GSK PharmaceuticalsGSK Pharmaceuticals2005 Business Review

Morgan StanleyAnalysts Meet

10th March 2006

The Healthcare environment is challengingThe Healthcare The Healthcare environmentenvironment is challengingis challengingHeavily reliant on private sector

Government spends small relative to India’s needs ~ 1.5 % of GDP

Only 3.5% of population has health insurance

Protectionist policies

Price controls

IPR protection yet to be tested

Tariffs on imports- Stretch out WTO compliance

Challenging market

• “Branded Generics” market

• Low entry barrier - 22,000 companies

• In practice sales occur without prescriptions despite the law

• Price competitive- Discounting- Prescriptions are switched

Rx Market is $5 b & growing at 4 %

Rx Market is Rx Market is $5 b & growing at $5 b & growing at 4 %4 %

Market Size Breakdown by TA

Cardiac10%

Neuro / CNS5%

Others23%

Gastro 11%

Anti-Inflamato

y10%

Respiratory

10%

Vitamins / Minerals

10%

Anti Diabetic

4%

Anti-infectives

17%

1999

2005

Growth(%)Growth(%)MarketMarketsize ($M)size ($M)

2,529

5100

15.2

8.6 r

* Large volume, low value but compensated by long life cyclesSource : ORG IMS Dec MAT 2004

Patent protection: Rewrites the rules of the

game in the pharmaceutical market

Patent protection: Patent protection: Rewrites the rules of the Rewrites the rules of the

game in the pharmaceutical game in the pharmaceutical marketmarket

Implication of change in IPR environment & shift in disease trends

Implication of change in IPR Implication of change in IPR environment & shift in disease trendsenvironment & shift in disease trends

Transition from undifferentiated to differentiated market

Simple price differentiation & superiority messages may no longer work

Acquiring abilities to develop & shape key market segments

……But India will not But India will not becomebecome a a high price market overnighthigh price market overnight

Indian consumer-a relentless value seekerFor over 30 years ,access to high quality medicines at low prices for all (including the wealthy)Innovative healthcare solutions have to demonstrate added value

Patent protected products will gradually Patent protected products will gradually acquire significant M.Sacquire significant M.S

CAGR

%

Shift in disease trends

Shift in disease trends

Patent protection

Patent protection

100% = $ 5 billion

OTC

Patented molecules

Specialty branded generics**

Generic generics

Traditional branded generics*

7 98 70

1021

37

64

37

Current 2010

$ 11.6 billion 10.2

4.7

15.7

N/A

8.6

Patent protected Patent protected products products ––

20 % M.S by 201520 % M.S by 2015

12.5

* AI, GI, Respiratory, Anti-rheumatics** CVS, CNS, Oncology, Women’s health, Diabetes

Following a poor Q1, GSK successfully Following a poor Q1, GSK successfully recovered (VAT) Sales loss and had a strong recovered (VAT) Sales loss and had a strong

finish to the year

3.7

11.6

18.1

8.6

5.3

12.7

9.98.4

H1

Qtr

3

Qtr

4

FY'0

5

GSK Primary Pharma Mkt

VAL

GWTH%

finish to the year

IMS which also includes Institutional & IMS which also includes Institutional & VxVx Sales Sales shows Industry growth at 5.3%shows Industry growth at 5.3%

Source: ORG SSA Retail Audit & GSK Primary Sales

GSK has progressively deGSK has progressively de--risked its business by reducing risked its business by reducing reliance on Price Controlled productsreliance on Price Controlled products

2001

2002

2003

2004

2005

Price Controlled Priority

40%

60%

38%

62%

35%

65%

32%

68%

29%

71%

Yr. 2004 Yr. 2005Yr. 2003Yr. 2002Yr. 2001

Building Great Brands...Building Great Brands...

Rs. MnRs. MnRs. Mn

Brand 2001 2005 CAGRSales of TOP 20 Brands 6,611 8,850 9%"Priority" Total 3,744 6,156 13%Count of "P" 14 16Share of "P" 57% 70%

GSK Top 20 Brands GSK Top 20 Brands –– Evolution Evolution ’’01 To 01 To ‘‘0505

GSK successfully managed its GSK successfully managed its VxVx Portfolio substituting Portfolio substituting EngEng--B with other New age B with other New age VxVx

86

6957

68

100

128112

Yr. 1999 Yr. 2000 Yr. 2001 Yr. 2002 Yr. 2003 Yr. 2004 Yr. 2005

Inde

xed

Valu

e

Yr. 1999

Havrix 12%

Varilix 17%

Engx-B71%

New New VxVx grew by 27% grew by 27% (CAGR)(CAGR) constituting ~93% of total constituting ~93% of total

Yr. 2005Havrix 26%

Varilix 21%

Others20%

Engx-B7%

Hiberix 26%

New product contribution ~ New product contribution ~ RsRs 98 Cr in 200598 Cr in 2005

65

245

402

726

978

2001 2002 2003 2004 2005

( In INR Mn )

Key Highlights & AchievementsKey Highlights & Achievements

NOTE: Launches in 2001 & beyond considered

Continued emphasis on Field Force Productivity Continued emphasis on Field Force Productivity yielding dividendsyielding dividends

SFE INITIATIVES

Integrated ETMS - Call Plan, Sales Performance Track

Territory Performance Mgmt

Increasing Rx Value

Optimising Product Coverage

Field Force Skills Dev. (EIS/SME/WWSFE)

100

112

126

139

151

163

112

137

156

178

100

198

2000

2001

2002

2003

2004

2005

T ProductivityP Productivity

Indexed Performance

Key Highlights & AchievementsKey Highlights & Achievements2005 Business Development Initiatives2005 Business Development Initiatives

INLICENSING AGREEMENTS CONCLUDED in ‘05

Organon – Oral Contraceptives – Deal concluded and product launchedEisai – Parit (Rabaprazole)- Deal concluded and product launched in Sep’05Albion – Ferronine (Chelated Iron supplement) – Deal concluded and product launched in Nov’05Roche – Carvedilol – Deal concluded in Q4’05

INLICENSING AGREEMENTS IN PROGRESS

Discussions on for in-licensing in areas ofCritical Care Anti-bioticsDiabetesCardio-vascular

Key Highlights & AchievementsKey Highlights & AchievementsOPERATIONAL

Entry into Diabetes with launch of Windia / Windamet

Number of People Development programs initiated

New Front-end IT initiativesStockist Connect Customer targeting software

STRATEGIC

GSK India firmly establishes a Global R&D Centre

Mulund Site disposal : 217 Cr

Returned 209 Cr to shareholders through buyback

Financial Results 2005Financial Results 2005

Strong financial performance Strong financial performance

112.0105.889.6

77.8

24.4

17.3

30.5

35.7

0.0

20.0

40.0

60.0

80.0

100.0

120.0

2002 2003 2004 20050.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

Book valueEPS`

22.2%

27.2% 28.8%32.3%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

30.0%

35.0%

2002 2003 2004 2005

13.4%

18.0% 19.3% 20.6%

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

2002 2003 2004 2005

PAT % to Sales Return on Net Worth %

EPS and Book Value per share

Improvement in profitability Improvement in profitability year on year year on year

17.2%25.7% 28.4% 29.9%

10.2%

2001 2002 2003* 2004* 2005*

Trading Profit MarginsTrading Profit Margins

* GSK & BW

GSK FinancialsGSK Financials

Rs. L. % to Rs. L. % to Rs. L. % Sales Sales

1479,59 Sales 1575,89103,70 Less: Excise Duty on Sales 90,59

1375,89 100.0 Net Sales 1485,30 100.0 109,41 8.024,75 Other Income 32,19 7,441,90 Treasury Income 10,00 8,10

26,68 Interest income 23,45 (3,23)1429,22 Total Income 1550,94

590,86 42.9 Materials Consumed 626,46 42.2 35,60 6.012,41 0.9 Excise Duty on stock/samples 14,92 1.0 2,51

390,24 28.4 Operating and Other Expenses 415,92 28.0 25,68 6.617,47 Depreciation 15,73 (1,74)

1010,98 73.5 Total Expenditure 1073,03 72.2 6.1

418,24 30.4 PBT before exceptional 477,91 32.2 59,67 14.3152,19 11.1 Provision for Taxation (Incl. FBT) 171,63 11.6 19,44

266,05 19.3 PAT before exceptional 306,28 20.6 40,23 15.1

67,04 Exceptional net of tax 195,80333,09 Net Profit 502,08

772,62 56.2 Gross Margin 843,92 56.8 71,30 9.2407,13 29.6 EBIDTA (excluding treasury income) 460,19 31.0 53,06 13.0928,10 Capital Employed 972,78

42.2% Return on Capital Employed 46.7%

2004 2005 Change

Segmental PerformanceSegmental Performance

31% 32%

24%25%

20%

30%

19%

30%

22%23%

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

Pharma AFC QFC Exports Overall

2005 2004

Sales 1257 121 80 27 1485Rs.crsGrowth % 8.6 9.9 0.2 -3.7 8.0

PBT margins

Exceptional ItemsExceptional ItemsIn INR Mn

2005 2004

Govt. demand / provision for Pricing (176) (43) (Salbutamol formulations & Zevit)

Share Buyback (19) -

Other Sundry (Site closure) (25) (442)

Compulsory deductible under flood loss policy (4) -

Property Sale 2166 1042

Total 1942 557

Tax 16 113

1958 670

Cash flow 2005Cash flow 2005INR Mn

Cash from Operations 4562Treasury income (Net) 332Working Capital 477Capex (net) (225)Tax Paid (1458)Dividends 2004 encashed (2087)Dividend Distribution Tax (274)Increase in Cash / Investments 1327

Sale of property 2180Share buy back (2073)Other items (124)

Net increase in Cash / Investments 1310

GSK has outperformed the GSK has outperformed the SensexSensex

75

100

125

150

175

200

225

250

275

300

325

Jan

-03

Feb

-03

Mar

-03

Ap

r-0

3

May

-03

Jun

-03

Jul-

03

Au

g-0

3

Sep

-03

Oct

-03

No

v-0

3

Dec

-03

Jan

-04

Feb

-04

Mar

-04

Ap

r-0

4

May

-04

Jun

-04

Jul-

04

Au

g-0

4

Sep

-04

Oct

-04

No

v-0

4

Dec

-04

Jan

-05

Feb

-05

Mar

-05

Ap

r-0

5

May

-05

Jun

-05

Jul-

05

Au

g-0

5

Sep

-05

Oct

-05

No

v-0

5

Dec

-05

Jan

-06

Inde

xed

pric

e

GSK Sensex

355355

269269

GSKGSK

SENSEXSENSEX

Future Initiatives

GSK India InitiativesGSK India InitiativesInIn--licensing Opportunitieslicensing Opportunities

GSK India GSK India –– a partner of choicea partner of choiceTarget companies not present in India-Japanese companies-American Biotech companies

Target MNCs operating in India with products in mass markets-Two brands strategy works:

Cetzine/ZyrtecVozet/XyzalZimig/Lamicil

26-10

-5

0

5

10

15

20

25

30

35

40

45

50

-1000 1000 3000 5000 7000 9000 11000 13000 15000 17000 19000 21000

Mkt Growth %

Cough & ColdCough & Cold

StatinsStatins

CephalosporinsCephalosporins

DermatologicalsDermatologicals

Mkt Size Rs Mn

RabeprazoleRabeprazole

A2AA2AThyroid PrepThyroid Prep

Anti OsteoporosisAnti Osteoporosis

AmoxyAmoxy ClavClav

Anti DepressantsAnti Depressants

InhalersInhalers

SteroidsSteroids

HypotensivesHypotensives

Anti Anti PyreticsPyretics

Anti EpilepticsAnti Epileptics

Anti histaminesAnti histamines

Oral Anti diabetesOral Anti diabetes

PPIPPI

NutritionalsNutritionals

Source : ORG IMS CAGR (3 YR)

CODEGSK India

No GSK Presence

GSK Group Presence

AntibioticsGr = 2%

ED DrugsED Drugs

MetforminMetformin CombComb

GlimepirideGlimepiride

GlitazonesGlitazones

Focus on upgrading quality of product portfolio by entering high growth segments Focus on upgrading quality of product portfolio by entering high growth segments

GSK India InitiativesGSK India Initiatives(contd.)(contd.)

VxVx Portfolio GrowthPortfolio GrowthPost 2007 New Launches Post 2007 New Launches –– RotarixRotarix, , InfanrixInfanrix, , CervarixCervarix, , StreptorixStreptorix

Robust pipeline will accelerate growth –

Rotarix 2005 2007 Rotavirus - biggest cause of diarrhoea

Cervarix 2006 2007/8 Cervical cancer vaccine

Streptorix 2007 2009Eleven valent vaccine

Infanrix Hexa 2006 2007/8 DTPa + Hib + HB + IPV

Key DifferentiationNCE Filing Year India launch

Also Vx for Malaria, TB, Dengue …Post 2010

Allermist 2006 2008

Alvimopan 2005 2008(Post operative Ileus)

Pleuromutilin 2006 2008 Topical Antibiotic

Key Differentiation

1st in Class. Dual mechanism to cut of blood supply to the tumor

NCE Filing Year India launch

New Glucocorticoid agonist for allergic rhinitis

1st in Class. Satisfies unmet need.

Lapatinib 2006 /7 2008

2008 Launches : GSK2008 Launches : GSK’’s s ““Wall Wall ““-- Oncology, Metabolic Oncology, Metabolic New Patented MoleculesNew Patented Molecules

GSK India InitiativesGSK India Initiatives(contd.)(contd.)

2008 Launches : GSK2008 Launches : GSK’’s s ““Wall Wall ““-- Oncology, Metabolic Oncology, Metabolic New Patented MoleculesNew Patented Molecules

GSK India InitiativesGSK India Initiatives(contd.)(contd.)

Implication of change in IPR environment & shift in disease trends

Implication of change in IPR environment & Implication of change in IPR environment & shift in disease trends shift in disease trends

Sales volumes & value generation will be substantially higher

High resource investment – initial market development spend entirely by innovator

Robust Regulatory strategy. Currently not a level playing field. Time to market crucial

Transition from undifferentiated to differentiated market

Simple price differentiation & superiority messages may no longer work

Acquiring abilities to develop & shape key market segments

SummarisingSummarising the way forward...the way forward...

Brand AcquisitionsBrand Acquisitions

GSK India GSK India –– a partner of choicea partner of choiceInIn--licensing Opportunitieslicensing Opportunities

VxVx Portfolio GrowthPortfolio Growth

New Patented MoleculesNew Patented Molecules

Post 2007 New Launches Post 2007 New Launches –– RotarixRotarix, , InfanrixInfanrix, , CervarixCervarix, , StreptorixStreptorix

2008 Launches : GSK2008 Launches : GSK’’s s ““Wall Wall ““-- Oncology, Metabolic Oncology, Metabolic

Organic GrowthOrganic Growth

GSK New Product Pipeline

GSK has one of the most GSK has one of the most promising R & D pipelinepromising R & D pipeline

R&D Productivity Increase R&D Productivity Increase ––Phase I Starts Phase I Starts ((NCEsNCEs Only)Only)

2001 2002 2003 2004

+80%+100%

+70%

R&D Productivity Increase R&D Productivity Increase ––Phase II Starts Phase II Starts ((NCEsNCEs Only)Only)

2001 2002 2003 2004

+150% +150%

+66%

Pharma Pharma -- Total Pipeline NPV EstimatesTotal Pipeline NPV Estimates

0

10000

20000

30000

40000

GSK

Pfizer

Sanofi-A

ventis

Roche

Merck

Novart

is J&J

BMSEli L

illyAstr

aZen

eca

Wyeth

Abbott

Scheri

ng Ploug

hSource: Adapted from Lehman Brothers PharmaPipelines™ analysis September 2005

$ m

illio

ns

Launch Schedule for Patent Protected NME’s/Big Bets

Launch Schedule for Patent Protected Launch Schedule for Patent Protected NMENME’’ss/Big /Big BetsBets

Allermist 2006 2008

Alvimopan 2005 2008(Post operative Ileus)

Pleuromutilin 2006 2008 Topical Antibiotic

Rotarix 2005 2007 Rotavirus - biggest cause of diarrhoea

Cervarix 2006 2007/2008 Cervical cancer vaccine

Streptorix 2007 2009 Eleven Valent vaccine

New Glucocorticoid agonist for allergic rhinitis

1st in Class. Satisfies unmet need.

Lapatinib 2006 2008

Key Differentiation

1st in Class. Dual mechanism to cut of blood supply to the tumor

NCE Filing Year India launch

End of presentationEnd of presentation