the following page.

  Vesting date Lapse date


  Weighted average
Dr JP Garnier grant price Number earliest latest earliest latest

Above market price (“underwater”) at year end: vested options   $ 55.99   2,033,448   23.11.01   28.11.04   22.11.08   27.11.11  

      $ 55.99   2,033,448                  

Below market price at year end: vested options   $ 36.96   812,146   21.11.99   03.12.05   20.11.06   02.12.12  
  unvested options   $ 44.15   920,000   15.12.06   02.12.07   14.12.13   01.12.14  

      $ 40.78   1,732,146                  

Total ADS options as at 31st December 2005   $ 49.00   3,765,594                  

  Vesting date Lapse date  

  Weighted average  
Dr T Yamada grant price Number earliest latest earliest latest  

Above market price (“underwater”) at year end: vested options   $ 56.35   660,591   23.11.01   28.11.04   22.11.08   27.11.11  

      $ 56.35   660,591                  

Below market price at year end: vested options   $ 37.04   211,899   21.11.99   03.12.05   20.11.06   02.12.12  
  unvested options   $ 44.15   276,000   15.12.06   02.12.07   14.12.13   01.12.14  

      $ 41.06   487,899                  

Total ADS options as at 31st December 2005   $ 49.85   1,148,490                  

  Vesting date Lapse date  

      Weighted average  
Mr J Heslop     grant price Number earliest latest earliest latest  

Above market price (“underwater”) at year end: vested options   £ 18.17   132,838   31.07.01   28.11.04   30.07.08   27.11.11  

      £ 18.17   132,838                  

Below market price at year end: vested options   £ 13.29   115,600   25.02.03   03.12.05   24.02.10   02.12.12  
  unvested options   £ 11.91   117,066   28.10.06   01.12.08   31.05.09   01.12.14  

      £ 12.59   232,666                  

Total share options as at 31st December 2005     £ 14.62   365,504                  


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Remuneration Report

          Vesting date     Lapse date
  Weighted average    

Mr J Coombe (to 31st March 2005) grant price Number earliest latest earliest latest

Above market price (“underwater”) at period end:vested options £16.97 867,218   04.08.02 31.03.11   31.03.07 30.09.11
  unvested options  £12.70 276,000   31.03.08 31.03.08   30.09.08 30.09.08

  £15.94 1,143,218            

Below market price at period end: unvested options £11.78 291,031   01.12.05 31.03.12   31.05.06 30.09.12

  £11.78 291,031            

Total share options as at 31st March 2005 £15.10 1,434,249            

The lapse dates for Mr Coombe’s options have been modified to reflect his retirement in 2005.

GSK grants share options to Executive Directors and Senior Managers on an annual basis. An initial grant was made following completion of the merger in March 2001. The measurement period for the options granted in March 2001 commenced on 1st January 2001. The measurement periods for options granted in November 2001 and 2002, and December 2003 and 2004 commenced on 1st January 2002, 2003, 2004 and 2005, respectively. The Directors hold these options under the various share option plans referred to in Note 37 to the financial statements, ‘Employee share schemes’. The measurement period for options granted in February 2006 commenced on 1st January 2006. None of the other Directors had an interest in any option over the company’s shares.

Following the merger, each of the Directors above elected to exchange their outstanding options in the legacy share option plans for options over GSK shares. These Directors, and all other participants in those legacy schemes who made such an election, will receive an additional benefit of a cash sum equal to 10% of the grant price of the original option. This additional benefit will be given when the new option is exercised or lapses.

Prior to 2003, only those share options granted to the then Executive Directors were subject to a performance condition. In order for the options to vest in full, business performance EPS growth, excluding currency and exceptional items, had on average to be at least three percentage points per annum more than the increase in the UK Retail Prices Index over any three-year performance period.

For share options granted in 2003 and 2004 vesting increases on a straight-line basis for EPS performance between the hurdles set out in the following table.

Annualised growth in EPS Percentage of award vesting

RPI + 5% 100%
  RPI + 4% 75%
  RPI + 3% 50%
< RPI + 3% 0%

In respect of the 2003 grant, if the performance condition is not met after the three-year measurement period, the performance will be measured again over the four financial years following the date of grant of the options. If the performance condition is not met at the end of four years, the option will lapse.

The options granted to the Executive Directors in 2004 were subject to the same performance condition as set in 2003, but to the extent that the performance conditions have not been met at the end of the three-year performance period, the option will lapse with no retesting being permitted.

          2005 2004

      Grant Market    
Options exercised Date Number price price Gain Gain

Dr JP Garnier 14.02.05 79,054 $22.07 $47.74 $2,029,561 $6,621,049

Dr T Yamada 06.12.05 16,400 $22.36 $50.52 $461,824
       07.12.05 58,468 $22.36 $50.10 $1,622,107

Mr J Heslop 23.12.05 1,031 £9.16 £14.66 £5,665

At the average exchange rate for the year, the above gain made by Dr Garnier amounted to £1,115,143. An EOI benefit of $174,472 (£95,864) was paid to Dr Garnier on exercise of these options. This benefit has been included in the table on page 45.

At the average rate for the year, the above gain made by Dr Yamada amounted to £1,145,017. An EOI benefit of $167,405 (£91,981) was paid to Dr Yamada on the exercise of these options. This benefit has been included in the table on page 45.

Mr Coombe did not exercise any share options during 2005 or 2004.

The highest and lowest closing prices during the year ended 31st December 2005 for GlaxoSmithKline shares were £15.44 and £11.75, respectively. The highest and lowest prices for GlaxoSmithKline ADSs during the year ended 31st December 2005 were $53.53 and $44.48, respectively. The market price for a GlaxoSmithKline share on 31st December 2005 was £14.69 (31st December 2004 – £12.22) and for a GlaxoSmithKline ADS was $50.48 (31st December 2004 – $47.39). The prices on 24th February 2006 were £14.61 per GlaxoSmithKline share and $51.10 per GlaxoSmithKline ADS.


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Remuneration Report

Incentive plans

Performance Share Plan awards                      
Dr JP Garnier – ADSs    Market   Vested & exercised    Additional      
    Vested & price on  
  ADS by   Vested & Number
  Unvested deferred at date of     Market     dividends Unvested deferred at granted
Performance period at 31.12.04 31.12.04 grant   Number price Gain Lapsed reinvested at 31.12.05 31.12.05 in 2006

01.01.01 – 31.12.03 35,515   1,160 36,675
01.01.02 – 31.12.04 70,000 $51.95   35,000 $46.67 $1,633,450 35,000
01.01.03 – 31.12.05 70,000 $37.25   70,000
01.01.04 – 31.12.06 205,990 $44.57     6,773 212,763
01.01.05 – 31.12.07 200,000 $43.73     4,881 204,881
01.01.06 – 31.10.08 £51.02   220,000

The value of awards deferred by Dr Garnier at vesting was $1,496,608
Dr T Yamada – ADSs                        
      Market     Vested & exercised   Additional      
    Vested &  price on   
  ADS by    Vested &  Number 
  Unvested deferred at date of     Market     dividends Unvested deferred at granted
Performance period at 31.12.04 31.12.04 grant   Number price Gain Lapsed reinvested at 31.12.05 31.12.05 in 2006

01.01.02 – 31.12.04 20,000 $51.95   10,000 $46.67 $466,700 10,000  
01.01.03 – 31.12.05 20,000 $37.25   20,000
01.01.04 – 31.12.06 61,797 $44.57   2,032 63,829
01.01.05 – 31.12.07 60,000 $43.73   - 1,464 61,464

Mr J Heslop – Shares                        
      Market     Vested & exercised   Additional      
    Vested &  price on  
  shares by   Vested &  Number 
  Unvested deferred at date of     Market     dividends Unvested deferred at granted
Performance period at 1.4.05 31.12.04 grant   Number price Gain Lapsed reinvested at 31.12.05 31.12.05 in 2006

01.01.02 – 31.12.04 5,000 £18.15   2,500 £12.35 £30,875 2,500
01.01.03 – 31.12.05 5,000 £11.79   5,000
01.01.04 – 31.12.06 5,000 £12.70   5,000
01.01.05 – 31.12.07 15,500 £11.63   385 15,885
01.01.06 – 31.12.08 £14.68   100,000

Mr J Coombe – Shares                        
      Market     Vested & exercised   Additional      
    Vested &  price on  
  shares by   Vested &  Number 
  Unvested deferred at date of     Market     dividends Unvested deferred at granted
Performance period at 31.12.04 31.12.04 grant   Number price Gain Lapsed reinvested at 31.3.05 31.12.05 in 2006

01.01.02 – 31.12.04 40,000 £18.15   20,000 £12.35 £247,000 20,000
01.01.03 – 31.12.05 40,000 £11.79   40,000
01.01.04 – 31.12.06 123,622 £12.70   40,000 1,036 84,658

On 1st April 2005, the total number of Performance Share Plans (PSP) awards granted to Mr Coombe for the performance period 1st January 2004 to 31st December 2006 was pro-rated to reflect his retirement before the end of the performance period. The PSP awards for the performance period 1st January 2006 to 31st December 2008 were made on 21st February 2006 when the market price was £14.68 per share and $51.02 per ADS. Dr Garnier was awarded 220,000 ADSs, and Mr Heslop 100,000 shares. All are unvested.

At the average exchange rate for the year, the above gains by Dr Garnier and Dr Yamada amounted to £897,500 and £256,429, respectively.

The PSP is a medium-term incentive scheme introduced during 2001. The PSP replaces the LTI Plan and the Mid-Term Incentive Plan operated, respectively, by Glaxo Wellcome and SmithKline Beecham.

Under the terms of the PSP the number of shares actually vesting is determined following the end of the relevant three-year measurement period and is dependent on GSK’s performance during that period as described on pages 40 and 41. The share awards were previously granted annually in November or December, but from 2005 they are granted in February of the following year.

The measurement period commences on the 1st January, in the year in which they are granted, ending after three years on 31st December. The three-year measurement period for the awards with a performance period commencing 1st January 2003 ended on 31st December 2005. Based on the performance of GSK during that period, 50% of the award vested in February 2006. For awards with a performance period commencing on 1st January 2005 and subsequent awards, dividends are reinvested on the PSPs awarded to members of the CET. Dividends are reinvested in the quarter in which payment is made. Under the terms of the PSP, US participants may defer receipt of all or part of their vested awards.

Prior to the performance period beginning 1st January 2004, awards were in two parts: half can be earned by reference to GSK’s TSR performance compared to the FTSE 100, of which the company is a constituent, and the other half of the award will be earned if the company’s business performance EPS growth, excluding currency and exceptional items, is on average at least three percentage points per year more than the increase in the UK Retail Prices Index over the three-year performance period. For these awards, if GSK is ranked in the top 20 of the FTSE 100 based on TSR performance, then all of the shares in this part of the award will vest. For the 50th position in the FTSE 100, 40% of the shares will vest. If GSK is ranked below the 50th position, none of the shares subject to this part of the award will vest. Between the 20th and 50th positions, vesting will occur on a sliding scale.


GSK Annual Report 2005

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Remuneration Report

The following vesting table applies to the awards with performance periods from 1st January 2004 to 31st December 2006 and 1st January 2005 to 31st December 2007. It also applies to the awards made on 21st February 2006.

TSR rank with 14 companies & GlaxoSmithKline* Percentage of award vesting**

1  100%
2  100%
3  90%
4  80%
5  70%
6  60%
7 50%
Median 35%
Below median 0%

* The performance comparator group for these awards comprised 14 other companies and GlaxoSmithKline. Both Aventis and Sanofi-Synthelabo were in the comparator group prior to their merger to form Sanofi-Aventis. For the purposes of calculating TSR over the performance period for the awards granted in December 2003, the starting price of the shares of the two individual companies will be compared to the price of the merged company at the end of the performance period, adjusted by the merger ratio. Dividends will be treated as having been reinvested during the performance period.
** TSR is measured on a pro rata basis. Where GlaxoSmithKline’s performance falls between two of the comparators, the level of vesting will be determined by the actual relative level of TSR rather than simple ranking.


  Vested and Additional ADS Vested and
  deferred by dividends deferred
  participations reinvested participations
Mid-Term Incentive Plan – ADSs at 31.12.04 in 2005 at 31.12.05

Dr JP Garnier 163,138 5,326 168,464

The Mid-Term Incentive Plan (MTIP) was a share award scheme operated by SmithKline Beecham. The plan closed to new entrants upon completion of the merger and no further participations have been granted.

Where a final award of ADSs is made, receipt of the award may be deferred by a Director. Dr Garnier deferred receipt of the full amounts vested in 1999, 2000, 2001, 2002 and 2003. The deferred awards, together with any additional ADSs subsequently received through dividend reinvestment, are not included in the Directors’ interests table on page 48 since they are retained in the MTIP until paid out.

Stock Appreciation Rights (SARs) – ADSs       At 31.12.04 At 31.12.05 grant price

Dr L Shapiro       1,487 872 $57.25

        2005 2004

Options exercised Date  Number Grant price Market price Gain Gain

Dr L Shapiro 21.12.05 615 $40.54 $50.91 $6,380

All SARs held by Dr Shapiro had a grant price above the market price of a GlaxoSmithKline ADS at 31st December 2005.

Dr Shapiro is a member of GlaxoSmithKline’s Scientific Advisory Board (SAB). Dr Shapiro was a member of SmithKline Beecham’s SAB from 1993 until the completion of the merger with Glaxo Wellcome. Along with other members of the SAB, she received annual grants of SmithKline Beecham SARs which, in general, vested three years from the date of grant and will expire 10 years from the date of grant. Grants of SARs to SAB members ceased in 1999.

SARs entitle the holder to a cash sum at a future date based on share price growth between the date of grant and the date of exercise.

Full provision is made in the financial statements for accrued gains on SARs from the date of grant. In connection with the merger, all previously granted SARs became immediately exercisable.


GSK Annual Report 2005

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Remuneration Report


The accrued annual pension benefits and transfer values for Executive Directors on retirement are set out below.

The regulations require disclosure of the accrued benefit at the end of the year, the change in accrued benefit over the year, the transfer value at both the beginning and end of the year, and the change in the transfer value over the year. The Listing Rules require additional disclosure of the change in accrued benefit net of inflation and the transfer value of this change. Pensions for the Executive Directors have been disclosed in the currency in which the pension is payable.

                      Personal                       Change in        
                Change in     contributions                       accrued     Transfer value  
    Accrued     Accrued     accrued     made to the     Transfer     Transfer     Change     benefit over     of change  
    benefit at     benefit at     benefit    scheme during     value at     value     in transfer     year net     in accrued  
    31.12.04 (b)     31.12.05     over year     the year     31.12.04 (a)     at 31.12.05     value (b)     of inflation     benefit (b)  
    000     000     000     000     000     000     000     000     000  

Current Executive Directors                                                      
Dr JP Garnier $ 1,040   $ 1,093   $ 53       $ 11,638   $ 13,240   $ 1,602   $ 17   $ 1,602  
Mr J Heslop £ 44   £ 75   £ 31   £  9   £ 642   £ 1,260   £ 609   £ 30   £ 523  
Dr T Yamada $ 140   $ 168   $ 28       $ 1,526   $ 1,985   $ 459   $ 24   $ 459  
Former Executive Directors                                                      
Mr J Coombe £ 345   £ 337   £ (8 )     £ 7,666   £ 7,955   £ 289   £  (19 ) £ (351 )

a) Dr Yamada’s transfer value at 31st December 2004 has increased by $262,469 from that previously disclosed as the result of an adjustment to his employment contract in 2004. Dr Yamada’s accrued benefit at 31st December 2004 has decreased by $25,066 reflecting an adjustment to his retirement age.
b) The change in transfer value and the transfer value of change in accrued benefit are shown net of contributions made by the individual.

Dr Garnier and Dr Yamada are members of the all employee US cash balance pension plan, under which GlaxoSmithKline makes annual contributions calculated as a percentage of the employee’s base salary and bonus. The fund increases at an interest rate set annually in advance based on the 30-year treasury bond rate to provide a cash sum at retirement. This cash sum is used to purchase a pension at retirement based on the annuity rates applicable at that time. Neither has entitlement to a spouse’s pension or to pension increases, other than by reducing their own initial pension.

The normal retirement age under this plan is 65 years of age. Dr Garnier’s pension arrangements have been brought into line with the terms of his service agreement and the assumed retirement age reduced to 60. Similarly Dr Yamada’s assumed retirement age had been reduced to 62.

The transfer value, or cash sum, of Dr Garnier’s plan has increased by $1,602,236 over the year as a result of phased transfers from a previous scheme, the further accumulation of interest and contributions paid by the company.

The transfer value, or cash sum, of Dr Yamada’s plan has increased by $458,737 over the year as a result of the further accumulation of interest and contributions paid by the company.

Dr Garnier and Dr Yamada are also members of the US Retirement Savings Plan, a savings scheme open to all US employees and the Executive Supplemental Savings Plan, a savings scheme open to executives to restore US government limits imposed on the Retirement Savings Plan. Contributions to both plans are invested in a range of funds and the value of the accumulated funds are paid at retirement. During 2005 contributions of £84,710 ($154,172) were paid into these two schemes by the company in respect of Dr Garnier, of which £2,308 ($4,200) was invested in GSK shares in a stock ownership account. In respect of Dr Yamada, contributions of £40,483 ($73,679) were paid into the scheme of which £2,308 ($4,200) was invested in GSK shares in a stock ownership account. The shares held in these accounts are included within the Director’s interests tables on page 48.

Mr Heslop’s transfer value has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The transfer value represents the present value of future payments to be made under the pension plan. Mr Heslop’s annual accrued benefit has increased by £31,329 (£29,900 excluding the effects of inflation), and the transfer value less personal contributions has increased by £608,999 over the year. The increase in Mr Heslop’s pensionable salary of £127,380 is the primary reason for the increase in transfer value.

Mr Coombe’s transfer value has been calculated on the basis of actuarial advice in accordance with Actuarial Guidance Note GN11. The transfer value represents the present value of future payments to be made under the pension plan. Mr Coombe’s transfer value increased by £289,211 but his accrued benefit fell by £8,201. This decline is due to Mr Coombe opting to receive a lumpsum on retirement.

Mr Coombe waived his 2005 bonus of £106,870. The company made a contribution to the pension plan in 2005 of £1,141,164 to enhance his pension benefits, being his 2005 bonus, his special deferred bonus of £383,924 and his 2004 bonus of £650,370.


GSK Annual Report 2005

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Remuneration Report

Directors and Senior Management

For US reporting purposes, it is necessary to provide information on compensation and interests of Directors and Senior Management as a group (‘the group’). For the purposes of this disclosure, the group is defined as the Directors, members of the CET and the Company Secretary. In respect of the financial year 2005, the total compensation paid to members of the group for the periods during which they served in that capacity was £17,538,674, the aggregate increase in accrued pension benefits, net of inflation, was £78,814 and the aggregate payment to defined contribution schemes was £374,156. During 2005, members of the group were granted 4,080 options under the Sharesave scheme and were awarded 14,542 shares and 31,290 ADSs through reinvestment of dividends in the Performance Share Plan. At 24th February 2006, the then-current members of the group (comprising 24 persons) owned 495,389 shares and 474,221 ADSs, constituting less than 1% of the issued share capital of the company. The group also held, at that date: options to purchase 5,372,577 shares and 8,145,814 ADSs; 910,359 shares and 1,557,146 ADSs awarded under the Performance Share Plan, including those shares and ADSs that are vested and deferred; 8,103 shares and 232,732 ADSs under the legacy SmithKline Beecham Mid-Term Incentive Plan, including those shares and ADSs that are vested and deferred; 872 ADSs awarded under the legacy SmithKline Beecham Stock Appreciation Rights and 6,320 shares awarded under the Restricted Share Plan. These holdings were issued under the various executive share option plans described in Note 37 to the financial statements, ‘Employee share schemes’.

Directors’ interests in contracts

Except as described in Note 33 to the financial statements, ‘Related party transactions’, during or at the end of the financial year no Director or connected person had any material interest in any contract of significance in relation to the Group’s business with a Group company.

The Directors’ Remuneration Report has been approved by the Board of Directors and signed on its behalf by


Sir Christopher Gent
1st March 2006


GSK Annual Report 2005

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Operating and financial review and prospects


The Operating and financial review and prospects discusses the operating and financial performance, the financial outlook and the financial resources of the Group. The results for each year, which have been prepared under IFRS, as adopted for use in the European Union, are compared primarily with the results for the preceding year under the following headings:

Financial trends and ratios 56
2005 Year – results for the year to 31st December 2005  
compared to the year to 31st December 2004 57
Financial position and resources – at 31st December 2005 66
Outlook and Risk factors 71
2004 Year – results for the year to 31st December 2004  
compared to the year to 31st December 2003 75

The reconciliation to US accounting principles is set out in Note 38 to the financial statements.

Accounting presentation
With effect from 1st January 2005, GSK has moved to reporting its financial results in accordance with International Financial Reporting Standards (IFRS) as required by a European Union Regulation issued in 2002. This report is prepared under IFRS, as adopted for use in the European Union. All comparative figures are presented on this basis, except that GSK has taken advantage of an exemption which permits financial instruments to be accounted for and presented on a UK GAAP basis in 2004 and 2003 and only in accordance with IAS 32 and IAS 39 from 1st January 2005. Full details of the major differences from UK GAAP as they apply to GSK are given in Note 38 to the financial statements, IFRS transition. Information prepared under IFRS is not directly comparable with that prepared under UK GAAP.

Data for market share and market growth rates are GSK estimates based on the most recent data from independent external sources, and where appropriate, are valued in sterling at relevant exchange rates. Figures quoted for product market share reflect sales by GSK and licensees.

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.

Annual Report on Form 20-F
For the purpose of US reporting requirements applicable to first-time adopters of IFRS, GSK hereby incorporates by reference from its Annual Report on Form 20-F for 2004, the Five year record of selected financial information on pages 160 to 162 thereof, the discussion of the 2004 Year on pages 61 to 70 in the Operating and financial review and prospects section thereof and the Financial statements and supporting notes on pages 87 to 152 thereof.


GSK Annual Report 2005

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Operating and financial review and prospects
Financial trends and ratios

  2005     Growth   2004     Growth   2003  
  £m   CER%   £%   £m   CER%   £%   £m  

Turnover – Pharmaceuticals 18,661   8   9   17,100   1   (6 ) 18,114  
Turnover – Consumer Healthcare 2,999   2   4   2,886   3   (2 ) 2,956  

Total 21,660   7   8   19,986   1   (5 ) 21,070  

Cost of sales (4,764 ) 8   9   (4,360 )   (5 ) (4,577 )
Selling, general and administration (7,250 )   1   (7,201 ) (5 ) (9 ) (7,888 )
Research and development (3,136 ) 8   8   (2,904 ) 8   1   (2,865 )
Other operating income 364           235           310  

Operating profit 6,874   16   19   5,756   6   (5 ) 6,050