GBp Prev. 2012A Prev. 2013E Prev. 2014E Prev. 2015E
Rev. (B) -- £26.4 £27.2 £27.0 £28.4 £28.5 £29.3 £29.7
EV/Rev 3.7x 3.6x 3.4x 3.3x
EBITDA (B) -- £9.1 £9.4 £9.3 £10.0 £10.2 £10.2 £10.7
EV/EBITDA 10.6x 10.4x 9.5x 9.0x
PE Relative toLocal Market
-- 107% 116% 110% 115% 106% 119% 106%
Dividend -- 74.00 -- 78.00 -- 82.00 -- 86.00
Div. Yield 4.57% 4.82% 5.06% 5.31%
Consensus -- -- -- 116.00 128.00 126.00 138.00 136.00
EPS
FY Dec -- 111.44 116.23 115.14 128.00 131.77 134.56 142.51
FY P/E 14.5x 14.1x 12.3x 11.4x
Price Performance
SEP-12 JAN-13 MAY-13 SEP-13
2,000
1,800
1,600
1,400
1,200
COMPANY NOTE
Target | Estimate Change
UK | Healthcare | Pharmaceuticals September 12, 2013
GlaxoSmithKline Plc (GSK LN)Respiratory Market 2025: Advair GenericsLikely To Wind Long Term Growth
EQU
ITY R
ESEARC
H EU
ROPE
HOLDPrice target 1,750.00p
(from 1,800.00p)Price 1,619.00p
Financial SummaryNet Debt (MM): £14,037.0
Market Data52 Week Range: 1,816.00p - 1,314.00pTotal Entprs. Value (MM): £96,589.8Market Cap. (MM): £82,552.8Institutional Ownership: 85.0%Shares Out. (MM): 5,099.0Float (MM): 4,624.4Avg. Daily Vol.: 6,425,552
Jeffrey Holford, PhD, ACA *Equity Analyst
(212) 336-7409 [email protected] McManus, PhD §
Equity Analyst44 (0) 20 7029 8274 [email protected]
Ian Hilliker §Equity Analyst
44 (0) 20 7029 8672 [email protected] Ramakanth, PhD, MBA *
Equity Associate(212) 336-7054 [email protected]
David Gu, PhD *Equity Associate
(212) 336-7459 [email protected]
* Jefferies LLC § Jefferies International Limited
Key TakeawayWe have grown increasingly bullish on GSK's respiratory franchise in thenear term as new product launches and significant price increases for Advair,expected to force switching, are likely to drive above consensus ests. Howeverthe likely impact of value brands and generics in both Europe and the US cannotbe ignored and will likely cap the longer term upside from this franchise.
Proprietary survey and market model predicts extreme volatility for GSK'srespiratory franchise: We have published a "deep dive" report on the respiratorymarket today based on our proprietary survey of US based pulmonologists and physicianinterviews. This is the most important part of GlaxoSmithKline's business, with Advairalone representing c20% of Group revenues and c30% of earnings. We conclude that therespiratory franchise is likely to drive revenue and EPS upside versus consensus through to2016E, where our EPS estimate is now 13% above consensus. However, the potential impactof generics thereafter is also not represented in market thinking and our 2017E EPS estimateis now 4% lower than consensus.
Breo and Anoro Ellipta launches expected to drive near to mid term upside vs.consensus: Our work indicates that Breo will be prescribed to c35% of COPD patientssuited to LABA/ ICS therapy, whilst US pulmonologists expect to prescribe a LABA/ LAMAproduct (such as Anoro) to c20% of their COPD patients in total. We look for peak sales ofc$2bn for Anoro in 2019E, with Breo sales plateauing at c$1.5bn from 2017E. We expectGlaxoSmithKline to use aggressive US price increases from the outset of the Breo launch todrive switching over to both Breo and Anoro, which we believe is not reflected in consensus.These assumptions lead to a net c$1.6bn increase in our respiratory franchise sales in 2016E.
Substitutable US Advair generics represent a major overhang post-2016: DraftFDA guidelines for developing a generic version of Advair have opened up the potential forsubstitutable multi-source generics from 2017E. We have updated our model to reflect this,as well as other factors, including negative changes to MAGE-A3 expectations, de-riskingTivicay after its recent US approval and updating for FX (-1% to -2% impact on 2013E-17Esales and EPS).
Valuation/RisksValuation: Our PT of 1750p is calculated by placing our 2014E EPS estimate on a c10%-15%premium to the UK market PE. Risks: Generics; acquisitions; regulatory actions; patentexpiries and litigation; FX fluctuations; R&D productivity.
Jefferies does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that Jefferies may have a conflictof interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment decision.Please see analyst certifications, important disclosure information, and information regarding the status of non-US analysts on pages 17 to 20 of this report.
Deep Dive on Respiratory Drives Major Updates To Estimates We have published the results of a 52 US based Pulmonologists survey and detailed
inhaled maintenance Respiratory market model today in a separate note entitled:
‚Respiratory Market 2025: Taking A Deep Breath And A Deep Dive‛. As the world’s
leading Respiratory market player (34% of the Global market value in 2012A), much of
the dynamics within this market will have material consequences for GlaxoSmithKline.
Key conclusions
GlaxoSmithKline should see revenue growth in its respiratory franchise out to 2016E,
driven by strong US pricing behind Advair to help force switching over to Breo Ellipta, as
well as the launch of Anoro Ellipta. We expect that Anoro Ellipta will gain significant share
from the LAMA class in COPD, while putting limited pressure on the LABA/ ICS and LABA
alone classes. However, we see significant destruction of value should substitutable
generics launch in the US by 2017E, compounded by reference pricing pressure from
non-substitutable generics in Europe from 2014E.
As a result, we have increased our key respiratory combination franchise (Advair, Anoro
Ellipta, Breo Ellipta) revenue estimates for GlaxoSmithKline by 2%-17% from 2013E-16E,
but have then reduced our 2017E estimate by 25% due to the impact of US generics.
From the Group context, this and other updates (e.g. FX [negative impact of [1%-2%] and
the setback on the MAGE-A3 program) have led us to increase group revenue estimates
by 0%-2% from 2014E-16E and cut 2017E by 6%. From the perspective of Group EPS, we
have increased 2014E-16E EPS by 3%-8%, whilst lowering our 2017E EPS by 14%.
GlaxoSmithKline expected to benefit into the mid term until generics bite
Although GlaxoSmithKline is well positioned with new product offerings, it may be
unable to prevent a ‚patent cliff like event‛ in 2017E. The release of Draft Guidelines for a
potential Advair generic in the US suggests a substitutable product should now be
expected from late 2016E or 2017E.
Exhibit 1: JEFe company modeled sales for GlaxoSmithKline, 2009A-2020E
Source: Jefferies estimates, company data
Substitutable generic Advair now expected from late 2016E
Draft FDA guidelines for developing a generic version of Advair provides the ability to file
under an ANDA 505(j) pathway. This would allow for the potential approval of a fully
substitutable generic. With the guidelines also requiring the device to have the same
major characteristics of the original Diskus inhaler, it seems likely that any generic device
0
5
10
15
20
25
30
35
40
2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Sale
s (£
bn
)
Total respiratory franchise (all inhaled, oral, and injectable classes) Other sales
GSK LN
Target | Estimate Change
September 12, 2013
page 2 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
would still run the risk of infringing GlaxoSmithKline’s remaining Aug 2016 patent
exclusivity, covering the blister pack. This would mean any filing prior to the patent expiry
would require a Paragraph IV certification that it either doesn’t infringe the patent, or the
patent is invalid. Whilst this would guarantee the first to file company a 6 month
exclusivity, it would also enable GlaxoSmithKline to sue, triggering a 30 month stay on a
generic launch, pending litigation outcome.
It could easily be mid-2014 before the guidelines are eventually finalized, given the
representations that will likely be made to the FDA by various interested parties. On a
worse-case scenario, assuming a generic device is already available that meets FDA
requirements and studies have already been completed, a first generic could theoretically
file in Q3’14. If it took the full 30 months of the stay to get to court, it would already be
Q1’17, beyond the life of the patent. On this basis it seems unlikely that a generic will
launch in the US before the Aug 2016 patent expires. Meanwhile a first to file generic
company would have 6 months exclusivity, so it could be Q1’17 before multi source
generics have the opportunity to launch.
A number of generic companies have been looking at developing inhaled generic DPI
products for some time now, including Novartis’ Sandoz (NOVN VX, CHF71.35, Buy) and
Mylan (MYL, $38.05, NC). Following disclosure of the draft guidelines John Sheehan, the
CFO of Mylan, was quoted at the Morgan Stanley Global Healthcare Conference on 10th
September 2013, saying:
“…the guidance…is exactly in line with what we had indicated our discussions with the FDA –
were, and so, fully anticipated from our side”. “Our device…..has been examined by the FDA.
Our program has been validated as a AB-rated program, generically substitutable program.
And so, we are definitely moving down the path for a generic form of Advair.”
This implies that as long as the final guidelines do not have any major changes in them,
Mylan would appear to be well advanced. Sheehan went on to say;
“….this is going to be a hard to formulate product, hard to manufacture that's where
Mylan's expertise has typically been and therefore we believe that this will be a market that
still have a small number of players and as a result that there will be significant value….”.
He later clarified that Mylan expected “the launch of a generic Advair in 2016”.
This further confirms the expectation that we could have a US generic shortly after the
remaining Advair patent expires. Even if the assertion that it is hard to formulate and
manufacture is correct, even a ‘small number of players’ will still have a devastating effect
on pricing as they fight for market share. Lovenox would serve as a good example to
prove the point here, in our view.
Positive Anoro AdCom vote and supportive class expectations from our survey
Following the near unanimous vote for approval by the FDA’s Advisory committee panel
on September 10th, Anoro Ellipta is very likely to offer first-to-market status in the US, will
likely be the only once-daily LABA/ LAMA on the US market and uses a best-in-class
device, in our opinion. Novartis will present competition ex-US, where QVA149 (Ultibro)
will be first-to-market and once-daily, although our surveyed pulmonologists appeared
less convinced regarding the Neohaler/ Breezhaler device it uses.
We expect GlaxoSmithKline to price Anoro Ellipta at a significant premium to Advair or
Breo Ellipta and our surveyed pulmonologists expect to prescribe a LABA/ LAMA fixed
dose combination to c20% of COPD patients in five years’ time. Much of the market share
for Anoro Ellipta will be gained from patients who would have been prescribed two
branded products (Advair + Spiriva for example), therefore a higher price should be
justified. Some market share for GlaxoSmithKline’s LABA/ ICSs’ Advair and Breo Ellipta
GSK LN
Target | Estimate Change
September 12, 2013
page 3 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
may be lost to Anoro Ellipta in COPD, but this should be a positive event given our
expected higher price point for Anoro Ellipta.
Breo Ellipta offers a chance to protect some of the franchise, but not enough
Breo Ellipta offers once-daily LABA/ ICS therapy for COPD patients in the US, and
potentially for both COPD and asthma patients ex-US. 74% of surveyed pulmonologists
were aware of Breo Ellipta prior to the product’s launch, and noted convenience and
compliance as key attributes. We expect GlaxoSmithKline to employ a price-driven
switching strategy from Advair, helping to protect the franchise from potential Advair
generics and value brands. We expect a key part of this strategy to include significant
price increases for Advair from the point of launch, encouraging switching and providing
a near term boost to overall franchise sales. GlaxoSmithKline is also well positioned to
reach the COPD ‚holy grail‛ of triple therapy in a single device. This could be through its
new LABA, LAMA, and ICS molecules or through development of MABA in combination
with an ICS.
Exhibit 2: Global sales of key inhaled respiratory products for
GlaxoSmithKline, 2008A-2025E
Source: Jefferies estimates, company data
Our updated estimates for GlaxoSmithKline’s respiratory franchise (key inhaled
combination products) are $1.6bn higher than our previous assumptions in 2016E, but
$2.3bn lower than our prior estimates in 2017E.
0
2
4
6
8
10
Glo
bal
sale
s ($
bn
)
Advair (LABA/ ICS) Breo/ Relvar Ellipta (LABA/ ICS)
Anoro Ellipta (LABA/ LAMA) LABA/ LAMA/ ICS
Serevent (LABA) UMEC (LAMA)
Vilanterol (LABA)
GSK LN
Target | Estimate Change
September 12, 2013
page 4 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Exhibit 3: GlaxoSmithKline inhaled key respiratory
combination products franchise, JEFe vs. consensus
Source: Jefferies estimates, company data, EvaluatePharma
consensus
Exhibit 4: GlaxoSmithKline inhaled key respiratory
combination products franchise, new versus old
Source: Jefferies estimates, company data
We have included sales for a triple (LABA/ LAMA/ ICS) fixed dose combination for
GlaxoSmithKline from 2020E. GlaxoSmithKline has a program in Phase I which includes its
new generation of products in a triple therapy fixed dose combination (vilanterol [LABA],
umeclidinium [LAMA], and fluticasone furoate [ICS]) for COPD. In addition to this,
management commentary would suggest that it sees the development of MABA (961081,
Phase II, LAMA and LABA activity in a single molecule) as a step towards its incorporation
in a triple combination. We have not included sales for MABA as a single product in our
market model and would expect some cannibalization of Anoro Ellipta should both
products make it to the market. c.30% of patients are expected to receive a triple therapy
fixed dose combination after five years should one become available according to
pulmonologists included in our survey.
GlaxoSmithKline is also investigating umeclidinium (LAMA) and fluticasone furoate (ICS)
in a fixed dose combination for asthma in Phase II. With a lack of LAMA data in asthma to
date, we have not included sales for LAMA or its combinations for asthma within our
market model and therefore it could present some upside to our estimates.
GlaxoSmithKline is also investigating fluticasone furoate (ICS) as a single product for
asthma. We have not specifically included sales for this product in our market model, with
the ICS class sales included as a single class line. This class generated $3bn in sales in
2012A according to IMS health. We would see fluticasone furoate as a useful once-daily
option, especially if combined with a once daily LABA/ LAMA such as Anoro Ellipta to
produce an alternative triple therapy regime.
US franchise expected to see significant volatility in the mid term
We expect US prescription growth for GlaxoSmithKline’s respiratory franchise driven by
Anoro Ellipta, UMEC, and vilanterol approval from 2014E through to 2016E. From 2017E
the introduction of substitutable Advair generics, increased competition across respiratory
drug classes, and the introduction of triple fixed dose combinations, will decrease
volumes for the franchise as a whole, in our opinion.
According to surveyed pulmonologists, GlaxoSmithKline will expand its share of the
COPD LABA/ ICS fixed dose combination market from 51% to 64% in five years’ time. We
expect US inhaled respiratory franchise sales growth through to 2016E generated by the
launch of higher value products and price increases for Advair in particular, before the
franchise undergoes significant generic incursion in 2017E. From a new base, we would
0
2
4
6
8
10
12
Glo
bal
sale
s ($
bn
)
GSK consensus (Advair, Breo, Anoro)
JEFe current expectations (Advair, Breo, Anoro [risk-adjusted])
0
2
4
6
8
10
12
2008A 2009A 2010A 2011A 2012A 2013E 2014E 2015E 2016E 2017E
Glo
bal
sale
s ($
bn
)
JEFe previous expectations (Advair, Breo, Anoro [risk-adjusted])
JEFe current expectations (Advair, Breo, Anoro [risk-adjusted])
GSK LN
Target | Estimate Change
September 12, 2013
page 5 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
expect the franchise to start growing from 2020E due to the launch of a triple
combination therapy.
Exhibit 5: US key inhaled respiratory market volume
(prescriptions) for GlaxoSmithKline franchise
Source: Jefferies estimates
Exhibit 6: US key inhaled respiratory market value ($m) for
GlaxoSmithKline franchise
Source: Jefferies estimates
Ex-US franchise expected to see more steady pressure on value growth
We expect ex-US volume growth for GlaxoSmithKline’s respiratory franchise driven by
continued adoption of combination products and COPD/ asthma awareness in the
Emerging Markets, and the launch of new drug classes and product offerings. Despite this
volume increase, we expect pricing to come under pressure (especially in Europe).
Reference pricing to value brands (e.g. Flutiform and Foster) and generics (of Advair and/
or Symbicort) may put significant pressure on key respiratory combination pricing.
Exhibit 7: Ex-US key inhaled respiratory market volume
(prescription equivalents) for GlaxoSmithKline
Source: Jefferies estimates
Exhibit 8: Ex-US key inhaled respiratory market value ($m)
for GlaxoSmithKline
Source: Jefferies estimates
0
5
10
15
20
25
2008A 2010A 2012A 2014E 2016E 2018E 2020E 2022E 2024E
US
pre
scri
pti
on
s (m
illio
ns)
Advair (LABA/ ICS) Anoro (LABA/ LAMA) Breo (LABA/ ICS)LABA/ LAMA/ ICS Serevent (LABA) UMEC (LAMA)
0
2,000
4,000
6,000
8,000
2008A 2010A 2012A 2014E 2016E 2018E 2020E 2022E 2024E
US
sale
s ($
m)
Advair (LABA/ ICS) Anoro Ellipta (LABA/ LAMA)
Breo/ Relvar Ellipta (LABA/ ICS) LABA/ LAMA/ ICS
Serevent (LABA) UMEC (LAMA)
Vilanterol (LABA)
0
20
40
60
80
100
2008A 2010A 2012A 2014E 2016E 2018E 2020E 2022E 2024E
ex-
US
pre
scri
pti
on
eq
uiv
alen
ts (
mill
ion
s)
Advair (LABA/ ICS) Anoro Ellipta (LABA/ LAMA)Breo Ellipta (LABA/ ICS) LABA/ LAMA/ ICSSerevent (LABA) UMEC (LAMA)Vilanterol (LABA)
0
1,000
2,000
3,000
4,000
5,000
2008A 2010A 2012A 2014E 2016E 2018E 2020E 2022E 2024E
ex-
US
sale
s ($
m)
Advair (LABA/ ICS) Anoro Ellipta (LABA/ LAMA)Breo/ Relvar Ellipta (LABA/ ICS) LABA/ LAMA/ ICSSerevent (LABA) UMEC (LAMA)Vilanterol (LABA)
GSK LN
Target | Estimate Change
September 12, 2013
page 6 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
We expect volume for GlaxoSmithKline’s global inhaled respiratory franchise (key
products) to increase with a CAGR of 1% (2012A–25E). Although GlaxoSmithKline is at
the forefront of drug development in the respiratory field, increased branded and generic
competition may constrain value growth. We therefore expect the value of
GlaxoSmithKline’s franchise to decrease with a CAGR of 1% (2012A-25E).
Exhibit 9: Global key inhaled respiratory market volume
(prescription equivalents) for GlaxoSmithKline’s franchise
Source: Jefferies estimates
Exhibit 10: Global key inhaled respiratory market value
($m) for GlaxoSmithKline’s franchise
Source: Jefferies estimates
0
20
40
60
80
100
120
2008A 2010A 2012A 2014E 2016E 2018E 2020E 2022E 2024E
Glo
bal
pre
scri
pti
on
eq
uiv
alen
ts
(mill
ion
s)
Advair (LABA/ ICS) Breo/ Relvar Ellipta (LABA/ ICS)Anoro Ellipta (LABA/ LAMA) LABA/ LAMA/ ICSSerevent (LABA) UMEC (LAMA)Vilanterol (LABA)
0
2
4
6
8
10
12
2008A 2010A 2012A 2014E 2016E 2018E 2020E 2022E 2024E
Glo
bal
sale
s ($
bn
)
Advair (LABA/ ICS) Breo/ Relvar Ellipta (LABA/ ICS)Anoro Ellipta (LABA/ LAMA) LABA/ LAMA/ ICSSerevent (LABA) UMEC (LAMA)Vilanterol (LABA)
GSK LN
Target | Estimate Change
September 12, 2013
page 7 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Forecast Changes, Financial Models and Catalysts
Exhibit 11: GlaxoSmithKline key changes to forecasts
(£) millions 2012A 2013E 2014E 2015E 2016E 2017E CAGR
'12E-'17E
Revenues (£m)
Prior estimates 26,431 27,205 28,405 29,309 31,177 33,427 5%
New estimates 26,431 27,025 28,533 29,748 31,935 31,480 4%
Change 0% -1% 0% 1% 2% -6%
Revenue growth
Prior estimates -3% 3% 4% 3% 6% 7%
New estimates -3% 2% 6% 4% 7% -1%
JEFe vs Cons.
Consensus estimate 26,431 26,979 27,888 28,998 29,700 31,123 3%
JEFe vs Cons. (%) 0% 0% 2% 3% 8% 1%
CORE EPS (p)
Prior estimates 111.4 116.2 128.0 134.6 152.8 176.8 10%
New estimates 111.4 115.1 131.8 142.5 165.6 151.3 6%
Change 0% -1% 3% 6% 8% -14%
EPS growth
Prior estimates -3% 4% 10% 5% 14% 16%
New estimates -3% 3% 14% 8% 16% -9%
JEFe vs Cons.
Consensus estimate 111.4 116.0 126.0 136.0 146.0 158.0 7%
JEFe vs Cons. (%) 0% -1% 5% 5% 13% -4%
Source: Jefferies estimates, company data, FactSet
Exhibit 12: Jefferies 2013 estimates versus management guidance
Metric Guidance/Goal JEF Estimate
2013 Guidance
Revenues Growth of around 1% CER 1.6%
R&D Around £3.6bn £3.5bn
CORE Net finance expense Around the same level as 2012 (-£724m) -£752m
Tax rate Growth of 3%-4% CER 3.0%
Dividend Expect 24% 24%
Share repurchases Continued growth (2012: 74p) 78p
Source: Jefferies estimates, company data
£1bn-2bn £1.4bn
GSK LN
Target | Estimate Change
September 12, 2013
page 8 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Exhibit 13: Jefferies revenue estimates versus Consensus for
GlaxoSmithKline, 2012A-2017E
Source: Jefferies estimates, company data, FactSet
Exhibit 14: Jefferies CORE EPS estimates versus Consensus
for GlaxoSmithKline, 2012A-2017E
Source: Jefferies estimates, company data, FactSet
Exhibit 15: GlaxoSmithKline quarterly sales, 2012A vs.
2013E
Source: Jefferies estimates, company data
Exhibit 16: GlaxoSmithKline quarterly CORE EPS, 2012A vs.
2013E
Source: Jefferies estimates, company data
0
20
40
60
80
100
120
140
160
180
2012A 2013E 2014E 2015E 2016E 2017E
CO
RE E
PS
(p
)
Consensus estimate JEF estimate
-
5,000
10,000
15,000
20,000
25,000
30,000
35,000
2012A 2013E 2014E 2015E 2016E 2017E
Reve
nu
es
(£m
)
Consensus estimate JEF estimate
0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
Q1 Q2 Q3 Q4
Reve
nu
es
(£m
)
2012A 2013E
0
5
10
15
20
25
30
35
40
Q1 Q2 Q3 Q4
CO
RE
EPS
(p
)
2012A 2013E
GSK LN
Target | Estimate Change
September 12, 2013
page 9 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Exhibit 17: Consensus 2014E earnings and PE premium
relative to the UK market for GlaxoSmithKline
Source: FactSet, Jefferies research
Exhibit 18: LT Historical PE relative to UK market on 1-year
forward Consensus earnings for GlaxoSmithKline
Source: FactSet, Jefferies research
Exhibit 19: Summary catalyst calendar for GlaxoSmithKline
Source: Jefferies estimates, company data
120
125
130
135
140
0%
5%
10%
15%
20%
25%
30%
Sep
-12
Oct
-12
No
v-1
2
Dec-
12
Jan
-13
Feb
-13
Mar-
13
Ap
r-1
3
May-
13
Jun
-13
Jul-
13
Au
g-1
3
Co
nse
nsu
s 2
01
4 E
arn
ing
s (p
)
20
14
Pre
miu
m t
o U
K M
arke
t P
E
Premium to UK Market PE Consensus Earnings (p)
60%
80%
100%
120%
140%
160%
180%
200%
Dec-
94
Dec-
95
Dec-
96
Dec-
97
Dec-
98
Dec-
99
Dec-
00
Dec-
01
Dec-
02
Dec-
03
Dec-
04
Dec-
05
Dec-
06
Dec-
07
Dec-
08
Dec-
09
Dec-
10
Dec-
11
Dec-
12
GS
K R
ela
tive
to
UK
MS
CI
3Q’13 4Q’13 1Q’14 2Q’14
Tivicay (Dolutegravir)Phase III (FLAMINGO) data vsdarunavir (Prezista)/ritonavir
(Q2’13: positive data in-house)
Revolade/PromactaEU regulatory decision in Hep C
(CHMP positive)
Tafinlar / MekinistPhase III (COMBI-d) BRAF/MEK
data in 1st line melanoma
Q3 results(23rd October)
Tivicay (Dolutegravir)EU reg dec in HIV
ANORO ELLIPTALABA/LAMA US reg dec COPD
PDUFA 18th Dec
TykerbPhase III (ALTTO) adjuvant
breast cancer data
SelzentryPhase III Head to Head in HIV vs
Truvada (ViiV)
DrisapersenPhase III in Duchennes MD
Q4 results(April)
ANORO ELLIPTALABA/LAMA EU reg dec COPD;Further Phase III study data due
AlbiglutideEU reg dec (Filed Mar ’13)
Sirukumab (CNTO136)Phase III data in RA (post a-TNF)
DarapladibPhase III STABILITY outcomes data in atherosclerotic plaque stabilization and possible interim read out of SOLID-TIMI-52
EpzicomRuling from combo patent challenge (trial held Jun’13)
Q4 results(January)
BenlystaPhase III (BLISS-SC) sub-cut
data in SLE
AlbiglutideUS reg dec
(PDUFA–extended to 15th April)
ANORO ELLIPTALABA/LAMA Japanese reg dec
COPD
Tafinlar / MekinistUS reg. dec. for combo use;
Phase III (COMBI-v) BRAF/MEK data in 1st line melanoma
UmeclidiumEU & US reg dec for UMEC
(LAMA) monotherapy in COPD
Mekinist (Trametinib)EU reg. dec. met. melanoma
monotherapy;Also in combo with dabrafenib
ArzerraPhase III (PROLONG) in CLL
Relvar/Breo (Relovair)EU reg. dec. in Asthma/ COPD
MepolizumabPhase III data in severe asthma
MAGE 3Phase III data in NSCLC
GSK LN
Target | Estimate Change
September 12, 2013
page 10 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Exhibit 20: Core Pharma key marketed products summary,2012A-2017E
£m 2012A 2013E 2014E 2015E 2016E 2017E Incr.abs.
12A-17E
CAGR
12A-17E
Core Pharma 16,622 16,863 17,734 18,148 19,505 18,277 1,655 2%
Respiratory 7,291 7,712 8,074 8,095 8,180 5,286 (2,005) -6%
Xyzal 129 168 203 241 275 307 178 19%
Ventolin 631 664 695 723 746 761 130 4%
Avamys/Veramyst 246 268 287 309 330 351 105 7%
Flixonase/Flonase 133 128 124 124 126 126 (7) -1%
Zyrtec 81 81 80 81 82 84 3 1%
Other 101 88 89 89 90 91 (10) -2%
Flixotide/Flovent 779 825 837 813 791 772 (7) 0%
Serevent 145 127 110 96 85 75 (70) -12%
Seretide/Advair 5,046 5,363 5,650 5,619 5,655 2,720 (2,326) -12%
Anti-virals 753 579 528 505 490 481 (272) -9%
Hepsera 126 116 112 109 106 103 (23) -4%
Others 43 33 40 43 45 48 5 2%
Zelfix 243 234 227 227 227 230 (13) -1%
Zovirax 89 79 73 70 68 67 (22) -6%
Valtrex 252 196 149 127 112 101 (151) -17%
Central Nervous System 1,670 1,419 1,188 1,089 1,060 1,043 (627) -9%
Others 199 215 221 231 239 248 49 5%
Wellbutrin/Wellbutrin XL 84 91 90 98 102 103 19 4%
Treximet 49 0 0 0 0 0 (49) -100%
Requip 164 123 108 101 97 95 (69) -10%
Imigran/Imitrex 190 180 161 145 129 115 (75) -9%
Seroxat/Paxil 374 289 250 222 201 184 (190) -13%
Lamictal 610 521 359 292 292 297 (313) -13%
Cardiovascular and Urogenital 2,431 2,313 2,320 1,661 1,415 1,354 (1,077) -11%
Avodart 790 877 947 872 764 769 (21) -1%
Others 298 299 290 283 278 274 (24) -2%
Fraxiparine 233 227 220 213 197 182 (51) -5%
Arixtra 195 169 139 133 129 122 (73) -9%
Coreg, Coreg CR 133 122 104 89 44 4 (129) -50%
Vesicare 175 0 0 0 0 0 (175) -100%
Lovaza 607 619 620 70 3 3 (604) -65%
Metabolic 171 165 156 152 152 153 (18) -2%
Avandia products 6 0 0 0 0 0 (6) -100%
Others 165 165 156 152 152 153 (12) -1%
Anti-bacterials 1,247 1,289 1,279 1,272 1,260 1,245 (2) 0%
Augmentin 608 650 665 676 678 672 64 2%
Others 639 638 614 596 582 573 (66) -2%
Oncology and emesis 798 986 1,189 1,373 1,537 1,682 884 16%
Votrient (Advanced RCC) 183 337 476 593 683 752 569 33%
Promacta 130 198 276 350 426 498 368 31%
Arzerra 59 87 119 148 176 204 145 28%
Others 186 156 142 131 123 117 (69) -9%
Tyverb/Tykerb 239 208 176 150 129 111 (128) -14%
Dermatologicals 850 862 886 895 906 933 83 2%
Others 639 649 656 671 686 713 74 2%
Bactroban 124 111 100 96 93 93 (31) -6%
Duac 87 63 56 57 59 60 (27) -7%
Rare diseases 495 521 527 540 556 573 78 3%
Volibris 127 154 181 209 238 265 138 16%
Other rare diseases 233 259 253 248 245 241 8 1%
Flolan 135 108 93 82 74 67 (68) -13%
Other (Other pharma + Benlysta) 916 891 931 989 1,049 1,112 196 4%
Benlysta 70 153 225 303 378 454 384 45%
Other pharmaceuticals 846 737 706 686 670 658 (188) -5%
Core Pharma pipeline 0 86 657 1,577 2,900 4,415 4,415 n/a
Source: Jefferies estimates, company data
GSK LN
Target | Estimate Change
September 12, 2013
page 11 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Exhibit 21: Core Pharma pipeline summary, 2012A - 2017E
£m 2012A 2013E 2014E 2015E 2016E 2017E Incr. abs.
12A-17E
Core Pharma pipeline 0 86 657 1,577 2,900 4,415 4,415
Relvar (COPD and Asthma) 0 19 291 547 811 903 903
Albliglutide 0 0 41 69 124 179 179
Anoro (Umeclidinium (UMEC) + vilanterol) 0 0 121 320 523 810 810
Darapladib 0 0 0 73 195 341 341
Trametinib (metastatic melanoma) 0 32 97 162 227 292 292
MAGE-A3 (NSCLC) 0 0 0 12 37 61 61
MAGE-A3 (melanoma) 0 0 0 0 12 37 37
Dabrafenib (metastatic melanoma) 0 19 58 97 136 175 175
Mepolizumab 0 0 0 32 84 148 148
Sirukumab 0 0 0 32 84 148 148
Raxibacumab 0 15 39 68 107 141 141
Votrient (ovarian) 0 0 0 21 63 105 105
Arzerra (CLL) 0 0 0 21 63 105 105
Arzerra (FL) 0 0 0 21 63 105 105
Arzerra (DLBCL) 0 0 0 21 63 105 105
Vericiron (1605786) 0 0 0 0 32 84 84
961,081 0 0 0 0 32 84 84
Relenza i.v. (zanamivir) 0 0 0 16 42 74 74
Migalastat HCl 0 0 8 21 37 58 58
Fluticasone fumarate (FF) 0 0 0 9 25 44 44
Vilanterol 0 0 0 9 25 44 44
Umeclidinium (UMEC) 0 0 0 12 33 58 58
Dabrafenib+ Trametinib (colorectal cancer) 0 0 0 0 16 42 42
Votrient (1st line RCC) 0 0 0 0 13 38 38
Drisapersen 0 0 0 8 21 37 37
Umeclidinium (UMEC) + Fluticasone fumarate (FF) 0 0 0 0 12 32 32
2,696,273 0 0 0 5 13 22 22
742,457 0 0 0 0 0 18 18
Trametinib (KRAS mutant NSCLC, second line) 0 0 0 0 6 16 16
249,320 0 0 0 0 0 12 12
2,245,840 0 0 0 0 0 12 12
Losmapimod 0 0 0 0 0 12 12
Firategrast 0 0 0 0 0 12 12
2,190,915 0 0 0 0 0 12 12
Dabrafenib (NSCLC) 0 0 0 0 0 2 2
Ofatumumab (MS) 0 0 0 0 0 6 6
GSK1278863 0 0 0 0 0 6 6
Retosiban 0 0 0 0 0 6 6
1,322,322 0 0 0 0 0 6 6
Tafenoquine 0 0 0 0 0 6 6
Dilmapimod 0 0 0 0 0 6 6
Camicinal (962040) 0 0 0 0 0 6 6
Source: Jefferies estimates, company data
GSK LN
Target | Estimate Change
September 12, 2013
page 12 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Exhibit 22: Vaccines, ViiV and Consumer Health products and pipeline summary, 2012A -2017E
£m 2012A 2013E 2014E 2015E 2016E 2017E Incr.abs.
12A-17E
CAGR
12A-17E
Vaccines 3,325 3,466 3,757 4,057 4,367 4,649 1,324 7%
Infanrix/Pediarix 775 896 967 1,037 1,105 1,169 394 9%
Rotarix 360 380 419 455 494 531 171 8%
Synflorix 385 405 456 500 548 586 201 9%
Boostrix 238 280 338 387 427 464 226 14%
Fluarix/FluLaval 200 228 244 260 276 290 90 8%
Others 450 421 421 425 430 436 (14) -1%
Cervarix 270 171 176 182 189 195 (75) -6%
Hepatitis 646 606 590 575 560 543 (103) -3%
Vaccines pipeline 0 77 146 235 340 436 436 n/a
Menhibrix 0 39 68 107 141 165 165 n/a
Quadrivalent Flu 0 12 32 57 89 118 118 n/a
Nimenrix 0 26 45 71 94 110 110 n/a
Zoster 0 0 0 0 16 42 42 n/a
ViiV 1,374 1,367 1,461 1,642 1,856 2,026 652 8%
Selzentry 128 156 177 196 215 233 105 13%
Epzicom/Kivexa 665 734 769 798 804 773 108 3%
Epivir 49 36 23 17 13 10 (39) -27%
Other 119 173 150 132 118 106 (13) -2%
Trizivir 107 91 78 69 40 13 (94) -35%
Combivir 179 104 69 56 46 38 (141) -27%
Lexiva 127 0 0 0 0 0 (127) -100%
ViiV pipeline 0 73 195 372 620 853 853 n/a
Dolutegravir 0 73 195 341 535 706 706 n/a
Dolutegravir-Trii 0 0 0 32 84 148 148 n/a
Consumer Health 5,110 5,329 5,581 5,902 6,207 6,528 1,418 5%
Oral healthcare 1,797 1,927 2,043 2,186 2,317 2,456 659 6%
OTC medicines (Total wellness + Skin health) 2,263 2,280 2,349 2,443 2,541 2,643 380 3%
Nutritional healthcare 1,050 1,122 1,189 1,272 1,348 1,429 379 6%
Source: Jefferies estimates, company data
GSK LN
Target | Estimate Change
September 12, 2013
page 13 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Exhibit 23: GlaxoSmithKline: Summary Income Statement (GBP in millions) 2012A-2017E
(£) millions 2012A 2013E 2014E 2015E 2016E 2017E Incr.abs.
12A-17E
CAGR
12A-17E
Core Pharma 16,622 16,863 17,734 18,148 19,505 18,277 1,655 2%
Vaccines 3,325 3,466 3,757 4,057 4,367 4,649 1,324 7%
ViiV 1,374 1,367 1,461 1,642 1,856 2,026 652 8%
Consumer Health 5,110 5,329 5,581 5,902 6,207 6,528 1,418 5%
Turnover 26,431 27,025 28,533 29,748 31,935 31,480 5,049 4%
Cost of sales (7,109) (7,441) (7,720) (8,090) (8,677) (8,898) (1,789) 5%
Gross profit 19,322 19,584 20,813 21,658 23,258 22,582 3,260 3%
SG&A (7,905) (8,015) (8,283) (8,614) (8,959) (9,317) (1,412) 3%
R&D (3,485) (3,544) (3,619) (3,728) (3,840) (3,955) (470) 3%
Royalty income 306 355 362 370 377 385 79 5%
CORE Operating profit 8,238 8,381 9,273 9,686 10,836 9,694 1,456 3%
CORE Net finance expense (724) (752) (769) (738) (705) (664) 60 -2%
Share of after-tax profits from assoc. & JVs 29 51 53 54 56 57 28 15%
CORE EBITDA 9,109 9,348 10,244 10,663 11,822 10,689 1,580 3%
CORE Profit before Taxation 7,543 7,680 8,556 9,002 10,187 9,088 1,544 4%
Taxation (1,838) (1,840) (2,007) (2,066) (2,287) (1,995) (157) 2%
Tax rate 24.4% 24.0% 23.5% 23.0% 22.5% 22.0% (0) -2%
CORE Profit after Taxation 5,705 5,840 6,549 6,936 7,900 7,092 1,387 4%
Profit attributable to non-controlling interests 235 281 316 338 388 354 119 9%
CORE Profit attributable to shareholders 5,470 5,559 6,233 6,598 7,511 6,738 1,268 4%
CORE EPS 111.4p 115.1p 131.8p 142.5p 165.6p 151.3p 39.9p 6%
Weighted average shares - basic 4,912 4,830 4,733 4,631 4,539 4,456 (456) -2%
DPS 74p 78p 82p 86p 92p 100p 26p 6%
Margin Analysis 2012A 2013E 2014E 2015E 2016E 2017E
Cost of sales 26.9% 27.5% 27.1% 27.2% 27.2% 28.3%
Gross margin 73.1% 72.5% 72.9% 72.8% 72.8% 71.7%
R&D 13.2% 13.1% 12.7% 12.5% 12.0% 12.6%
SG&A 29.9% 29.7% 29.0% 29.0% 28.1% 29.6%
Core Operating profit margin 31.2% 31.0% 32.5% 32.6% 33.9% 30.8%
EBITDA margin 34.5% 34.6% 35.9% 35.8% 37.0% 34.0%
Core pretax margin 28.5% 28.4% 30.0% 30.3% 31.9% 28.9%
CORE Profit attributable to shareholders margin 21.6% 21.6% 23.0% 23.3% 24.7% 22.5%
Dividend Payout Ratio 66.5% 67.8% 62.3% 60.4% 55.6% 66.1%
% YOY Change 2012A 2013E 2014E 2015E 2016E 2017E
Turnover -3% 2% 6% 4% 7% -1%
Cost of sales -2% 5% 4% 5% 7% 3%
Gross profit -4% 1% 6% 4% 7% -3%
R&D -6% 2% 2% 3% 3% 3%
SG&A -1% 1% 3% 4% 4% 4%
CORE Operating profit -6% 2% 11% 4% 12% -11%
CORE EBITDA -5% 3% 10% 4% 11% -10%
CORE Profit before Taxation -6% 2% 11% 5% 13% -11%
CORE Profit attributable to shareholders -5% 2% 12% 6% 14% -10%
CORE EPS -3% 3% 14% 8% 16% -9%
Dividend per Share -1% 5% 5% 5% 7% 9%
Weighted average shares - basic -2% -2% -2% -2% -2% -2%
Source: Jefferies estimates, company data
GSK LN
Target | Estimate Change
September 12, 2013
page 14 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Exhibit 24: GlaxoSmithKline: Cash Flow (GBP in millions) 2012A-2017E
(£) millions 2012A 2013E 2014E 2015E 2016E 2017E
Profit after Tax (CORE) 5,470 5,559 6,233 6,598 7,511 6,738
GAAP adjustment total (495) (912) (787) (780) (774) (767)
Profit after Tax (Reported) 4,744 4,788 5,762 6,155 7,126 6,326
Tax on profits (Reported) 1,948 1,608 2,007 2,066 2,287 1,995
Share of after-tax profits of associates & JVs (29) (51) (53) (54) (56) (57)
Net finance expense (reported) 729 759 769 738 705 664
Depreciation & other non-cash items 1,085 1,376 971 977 986 995
(Increase)/decrease in working capital 397 381 722 743 926 286
(Decrease)/increase in other net liabilities (2,826) 562 361 330 548 73
Cash generated from operations 6,048 9,393 10,540 10,956 12,523 10,282
Taxation paid (1,673) (2,035) (2,109) (1,991) (2,467) (1,608)
Net cash inflow from operations 4,375 7,358 8,431 8,965 10,056 8,674
Cash flow from investing activities
Purchase of property, plant and equipment (1,051) (1,060) (1,099) (1,152) (1,236) (1,267)
Proceeds from disposal of property, plant and equipment 68 22 - - - -
Purchase of intangible assets (469) (490) (509) (511) (511) (511)
Proceeds from sale of intangible assets 1,056 104 - - - -
Purchase of equity investments (229) (24) - - - -
Proceeds from sales of equity investments 28 25 - - - -
Purchase of businesses, net of cash acquired (2,235) (205) - - - -
Investments in associates and joint ventures (99) (6) - - - -
Decrease in liquid investments 224 15 - - - -
Interest received 30 31 - - - -
Dividends from associates and JVs 46 2 - - - -
Net cash inflow/(outflow) from investing activities (2,631) (1,586) (1,609) (1,663) (1,747) (1,778)
Proceeds from own shares for employee share options 58 - - - - -
Issue of share capital 356 426 - - - -
Shares acquired by ESOP Trusts (37) (42) - - - -
Shares purchased and cancelled or held as Treasury shares (2,493) (1,366) (2,000) (2,000) (2,000) (2,000)
Repayment of short-term loans (2,559) (2,621) (500) (500) (500) (500)
Increase in short-term loans 1,743 - - - - -
Net repayment of obligations under finance leases (35) (15) - - - -
Interest paid (779) (361) - - - -
Dividends paid to shareholders (3,814) (3,730) (3,857) (3,958) (4,129) (4,387)
Distributions to non-controlling interests (171) (265) 40 42 44 46
Other financing items (36) (13) - - - -
Net cash outflow from financing activities (3,351) (6,661) (6,317) (6,417) (6,585) (6,841)
Increase/(Decrease) in cash and bank overdrafts in the period (1,607) (889) 505 885 1,724 55
Exchange adjustments (92) 61 - - - -
Cash and bank overdrafts at the beginning of the period 5,605 3,906 3,078 3,583 4,468 6,192
Cash and bank overdrafts at the end of the period 3,906 3,078 3,583 4,468 6,192 6,247
Total Debt 18,302 18,383 17,883 17,383 16,883 16,383
Net Debt/ (Cash) 14,037 14,986 13,981 12,596 10,372 9,817
Source: Jefferies estimates, company data
GSK LN
Target | Estimate Change
September 12, 2013
page 15 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Exhibit 25: GlaxoSmithKline balance sheet (GBP in millions) 2012A-2017E
(£) millions 2012A 2013E 2014E 2015E 2016E 2017E
Cash and liquid investments 4,265 3,397 3,902 4,787 6,511 6,566
Cash and cash equivalents 4,184 3,325 3,830 4,715 6,439 6,494
Liquid investments 81 72 72 72 72 72
Inventories 3,969 4,128 4,275 4,431 4,705 4,780
Current tax recoverable 103 90 90 90 90 90
Trade and other receivables 5,242 5,885 6,343 6,707 7,341 7,382
Derivative financial instruments 49 155 155 155 155 155
Assets held for sale 64 - - - - -
Total current assets 13,692 13,655 14,765 16,170 18,803 18,974
Property, plant and equipment 8,776 9,258 9,386 9,561 9,812 10,084
Goodwill 4,359 4,499 4,499 4,499 4,499 4,499
Other intangible assets 10,161 10,071 9,793 9,524 9,261 9,005
Investments in associates and JVs 579 524 524 524 524 524
Other investments 787 1,238 1,238 1,238 1,238 1,238
Defered tax assets 2,391 2,866 3,090 3,235 3,701 3,371
Derivative financial instruments 54 - - - - -
Other non-current assets 682 841 841 841 841 841
Total non-current assets 27,789 29,297 29,372 29,422 29,875 29,563
Total Assets 41,481 42,952 44,137 45,592 48,678 48,536
Short-term borrowings (3,631) (2,334) (2,334) (2,334) (2,334) (2,334)
Trade and other payables (8,054) (8,420) (8,767) (9,135) (9,752) (9,963)
Derivative financial instruments (63) (37) (37) (37) (37) (37)
Current tax payable (1,374) (1,250) (1,271) (1,426) (1,502) (1,708)
Short-term provisions (693) (1,381) (2,361) (3,256) (4,474) (4,665)
Total current liabilities (13,815) (13,422) (14,770) (16,187) (18,098) (18,707)
Long-term borrowings (14,671) (16,049) (15,549) (15,049) (14,549) (14,049)
Defered tax liabilities (1,004) (1,293) (1,394) (1,459) (1,669) (1,521)
Pensions and other post-employment benefits (3,121) (2,965) (3,134) (3,270) (3,516) (3,466)
Other provisions (699) (508) (537) (561) (603) (594)
Derivative financial instruments (2) (2) (2) (2) (2) (2)
Other non-current liabilities (1,432) (1,625) (1,718) (1,792) (1,927) (1,900)
Total non-current liabilities (20,929) (22,443) (22,335) (22,134) (22,267) (21,532)
Total Liabilities (34,744) (35,865) (37,105) (38,321) (40,366) (40,239)
Net Assets 6,737 7,087 7,033 7,271 8,312 8,297
Share capital 1,349 1,353 1,353 1,353 1,353 1,353
Share premiums account 2,022 2,440 2,440 2,440 2,440 2,440
Retained earnings 642 297 203 400 1,397 1,336
Other reserves 1,787 2,205 2,205 2,205 2,205 2,205
Shareholders' equity 5,800 6,295 6,201 6,398 7,395 7,334
Non-controlling interests 937 792 832 873 917 963
Total equity 6,737 7,087 7,033 7,271 8,312 8,297
Total Liabilities and SE 41,481 42,952 44,137 45,592 48,678 48,536
Source: Jefferies estimates, company data
GSK LN
Target | Estimate Change
September 12, 2013
page 16 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
Company DescriptionGlaxoSmithKline was formed in 2001 through the merger of Glaxo Wellcome and SmithKline Beecham to form one of the World's largestPharmaceuticals companies. The company primarily operates in the fields of Pharmaceuticals, Vaccines and Consumer Health.
Analyst CertificationI, Jeffrey Holford, PhD, ACA, certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurity(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed in this research report.I, Terence McManus, PhD, certify that all of the views expressed in this research report accurately reflect my personal views about the subjectsecurity(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specificrecommendations or views expressed in this research report.I, Ian Hilliker, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.I, Swayampakula Ramakanth, PhD, MBA, certify that all of the views expressed in this research report accurately reflect my personal views about thesubject security(ies) and subject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to thespecific recommendations or views expressed in this research report.I, David Gu, PhD, certify that all of the views expressed in this research report accurately reflect my personal views about the subject security(ies) andsubject company(ies). I also certify that no part of my compensation was, is, or will be, directly or indirectly, related to the specific recommendationsor views expressed in this research report.Registration of non-US analysts: Terence McManus, PhD is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and isnot registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, andtherefore may not be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, publicappearances and trading securities held by a research analyst.
Registration of non-US analysts: Ian Hilliker is employed by Jefferies International Limited, a non-US affiliate of Jefferies LLC and is not registered/qualified as a research analyst with FINRA. This analyst(s) may not be an associated person of Jefferies LLC, a FINRA member firm, and therefore maynot be subject to the NASD Rule 2711 and Incorporated NYSE Rule 472 restrictions on communications with a subject company, public appearancesand trading securities held by a research analyst.
As is the case with all Jefferies employees, the analyst(s) responsible for the coverage of the financial instruments discussed in this report receivescompensation based in part on the overall performance of the firm, including investment banking income. We seek to update our research asappropriate, but various regulations may prevent us from doing so. Aside from certain industry reports published on a periodic basis, the large majorityof reports are published at irregular intervals as appropriate in the analyst's judgement.
Company Specific Disclosures
Meanings of Jefferies RatingsBuy - Describes stocks that we expect to provide a total return (price appreciation plus yield) of 15% or more within a 12-month period.Hold - Describes stocks that we expect to provide a total return (price appreciation plus yield) of plus 15% or minus 10% within a 12-month period.Underperform - Describes stocks that we expect to provide a total negative return (price appreciation plus yield) of 10% or more within a 12-monthperiod.The expected total return (price appreciation plus yield) for Buy rated stocks with an average stock price consistently below $10 is 20% or more withina 12-month period as these companies are typically more volatile than the overall stock market. For Hold rated stocks with an average stock priceconsistently below $10, the expected total return (price appreciation plus yield) is plus or minus 20% within a 12-month period. For Underperformrated stocks with an average stock price consistently below $10, the expected total return (price appreciation plus yield) is minus 20% within a 12-month period.NR - The investment rating and price target have been temporarily suspended. Such suspensions are in compliance with applicable regulations and/or Jefferies policies.CS - Coverage Suspended. Jefferies has suspended coverage of this company.NC - Not covered. Jefferies does not cover this company.Restricted - Describes issuers where, in conjunction with Jefferies engagement in certain transactions, company policy or applicable securitiesregulations prohibit certain types of communications, including investment recommendations.Monitor - Describes stocks whose company fundamentals and financials are being monitored, and for which no financial projections or opinions onthe investment merits of the company are provided.
Valuation MethodologyJefferies' methodology for assigning ratings may include the following: market capitalization, maturity, growth/value, volatility and expected totalreturn over the next 12 months. The price targets are based on several methodologies, which may include, but are not restricted to, analyses of marketrisk, growth rate, revenue stream, discounted cash flow (DCF), EBITDA, EPS, cash flow (CF), free cash flow (FCF), EV/EBITDA, P/E, PE/growth, P/CF,
GSK LN
Target | Estimate Change
September 12, 2013
page 17 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
P/FCF, premium (discount)/average group EV/EBITDA, premium (discount)/average group P/E, sum of the parts, net asset value, dividend returns,and return on equity (ROE) over the next 12 months.
Conviction List Methodology
1. The aim of the conviction list is to publicise the best individual stock ideas from Jefferies Global Research2. Only stocks with a Buy or Underperform rating are allowed to be included in the recommended list.3. Stocks are screened for minimum market capitalisation and adequate daily turnover. Furthermore, a valuation, correlation and style screen
is used to ensure a well-diversified portfolio.4. Stocks are sorted to a maximum of 30 stocks with the maximum country exposure at around 50%. Limits are also imposed on a sector basis.5. Once a month, analysts are invited to recommend their best ideas. Analysts’ stock selection can be based on one or more of the following:
non-Consensus investment view, difference in earnings relative to Consensus, valuation methodology, target upside/downside % relativeto the current stock price. These are then assessed against existing holdings to ensure consistency. Stocks that have either reached theirtarget price, been downgraded over the course of the month or where a more suitable candidate has been found are removed.
6. All stocks are inserted at the last closing price and removed at the last closing price. There are no changes to the conviction list duringthe month.
7. Performance is calculated in US dollars on an equally weighted basis and is compared to MSCI World AC US$.8. The conviction list is published once a month whilst global equity markets are closed.9. Transaction fees are not included.
10. All corporate actions are taken into account.
Risk which may impede the achievement of our Price TargetThis report was prepared for general circulation and does not provide investment recommendations specific to individual investors. As such, thefinancial instruments discussed in this report may not be suitable for all investors and investors must make their own investment decisions basedupon their specific investment objectives and financial situation utilizing their own financial advisors as they deem necessary. Past performance ofthe financial instruments recommended in this report should not be taken as an indication or guarantee of future results. The price, value of, andincome from, any of the financial instruments mentioned in this report can rise as well as fall and may be affected by changes in economic, financialand political factors. If a financial instrument is denominated in a currency other than the investor's home currency, a change in exchange rates mayadversely affect the price of, value of, or income derived from the financial instrument described in this report. In addition, investors in securities suchas ADRs, whose values are affected by the currency of the underlying security, effectively assume currency risk.
Other Companies Mentioned in This Report• Novartis AG (NOVN VX: CHF71.10, BUY)
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Please see important disclosure information on pages 17 - 20 of this report.
Distribution of RatingsIB Serv./Past 12 Mos.
Rating Count Percent Count Percent
BUY 814 47.55% 179 21.99%HOLD 756 44.16% 119 15.74%UNDERPERFORM 142 8.29% 1 0.70%
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page 19 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
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page 20 of 20 , Equity Analyst, (212) 336-7409, [email protected] Holford, PhD, ACA
Please see important disclosure information on pages 17 - 20 of this report.
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