Business Context and Reporting Period
This Form 6-K filing summarizes the Annual Review 2002 for GlaxoSmithKline plc, covering the fiscal year ended December 31, 2002. The report was filed on March 28, 2003. The company reported strong financial performance despite a challenging operating environment, including the entry of generic competition for its major product, Augmentin, in the USA. The review highlights progress in merger integration, manufacturing restructuring, and a robust pipeline of new products.
Key Financial Metrics
Financial results are presented in British Pounds (£) at constant exchange rates (CER) unless otherwise noted.
| Metric | 2002 | 2001 (Restated) | Growth (CER) |
|---|---|---|---|
| Total Sales | £21,212 million | £20,489 million | 7% |
| Pharmaceutical Sales | £17,995 million | £17,205 million | 8% |
| Consumer Healthcare Sales | £3,217 million | £3,284 million | 2% |
| Business Performance Trading Profit | £6,694 million | £6,053 million | 15% |
| Statutory Trading Profit | £5,662 million | £4,697 million | 26% |
| Business Performance EPS | 78.3 pence | 72.3 pence | 13% |
| Statutory EPS | 66.2 pence | 50.3 pence | 38% |
| Net Cash Inflow from Operating Activities | £7,255 million | £6,507 million | N/A |
| Trading Margin (Business Performance) | 31.6% | 29.5% | +2.1 points |
Debt and Liquidity: The filing does not provide a specific breakdown of total debt or liquidity ratios in the summary tables. However, the company reported a net cash inflow from operating activities of £7.255 billion and completed a £4 billion share buy-back program in 2002, spending £2.2 billion during the year.
Material Changes vs. Prior Period
- Revenue Growth: Total sales grew 7% (CER), driven by an 8% increase in pharmaceutical sales. US pharmaceutical sales grew 13% despite generic competition.
- Profitability: Business performance trading profit grew 15%, outpacing sales growth due to cost savings from merger integration and manufacturing restructuring. Trading margins improved by 2.1 percentage points.
- Product Performance:
- Respiratory: Sales grew 16%, led by Seretide/Advair, which increased 96% to £1.6 billion.
- Central Nervous System (CNS): Sales grew 17%, with Paxil up 18% in the USA and Wellbutrin up 42%.
- Anti-bacterials: Sales declined 12% globally and 22% in the USA due to generic competition for Augmentin and Ceftin.
- Consumer Healthcare: Sales grew 2%, with oral care down 2% offset by growth in smoking control and nutritional healthcare.
- Accounting Changes: The Group implemented Financial Reporting Standard 19 (FRS 19) regarding deferred tax, requiring a full provision basis. Comparative information for 2001 has been restated.
Guidance, Outlook, and Risks
Guidance and Outlook:
- Management forecasts high single-digit percentage growth in business performance earnings per share for 2003 at constant exchange rates, assuming no generic competition to Paxil in the USA.
- The company expects to launch 12 new compounds and line extensions in 2003-2004, including Levitra (co-promoted with Bayer) and Wellbutrin XL.
- Merger and manufacturing restructuring savings are on track to reach at least £1.8 billion by 2003.
Risks and Contingencies:
- Patent Litigation: Significant risks exist regarding patent challenges for key products:
- Augmentin: A US federal judge ruled patents invalid; GSK is appealing. Generic versions have launched.
- Paxil (Seroxat): A judge ruled the patent valid but not infringed by Apotex; GSK is appealing. The timing of generic competition remains unclear.
- Wellbutrin SR/Zyban: Litigation pending regarding generic applications by Andrx Corporation.
- Generic Competition: The filing notes an industry-wide trend of earlier patent challenges. If a generic launch of paroxetine hydrochloride (Paxil) becomes imminent, the company will reassess its 2003 guidance.
- Regulatory: The Sarbanes-Oxley Act of 2002 requires enhanced corporate accountability and internal controls.
Key Facts for Investor Verification
- Patent Status of Paxil: Verify the outcome of the appeal regarding the Apotex infringement ruling, as this directly impacts 2003 earnings guidance.
- Augmentin Market Share: Monitor the impact of generic competition on Augmentin sales in the USA and the uptake of new formulations (ES and XR).
- Restructuring Savings: Confirm the realization of the forecast £1.8 billion in merger and manufacturing restructuring savings by 2003.
- US GAAP Adjustments: Note the significant difference between UK GAAP and US GAAP results due to the treatment of goodwill and intangible assets (US GAAP reported a net loss of £143 million in 2001 vs. profit under UK GAAP).
- Share Buy-backs: Track the remaining £1.8 billion of the new £4 billion share buy-back program announced in October 2002.