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Edited Transcript of GSK.L earnings conference call or presentation 24-Jul-19 1:00pm GMT

Q2 2019 GlaxoSmithKline PLC Earnings Call

Brentford Middlesex Aug 3, 2019 (Thomson StreetEvents) -- Edited Transcript of GlaxoSmithKline PLC earnings conference call or presentation Wednesday, July 24, 2019 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* David Simon Redfern

GlaxoSmithKline plc - Chief Strategy Officer, & Chairman of ViiV Healthcare Limited

* Emma N. Walmsley

GlaxoSmithKline plc - CEO & Director

* Hal V. Barron

GlaxoSmithKline plc - Chief Scientific Officer, President of R&D and Director

* Iain James Mackay

GlaxoSmithKline plc - CFO & Executive Director

* Luke V. Miels

GlaxoSmithKline plc - President of Global Pharmaceuticals

* Sarah Elton-Farr

GlaxoSmithKline plc - Head of IR

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Conference Call Participants

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* Emmanuel Douglas Papadakis

Barclays Bank PLC, Research Division - MD & Head of European Pharmaceuticals Research

* Graham Glyn Charles Parry

BofA Merrill Lynch, Research Division - MD and Head of Healthcare Equity Research

* James Daniel Gordon

JP Morgan Chase & Co, Research Division - Senior Analyst

* Jo Walton

Crédit Suisse AG, Research Division - MD

* Kerry Ann Holford

Exane BNP Paribas, Research Division - Analyst

* Mark Douglas Purcell

Morgan Stanley, Research Division - Equity Analyst

* Seamus Christopher Fernandez

Guggenheim Securities, LLC, Research Division - Senior Analyst of Global Pharmaceuticals

* Timothy Minton Anderson

Wolfe Research, LLC - MD of Equity Research

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Presentation

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Operator [1]

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Good afternoon, ladies and gentlemen, and welcome to the Analyst Call on the GSK Second Quarter 2019 Results. I will now hand you over to Sarah Elton-Farr, Head of Investor Relations, who will introduce today's session.

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Sarah Elton-Farr, GlaxoSmithKline plc - Head of IR [2]

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Thank you. Good morning, and good afternoon. Thank you for joining us on our Q2 2019 results, which were issued earlier today. You should have received our press release and can view the presentation on GSK's website. For those not able to view the webcast, slides that accompany today's call are located on the Investors section of the GSK website.

Before we begin, please refer to Slide 2 of our presentation for our cautionary statements. Our speakers today are Chief Executive Officer, Emma Walmsley; Iain Mackay, Chief Financial Officer; and Dr. Hal Barron, Chief Scientific Officer and President of R&D. We have a broader team for Q&A. (Operator Instructions)

Our presentation will last approximately 45 minutes, slightly longer than usual to give Hal time to update you on our R&D progress.

And with that, I will hand the call over to Emma.

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [3]

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Thank you, SEF. 2019 is an important year of execution for GSK, and I'm pleased that we delivered continued good operating performance with growth in group sales and earnings in our first full quarter of generics competition for Advair.

Group sales growth of 5% in CER terms reflected a particularly strong performance in Vaccines with Shingrix, of course, but also with our meningitis portfolio. And we also saw good performance in Consumer Healthcare.

Our group adjusted operating margins were down 1.4 percentage points on a CER basis. We've kept tight control of SG&A spend while investing behind our new product launches and increasing investments in R&D as planned as we work to strengthen our pipeline and accelerate our priority assets.

On a total basis, earnings per share were up over 100% to GBP 19.5p, and adjusted earnings per share increased 4% to GBP 30.5p. Reflecting our good start to the year, we are today upgrading our 2019 guidance and Iain will walk you through that shortly.

Our free cash flow year-to-date was GBP 535 million, in line with our expectations. And as guided previously, we expect cash flow to be weighted to the second half of the year.

A few years ago, I laid out my long-term priorities for GSK: innovation, performance and trust, all to be powered by a necessary culture change. This year, we've continued to make good progress, with a number of meaningful achievements in the quarter.

For innovation, we've continued to execute on our new product launches and have demonstrated strong growth with Nucala and Trelegy in Respiratory, with the oral 2-drug regimens in HIV and, most notably, in Vaccines with Shingrix. Strengthening our pipeline is critical to our long-term success, and we've made some good progress here also. Among our achievements, we've had positive data readouts in 3 core areas: Oncology, HIV and Respiratory. And we started a Phase III program with otilimab, our anti-GM-CSF agent for rheumatoid arthritis. We've also signed an important partnership with the University of California to work with the CRISPR pioneers, Jennifer Doudna and Jonathan Weissman, on improving our success rates in drug discovery, an important element of our long-term approach to improving R&D productivity.

In performance, we continue to make progress, and Iain will cover this in more detail in just a moment. We're on track to complete the formation of our JV in Consumer Health with Pfizer shortly and continue to make very good progress on integration planning. We've also evolved our commercial model. We're making important changes that will allow us to increase our competitive performance, and we are continuing to attract new talent to GSK to support our shift towards a more specialty-focused portfolio in the future.

And finally on trust, we want GSK to continue to lead with a broader contribution to society. The very best way we build trust is to innovate. And we are committed to giving you regular and transparent updates on our innovation progress, and that's why you're going to hear from Hal in just a moment.

We continue to remain focused for impact in our approach to global health and recognizing, of course, that all achievements depend on the energy and talent of our people. I was very pleased to see our most recent employee survey showed a significant improvement in engagement, reaching the highest score we've achieved at GSK in a decade.

I'll take just a moment to talk about our new launches in a little more detail, where sales are being driven by new data and further approvals.

In Respiratory, Trelegy continues to do well, with sales of GBP 120 million in the quarter. Globally, launches have started well and we now have the only once-daily triple therapy for COPD in 36 countries. We met the primary end point in the CAPTAIN study in asthma patients and plan to file for regulatory approvals in the second half of this year. In asthma biologics, Nucala remains the market leader in total sales and continues to grow well. We're confident too that we are well placed with the introduction of self-administration in the U.S. which is showing some encouraging early signs.

In Oncology, we're delighted that Zejula, the PARP inhibitor we acquired in the TESARO transaction, achieved a positive headline result in the PRIMA study earlier this month. This significantly expands our opportunity to help more women with ovarian cancer, in what is an undertreated segment of the market today. We anticipate these data will enable us to file for U.S. approval by the end of this year, with other markets to follow. We've also filed for approval for use in treatment of late-stage ovarian cancer on the back of the data from the QUADRA study.

2019 is a pivotal year for our HIV business, with the launch of Dovato and a flow of positive data that will help support our new portfolio. Later today, at the IAS Conference, we're presenting positive data from the TANGO switch study and the 96 weeks' data from the GEMINI study. We believe these results confirm the durability of Dovato and, importantly, there were no cases of treatment-emergent resistance in these studies. This accumulation of positive clinical data, the experience that physicians are building and the fast progress we're making with reimbursement and access in the U.S. all reinforce our confidence in 2-drug regimens.

And lastly, in Vaccines, Shingrix continues to be a major driver of our growth. We continue to see high levels of demand in the U.S., and we also saw strong uptake this quarter in Germany and Canada. We were pleased to receive approval in China in May and are planning a phased introduction there starting in 2020. Our capacity expansion plans for this transformative product in our portfolio are making good progress.

And with that, I will hand you over to Iain.

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Iain James Mackay, GlaxoSmithKline plc - CFO & Executive Director [4]

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Thanks, Emma. All the comments I'll make today will be on a constant currency basis except where I specify otherwise, and I'll cover both total and adjusted results.

On Slide 9 is a summary of the group's results for Q2 which was a strong quarter, with 5% group revenue growth. Overall, this was driven by strong performances in Vaccines and Consumer, offset by a 1% decline in Pharma as expected. Total operating profit is up 80% with total earnings per share up over 100%, reflecting lower charges for the quarterly remeasurement of the ViiV contingent consideration liability and the conclusion of the Novartis JV in Q2 2018.

On an adjusted basis, operating profit climbed 1% and adjusted earnings per share was up 4%. I'll go through the drivers behind these in more detail in a moment.

We delivered GBP 370 million of free cash flow in the quarter in line with our expectations, and as guided previously, we expect cash flow generation to be weighted towards the second half of the year. On currency, a weaker Sterling, particularly against the U.S. dollar and Japanese yen, resulted in a tailwind of 2% on sales and 5% to adjusted earnings per share.

Slide 10 summarizes the reconciliation of our total to adjusted results. The main adjusting items in the quarter were major restructuring focused on the supply chain, representing noncash charges relating to ramp up of the program we announced in July 2018. Within transaction-related, our measurement of the ViiV contingent consideration liability primarily driven by changes in exchange rates, and within the disposals column the main contributors are gain from the reevaluation of the embedded derivatives in respect of GSK's exposure to movement in Hindustan Unilever share price.

The comments from here onwards are on adjusted results, unless stated otherwise.

Slide 11 summarizes the Pharmaceutical business, where revenues were down 1%. Starting with Respiratory, sales were up 12% with continued growth from Trelegy and Nucala, particularly in Europe and international. However, this was partly offset by Relvar/Breo which declined 16% globally, driven by a 43% decline in the U.S., reflecting the impact of generic Advair on pricing in the ICS/LABA Class. We continue to see good growth expectations outside the U.S., demonstrated by the continued performance of the product, which in the quarter grew 15% in Europe and 21% in international.

In HIV, the dolutegravir franchise was flat in the quarter, with the dynamics at the global level highlighting the competitive environment and the shift in the portfolio towards 2-drug regimens, with growth in Juluca and Dovato offsetting declines in Tivicay and Triumeq. At a regional level, dolutegravir grew in Europe and international but declined 6% year-on-year in the U.S., with market share holding flat in the quarter.

Initial share trends for Dovato are encouraging, with an MBRX share of 2.5%, which is 50% higher than Juluca at the same point post launch. But as anticipated, it will take several quarters to become an increasing contributor to growth as we accumulate more positive data.

Our Established Pharmaceuticals portfolio declined 7% overall, driven by U.S. Advair sales which were down 61% as expected, given the first full quarter of generic competition. This was offset by a welcome upside in Ventolin, which continued to benefit in Q2 from the authorized generic launched in the U.S. earlier in the year. We expect this performance to continue until we see substitutable generics enter the market, which we anticipate in early 2020.

Outside Respiratory, the remainder of the Established Pharma portfolio declined by 1% in the quarter, helped by some tenders and phasing of contract manufacturing, while the decline of 5% over the first half of the year was more in line with our longer-term expectations for this part of the Established Products portfolio. With the business trajectory for Pharma in line with our expectations, we continue to expect a slight decline in 2019.

Turning to operating margin, we saw a decline in the quarter, mainly driven by an unfavorable product mix due to impact of generic Advair; TESARO dilution which, in line with previous guidance, we expect to have a sustained impact over the balance of 2019; and Pharma R&D spend, which increased 21%, reflecting our investment behind priority assets.

Slide 12 gives you an overview of Vaccines performance in Q2, with sales up 23%, driven mainly by Shingrix, but also from strong demand for our meningitis portfolio with Bexsero up 24%, reflecting demand in all regions and share gains in the U.S. We also benefited from some positive CDC stockpile movements in our Established Vaccines. Q2 Shingrix revenue of GBP 386 million was driven by continued strong uptake in the U.S. as well as good signs of uptake in Germany and Canada. You will recall last year, we estimated that those ranged in the high teens of millions in the next 2 to 3 years.

Our capacity expansion plans are progressing well. We continue to be successful in accelerating actions designed to increase our supply capacity and therefore are increasingly confident of achieving the upper end of the range we gave previously at the front end of the time line. As we've said before, we do not expect a significant step-change in doses until we bring a new facility on line. The Q2 operating margin was driven by enhanced operating leverage, particularly from Shingrix in the U.S.

Turning to Slide 13. Consumer had a good quarter, with stronger growth as anticipated. Sales were up 4%, despite a drag of around 1% from the combined impact of divestments and the phasing out of low-margin contract manufacturing. We're pleased to see a good performance from our power brands driven by Sensodyne, which grew 7% in the quarter, and the strong performance in the U.S. Operating margin in Q2 was 20.4%, slightly lower than last quarter as expected, reflecting seasonal factors as well as the investment in business in order to drive innovation and stronger growth.

On Slide 14, we summarize sales and adjusted operating margins. At the group level, SG&A grew below sales, with continued tight cost control despite increased investment in TESARO and new product launches, while R&D increased as we invested in the development to our pipeline, including the TESARO assets.

Moving to the bottom half of the P&L, I would highlight the following: the timing of the settlement for a number of open issues with tax authorities benefited the tax rate during the quarter and drove a 2% benefit to the earnings per share growth in the first half of the year while we continue to expect a tax rate of around 19% for the full year.

On interest, based on a range of initiatives undertaken in the first half, we now expect net finance expense for 2019 to be around GBP 900 million, slightly lower than previously guided. On free cash flow, we remain focused on driving greater cash discipline across the group and generated GBP 535 million of free cash flow in the first half of the year, very much in line with our expectations. This was impacted by the upfront payment of EUR 300 million to Merck KGaA, the launch of generic Advair and the related phasing of rebates, offset partly by improved operating profits and working capital management.

As previously noted and seen in prior years, the generation of cash flow is expected to be weighted to the second half of the year. When we issued 2019 guidance at the beginning of the year, we anticipated a number of factors that would lead to an earnings decline of 5% to 9%. These elements -- generic Advair, the integration of the TESARO cost base, increased investment in R&D and higher net debt leading to higher net interest payments -- are playing out as we expected.

However, we are seeing better operational performance across our Vaccines portfolio and some in-year benefit from Ventolin ahead of the introduction of substitutable generics expected in 2020. Additionally, we saw in Q1 a one-off benefit to share of associates, and we're also benefiting from a lower net interest expense on the back of refinancing activities. Combined, these factors, together with the settlement of a number of open issues with tax authorities, have driven earnings growth of 11% in the first half of this year.

We're pleased to have captured these upsides in the front half, and our view in the balance of the year remains broadly unchanged with a full 6 months of generic competition to Advair as well as the phasing of tax and noncontrolling interest having a negative impact and, as anticipated, acceleration of investment in R&D. Taking these points into account, we now continue to expect an adjusted EPS decline in 2019 but now in the range of 3% to 5%.

And with that, I'll hand it over to Hal.

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Hal V. Barron, GlaxoSmithKline plc - Chief Scientific Officer, President of R&D and Director [5]

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Thanks, Iain. In July last year, I shared with you our new approach to R&D and made a commitment to being more transparent about the decisions we are taking and the progress we are making through regular updates like this one. I'll spend the majority of this presentation on our pipeline, highlighting the progress we have made since we set out our new approach 1 year ago.

To recap what I said at Q2 last year, our new approach to R&D is based on the multiplier effect of science x technology x culture. We define this as strengthening our Pharma R&D pipeline by focusing on science related to the immune system, the use of human genetics and the application of advanced technology such as functional genomics, machine learning and cell therapy.

I believe we've made significant progress over the past 12 months, resulting in a much stronger pipeline. I'll take you through this in more detail in a moment. We've also made good progress on our technology strategy, which I will cover at the end of my presentation. And on culture, we've strengthened our peer review process with a focus on smart risk taking and our single accountable decision-making model. We have also hired some outstanding people and established some exciting new partnerships.

Turning back to the science. In the last 12 months, we've advanced 8 assets into Phase I, 3 assets into Phase II and 4 into Phase III. In addition, we've also progressed 3 vaccines into the clinic. Importantly, we've also gained approval for 3 new medicines including Dovato, Dectova and the Nucala pre-filled syringe.

In this slide, you can see a summary of what I've just mentioned with specific details on each asset. I used blue to show progression, green for approval and red for termination. As you can see, in total, over the last 12 months, we've progressed or added 18 assets and terminated 11.

As I mentioned, 4 assets have progressed to or completed their registrational studies. The first, Bintrafusp alfa, previously referred to as M7824, is a molecule being developed in collaboration with Merck KGaA. We have now started a registrational study in biliary tract cancer. I'll speak more about this later.

The second is otilimab or GSK '165. This is a monoclonal antibody antagonist to GM-CSF for which we have recently initiated a Phase III study in rheumatoid arthritis. In addition, 2 of the assets we've acquired from TESARO have recently completed their Phase III studies: Zejula for ovarian cancer and dostarlimab for endometrial cancer. I'll also discuss both of these in more detail in a moment.

The significant progress we have made over the last 12 months has resulted in the pipeline shown on this slide, with 44 medicines and 13 vaccines currently in development. In addition to the overall progress made within our pipeline, we've also achieved several key milestones in the last 6 months since I spoke with you.

As you can see, we anticipated having 10 pipeline milestones in the last 6 months. In addition, we were able to obtain the headline results from the PRIMA study early, which helped us to achieve 9 positive outcomes from these 11 milestones. We had 5 proof of concept studies read out positively, 2 Phase III studies read out positively and 2 submissions all over the last 6 months.

Our anti-IL33, long-acting anti-IL5 and HBV ASO assets have just recently achieved proof of concept, and we are currently analyzing the data and working through our internal governance processes to determine next steps.

I wanted to take the opportunity today to also focus on the acceleration we have delivered in our oncology pipeline. This slide shows our oncology pipeline as it was this time last year. The progress we have made over the last 12 months is clear. Our oncology pipeline is now significantly stronger than it was a year ago, with more than a doubling of the number of oncology assets in the clinic. This has been delivered by the progression of our own assets, the acquisition of TESARO and our alliance with Merck KGaA. Not only do we now have a significant number of diverse molecules in the clinic, many with a unique mechanism of action, we also believe that many of these molecules can be combined together to enable innovative combination studies. This has strengthened our overall Pharma R&D pipeline and accelerated the pace of development and data readout. We now have the potential for 3 oncology launches within the next 18 months. I'm now going to take you through 5 of these assets in more detail.

The first is Zejula. In my presentation at Q2 last year, I said we were going to focus on using functional genomics to identify gene-gene interactions and explore the concept of synthetic lethality to discover novel targets, novel combinations and novel populations of patients who could benefit from our medicines. We acquired TESARO primarily to gain access to Zejula, a member of the PARP inhibitor class, which was the first example of a synthetic lethal medicine to be approved. A commonly held view was that PARP inhibitors only worked in women who had a germline mutation in the BRCA gene, so-called gBRCA. This occurs in roughly 15% of patients with ovarian cancer. We hypothesized that other genetic mutations in the homologous recombination pathway could identify women who may also benefit, the so-called HRD-positive patients.

The PRIMA study was designed to answer this question as well as whether Zejula would demonstrate benefit in an all-comers analysis. Based on these data, we are confident that the benefits Zejula could extend to patients in the first-line maintenance setting is both statistically significant and clinically meaningful, particularly given that the PRIMA study enrolled women who are at high risk for recurrence. We can't comment further on the data until it's presented at upcoming scientific meeting, but we remain on track to file before the end of this year.

In addition to the positive PRIMA data, we're also making significant progress in other areas of Zejula's development, particularly for women with ovarian cancer. The FDA accepted our supplemental New Drug Application for Zejula in late-stage ovarian cancer treatment based on the QUADRA data. The application was granted priority review and it has an action date of October 24. The AVANOVA data was considered Best of ASCO this year and showed the potential for Zejula in combination with Avastin to provide benefit in the treatment setting. This is very exciting given the toxicity associated with platinum-based regimens.

In addition, the recently published TOPACIO study demonstrated the potential for Zejula in combination with a PD-1 inhibitor to benefit women with platinum-resistant ovarian cancer. The HRD negative cohort response rate was intriguing in this study given that both PARP inhibition and PD-1 inhibition in this patient population has had limited activity.

Lastly, we expect the pivotal MOONSTONE study investigating Zejula with dostarlimab, the PD-1 inhibitor we acquired from TESARO, in platinum-resistant ovarian cancer patients to begin enrollment this year. We hope to complete this study actually by the end of next year.

Moving on to BCMA, which now has the generic name of belantamab mafodotin, this program continues to advance at an impressive pace and is a good example of our cultural progress in terms of improving our focus and investing behind our most promising asset.

Here, you can see the full DREAMM Development Plan across all lines of multiple myeloma which, as you know, remains a disease with substantial unmet medical need. DREAMM-2 is the pivotal -- the first pivotal study we started for belantamab in July 2018. Enrollment was faster than expected, and we now expect the headline data to read out in Q3 of this year. As a reminder, we are conducting this study in patients who have failed daratumumab, a more difficult to treat population that was enrolled in DREAMM-1. These patients have a very limited treatment options and, thus, the unmet need is higher. These data are planned to support filing in the fourth-line setting, which is on track for the end of this year, and we hope to make belantamab available to patients in 2020. The updated data from the DREAMM-1 study that I mentioned in February showing a median progression-free survival of 12 months supports our belief that this is a promising future medicine.

Before moving on, I also wanted to mention our plans for second-line. We have 2 ongoing combination studies in this population, DREAMM-6 and an investigator-sponsored study. This will enable us to design the DREAMM-7 and DREAMM-8 studies optimally, and we expect these pivotal second-line studies to start in the first half of next year. We're also planning to start 2 other Phase III studies this year: DREAMM-3, a third-line monotherapy study and DREAMM-9 in the first line in combination with REVLIMID, VELCADE and dexamethasone.

The next asset I'd like to discuss is Bintrafusp alfa, a molecule we are developing with collaboration with Merck KGaA we announced in February. It is a first-in-class, bifunctional fusion protein designed to simultaneously block the TGF-ß and PD-L1 pathways. Despite recent advances with checkpoint inhibition, many patients do not respond to the anti-PD-L1 class of therapies. TGF-ß is believed to create a suppressive tumor microenvironment and has been proposed as a resistance mechanism to the treatment of PD-L1 or PD-1 blockade.

We have 4 studies ongoing and are planning to start additional studies later this year. This extensive development plan will allow us to explore a number of hypotheses in parallel. The most advanced of these studies is in second-line biliary tract cancer. This is a patient population for which there is no effective therapy. Our early data, which were presented at ESMO last year, demonstrated a response rate of 20%. The study is progressing, but based on these data, we agreed with regulators to begin a single-arm registrational study in 141 patients. The first-line non-small cell lung cancer monotherapy study versus Keytruda in PD-L1 high patients continues to progress well, and exploratory studies will be initiated in HBB positive-related cancers as well as triple negative breast cancer in 2019.

Next, I'd like to discuss dostarlimab, our anti-PD-1 antibody acquired from TESARO. There are a number of ongoing studies, both in monotherapy and in combination, including with Zejula in the first study in ovarian cancer.

The GARNET study, which evaluated dostarlimab monotherapy treatment in patients with advanced solid tumors including recurrent endometrial cancer was presented at the SGO meeting in March. Preliminary data from this study showed clinical activity regardless of microsatellite stability status. In women with endometrial cancer, there was an overall response rate of 49% in the MSI population and 20% in the MSS group. The full data set will be available in Q3, to support filing in Q4. We are very excited about these data and the potential for dostarlimab to help these women as endometrial cancer is the most common gynecologic cancer in the United States, and GARNET is the largest study of an anti-PD-1 monotherapy in patients with recurrent or advanced forms of this disease.

And finally, our ICOS Receptor Agonist Program. ICOS is a stimulatory receptor on the surface of T-cells that is important for the proliferation, survival and function of these cells against foreign antigens, including new antigens expressed by tumors. Our ICOS receptor agonist, GSK '609, is a monoclonal antibody that binds to and activates the ICOS receptor without cell depletion, and we believe this latter point could be very important.

At the end of last year, we announced that we achieved proof of concept for GSK '609. We look forward to sharing the data supporting this at ESMO where the data at both monotherapy and in combination from the ongoing Phase I/II study with Keytruda in head and neck squamous cell carcinoma will be presented.

We have a number of ongoing studies including one in combination with CTLA4 and an ICOS-based long platform study. We believe this could be an asset with considerable potential across a range of tumor types.

I've spent the majority of this call discussing oncology, but we continue to make good progress across the pipeline. I'd like now to highlight 5 other assets.

Otilimab for rheumatoid arthritis has now started Phase III. The clinical program includes patients who have failed methotrexate and targeted therapies, and compares otilimab against both a JAK inhibitor and anti-IL6. We recently achieved proof of concept for the hep B antisense asset that we are developing with IONIS. We are reviewing this data to inform our path forward. We're excited by the potential of this asset as chronic hep B remains a very serious disease globally.

In Respiratory, we had 2 proof of concept studies read out positively this quarter, our anti IL-33 receptor antagonist and our long-acting anti IL-5 antagonist. Both molecules are currently being evaluated alongside our broader portfolio to make sure we continue to prioritize our investments behind those programs that are differentiated and can provide benefit to patients who have a significant unmet medical need.

Another promising molecule is gepotidacin, for which we're planning to start 2 Phase III studies in the second half of this year for patients with uncomplicated urinary tract infections and urogenital gonorrhea. I'm excited about this potential new medicine because of its unique mechanism of action and oral formulation, which makes using it in the community setting more appealing. In vitro activity has been demonstrated against many susceptible and, importantly, drug-resistant pathogens that cause a range of bacterial infections. Developing antibiotics with novel mechanisms is incredibly important, and gepo could be an important treatment option for patients with uncomplicated UTI and gonorrhea.

Now I'd like to give you a brief update on the progress we've made on our approach to leveraging advanced technologies. In July last year, I shared our new approach to R&D, which is anchored in the use of human genetics and cutting-edge advanced technology such as functional genomics, artificial intelligence, machine learning as well as cell therapy to identify novel targets and differentiated medicines for patients. We believe outstanding people working with and for GSK will be fundamental to achieving this vision. In the last 12 months, we've reached major agreements with 23andMe, a laboratory for genomics research, and most recently with a company called Lyell. As you can see from this slide, we are working with very impressive people both internally and as collaborators.

Unfortunately, I don't have time to speak about everyone on this slide, but these people are world-class scientists who are pushing their chosen fields to the cutting-edge. In human genetics, our exclusive collaboration with 23andMe is going well. We have already agreed to progress 6 targets together, and we continue to evaluate others. We hope to be in a position to move our first joint program into the clinic in 2020.

In functional genomics, we announced the Laboratory for Genomics Research with Jennifer Doudna and Jonathan Weissman. I'll talk more about this on the next slide. I'm also delighted to welcome Chris Miller, an outstanding scientist who joined us from AbbVie to lead our work in this area.

A new collaboration that I'm very excited about is with Lyell, a company focused on cell therapy, specifically exploring the concept of T-cell exhaustion. We will share more about this later this year, but Rick Klausner and his incredible team will be core to advancing our work in cell therapy as we believe T-cell fatigue may play an important role in limiting the efficacy of both CAR-T and TCRT therapy.

And finally, a brief word on AI/ML. We have several partnerships in this area but are currently concentrating on building our own internal capability. We are focusing our efforts on early target discovery as we believe this is the best place to apply the power of AI/ML. We are very pleased that Kim Branson, another outstanding scientist, has joined us from Genentech to lead our work here, and he is building a very impressive in-house team.

As you know, we recently formed a laboratory for genomics research in San Francisco. I'm very excited to announce this great partnership with the University of California. This project is a great illustration of the point I made in the previous slide: that working with outstanding people is fundamental to our R&D strategy. The rationale for this partnership is very straightforward: take the most advanced technologies in functional genomics field, that's CRISPR, and work with the pioneers of that technology, Jennifer and Jonathan, and work together to develop better medicines faster. I spoke in July last year about genetically-validated targets being twice as likely to become medicine. We are aiming to use CRISPR and other gene editing technology to better understand why certain genetic mutations are associated with various diseases and use this information to discover new drug targets. I will continue to update you on our progress across our technology strategy as we apply human genetics and advanced technologies to further accelerate and strengthen our R&D pipeline.

So to close, I will share with you the pipeline milestones we expect to deliver over the next 6 months. These will inform the basis for my next R&D update through Q4. By the end of this year, we will have the first pivotal data on belantamab in fourth-line myeloma and, for dostarlimab, in recurrent endometrial cancer. We are looking forward to presenting our ICOS data at ESMO and starting the Phase III studies for gepo. We are on track for 6 submissions, 3 of which are in oncology in the next 6 months: Zejula in first-line ovarian cancer, belantamab in fourth-line myeloma, dostarlimab in second-line endometrial cancer plus fostemsavir in HIV, Trelegy in asthma, and lastly, we will submit daprodustat for regulatory approval in Japan. There is also the possibility that a number of proof of concept studies in oncology may read out, though the timing of these will depend on the size of the treatment effect observed. We will also continue to build our AI/ML group and will complete the integration of TESARO into GSK, including the creation of a synthetic lethality research unit based in Boston.

Personally, I am pleased with the progress we've made in the last 12 months to strengthen our pipeline, improve our technology capabilities and shift our culture. Over the next 6 months, we will see a number of pivotal data readouts that we hope will further validate our new approach to R&D.

With that, I will hand it back to Emma and look forward to answering any questions you may have in the Q&A.

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [6]

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Thank you, Hal. So as a reminder, we've seen some good progress this quarter on our priorities of innovation, performance and trust. And we are on track with our key areas of focus.

We're driving improvements in our operating performance. We're progressing our pipeline with a number of further key readouts to come. We're investing in our executional capability for a specialty portfolio, and we're working towards the successful integration once the Consumer JV has completed shortly. Successfully delivering these priorities over the coming years will provide a clear pathway for the creation of 2 great companies, one focused on pharma and vaccines and the science of immunology, genetics and new technologies; the other on Consumer Health.

So we're now joined for Q&A by Luke, David, Brian and Roger. And with that, operator, this team is ready for everyone's questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from Emmanuel Papadakis from Barclays.

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Emmanuel Douglas Papadakis, Barclays Bank PLC, Research Division - MD & Head of European Pharmaceuticals Research [2]

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Emmanuel Papadakis from Barclays. I should probably start with the obligatory guidance question, perhaps [regarding] sustainability of the guidance upgrade we've just seen, in terms of thinking about the run rate for Ventolin and Established Products will be particularly helpful. You referenced some inventory and Relenza benefits in Q2, just trying to think about how those -- the run rates for those 2 look in second half of the year and beyond, would be very helpful.

And then maybe, on a similarly financial topic, free cash flow. You did call out H2 weighting for the year. Given its importance to your dividend outlook, perhaps you could give us just a bit more color on the second half of the year and, indeed, beyond. Do you think it is now feasible with the revised guidance to get to -- or beyond the level of 2018's free cash flow, i.e., GBP 5 -- just over GBP 5.5 billion?

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [3]

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Thanks, Emmanuel. So based on guidance of free cash in -- do you want to?

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Iain James Mackay, GlaxoSmithKline plc - CFO & Executive Director [4]

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Yes. Absolutely. Yes, Emmanuel, on free cash flow first. Look, the overall outlook that we provided at the fourth quarter, and I think then went over again at the first quarter, was certainly driven and informed by genericization of Advair and then the timing of pre-genericization rebates in that runoff. We would expect to see a step down from overall free cash flow in 2019 versus 2018, which saw a lot of progress made in that regard.

Overall, the theme certainly as it relates to guidance around the profitability that we'd referenced momentarily has a similar read across to the overall guidance from a free cash flow perspective. So as in previous years, we'd expect to see strong cash flow generation over the course of the second half of the year. We're very much in line with where we expect to be at the half. And in terms of overall for the year, as guided earlier, we'd expect to see a bit of a step down against 2018 informed by Advair genericization principally.

In terms of the overall guidance, the guidance that we provided in the fourth quarter in terms of what was driving the down 5% to down 9% at adjusted EPS is -- those key factors remain obviously consistent. So the genericization of Advair, absolutely key. The broader impact of that genericization of pricing in the ICS/LABA Class is an important factor because certainly when you look at Breo/Relvar in the second quarter and the first half of the year, we've seen that tick across into the pricing in the overall ICS/LABA Class. So that's some of the pressure that we would expect to see continue over the second half of the year and directly related to Advair genericization.

One of the welcomed features of the first half was Ventolin, perhaps somewhat unexpectedly. But we launched early in the year, an authorized generic for Ventolin and really in anticipation of other substitutable generics coming to the market. And we've seen very, very strong take-up of that. I think it represents an opportunity for lower out-of-pocket expenses for patients, and we've seen very good uptake in that regard.

And being an authorized generic, what we do see is quite traditionally, a lower rebate coming through that. So we are seeing some benefit coming through Ventolin for the remainder of the year. And but we do expect this effect to be largely limited to 2019, where we would expect to see other substitutable generics come into the market in early 2020 in that regard.

So the guidance overall for 2019, absolutely in line with what I've said during the presentation. Key factors actually haven't changed a great deal since fourth quarter and first quarter. But what is very encouraging is a great performance from the Vaccines team, particularly driven by Shingrix and the meningitis portfolio, one-off event on associates as we talked about in the first quarter. And then happily, some timing coming through the resolution in a number of tax matters with tax authorities around the world very much in the usual course of business.

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Operator [5]

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Your next question comes from Graham Parry, Bank of America Merrill Lynch.

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Graham Glyn Charles Parry, BofA Merrill Lynch, Research Division - MD and Head of Healthcare Equity Research [6]

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So firstly, on Vaccines. If you could just help us understand some quantification of the benefit of the CDC stocking, whether that hit aided Shingrix and the right run rate for Shingrix for the year. And then secondly on HIV. I wonder if you could comment on the [mulatto] data that was published at IAS. It's in vitro data looking at viral-resistance emergence with dolutegravir plus 3 TC versus Biktarvy, suggesting increased viral-resistance emergence with dolutegravir 3 TC. And any thoughts on why that is discordant with the clinical data such as GEMINI and TANGO that you're seeing? Any critique of that study would be useful.

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [7]

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Thanks, Graham. So I'll ask David to pick up on your second question. I'll just comment briefly on Shingrix' outlook for the year. You'll remember at Q1, we guided that we thought it would be roughly maintained at that run rate for the rest of the year. We would -- as far as Iain has alluded to, as part of the upgrade, we would expect actually that the second half would be more in line with the full first half this year. We're really pleased with the ongoing strong demand for Shingrix, and we're equally pleased with the progress that Roger's team are making in terms of our capacity expansion.

There is a possibility of that further progress beyond that, but we will update you on that at Q3. And beyond that, we'll perhaps go to David on the HIV questions.

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David Simon Redfern, GlaxoSmithKline plc - Chief Strategy Officer, & Chairman of ViiV Healthcare Limited [8]

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Yes. Thanks, Graham. I mean I'm not going to get into too much detail on [mulatto] because obviously it wasn't our study, although as you said it was a poster I think presented yesterday at IAS in Mexico and it's an in vitro study. What really matters, I think, and what we're very pleased about is later today in Mexico, investigators and the team is going to present the GEMINI 96-week data readouts and also the TANGO study, which was the switch study we did with Dovato.

And I think and we believe that data is going to be very positive both from an efficacy point of view. And importantly, across around 1,000 patients in those studies on the Dovato arm. It's been 0 treatment-emergent resistant. So in a clinical setting, with patients drawn right across the world, I think that will be seen as very reinforcing of the durability of Dovato.

I mean the one sort of technical point I would add that will come out in the TANGO data is one of the things we did is some archived DNA analysis to look for resistance and particularly resistance from the 184V mutation, which potentially can cause resistance in lamivudine and therefore make the Dovato setting the argument that it could make dolutegravir become monotherapy. And we did the archive testing to pick up very low levels of resistance. What was interesting is overall, out of 650 patients in the study, we only picked up 7 cases of 184V even at the low level. So the incidence of it is very small, 4 in the Dovato arm and none failed. So I think we've now got some very specific evidence around that, which I'm sure will be very helpful. So we're feeling, I think, increasingly confident about the durability and importance of a 2-drug regimen.

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Operator [9]

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You next question comes from Kerry Holford, Exane BMP.

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Kerry Ann Holford, Exane BNP Paribas, Research Division - Analyst [10]

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Two questions, please. Firstly, just following up on ViiV. Thinking about the outlook for the remainder of the year. So in the quarter, U.S. sales were down 6%. I wonder, David, if you can talk to how you expect that to evolve in the second half of the year. And in the first half of the year, that equated to just 1% sales growth globally. Are we still expecting ex-U. S. regions to deliver more significant growth to drive that higher? Or are you looking at that remaining similar level for the remainder of the year, 1% growth or so?

And then secondly, on Zejula. For Hal, I wonder -- I know you can't give us details on PRIMA, but if we are to say that data can come at ESMO, can you tell us whether or not we will get detailed results by subgroups? And here I'm talking about HRD+ as well as negative. Also interested in any view you may have on how that data could compare to PAOLA-1 for the [abstract] if that is also positive. Can these 2 approaches coexist?

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [11]

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Thanks, Kerry. So we'll go to David first on ViiV and then come back to Hal on the 2-pronged set of your questions around Zejula. David?

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David Simon Redfern, GlaxoSmithKline plc - Chief Strategy Officer, & Chairman of ViiV Healthcare Limited [12]

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Yes. Okay. Thanks, Kerry. So dolutegravir was flat in the quarter in Q2 and up 3% year-to-date. And then of course, we have the drag, which is about 2% of the older products, particularly Epzicom/Kivexa and Selzentry. So overall, that puts ViiV into slightly negative territory for the quarter and up 1% on the year.

I think as we've said, in the U.S., future growth will primarily come from our 2-drug regimen, Dovato and Juluca. Obviously, we hope also in 2020, from cabotegravir, our long-acting, for which we've been granted a priority review and a PDUFA date at the end of the year and also a much smaller amount from fostemsavir. I think we do remain very confident in the growth potential of our HIV portfolio overall. It's early days for Dovato. But in the U.S., I think overall, the launch is pretty much what we anticipated. As Iain said, NBRx is now about 2.5%, our weekly TRx has gone up to just over 350 scripts a week. We've got about 80% reimbursement coverage now. So that's going very well and very fast. And overall, Dovato is about 50% ahead of Juluca at the same point.

I mean of course we're challenging, as we've always said, a very well-established treatment paradigm and it will take time to build momentum. It's positioned to gain experience, but we're very encouraged by the data that I talked about earlier in response to Graham's question. And obviously, we hope that should have a big impact.

Outside the U.S., we continue to grow very strongly in international, particularly driven by Japan and Russia. And in Europe actually, we gained market share -- dolutegravir volume up about 8%, a bit of a pricing drag there, but it will reduce over time. So overall, we remain confident in our growth outlook for the HIV portfolio.

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [13]

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Thanks, David. Hal?

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Hal V. Barron, GlaxoSmithKline plc - Chief Scientific Officer, President of R&D and Director [14]

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Yes. Kerry, thanks for the question. As you know we've just unblinded the data. So we've only completed a limited number of analyses. We're, as you know, very pleased though that the hypothesis that Zejula would benefit women beyond those who have the gBRCA mutation in fact, the hypothesis that the HRD-positive patients, those with the genetic defects in the homologous recombination pathway would benefit was validated.

And the way the study was designed is once we validated a hypothesis, we could ask the question, does the overall patient population benefit? So those are the analyses we've done. Obviously, there's a lot of interesting data in the data set. We will be exploring that, figuring out what are the most interesting questions to provide data on. But as you know, we can't comment further on either the data or the analyses because it's just too early.

In terms of PAOLA-1 that you mentioned, again, we are looking forward to seeing that data as well later this year. And I think it's important to remember, first of all, that PAOLA-1 is exploring whether PARP inhibition benefits the women in the -- with ovarian cancer in the first-line maintenance study. Actually, we think that Zejula and the PRIMA study have answered that question. Zejula does benefit women in the frontline maintenance setting. The real question that the world will have, I think, is the incremental value that Avastin adds to PARP inhibition. And unfortunately Paolo is not answering that question. But for the 25% of women who are being treated with Avastin currently, we'll, I guess, have information as to whether the combination works.

I think it's also important to realize that the questions that will be evolving relate to Avastin and the benefit that it has both in terms of the improvement of progression-free survival, but also the recent data from the GOG 218 on overall survival, where there's really no improvement in overall survival. There is obviously toxicity and there is cost. So all of this will probably be put together in a way that we can adjust that and understand how to think about benefiting the women in the first-line setting. But again, we're very excited that hypothesis that it will -- PARP inhibition and Zejula in particular will benefit the women who have the homologous recombination defects and excitingly in the all-comers analysis the benefit was there as well. So we'll look forward to sharing more of that data when we have it.

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Operator [15]

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You next question comes from Seamus Fernandez from Guggenheim.

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Seamus Christopher Fernandez, Guggenheim Securities, LLC, Research Division - Senior Analyst of Global Pharmaceuticals [16]

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I guess I have to ask the requisite question around the Senate's bill and the proposed impact relative to some of those differences that have been proposed. I was just hoping, Emma, if you could just give us your maybe broad stroke thoughts. And then if possible, where GSK kind of sits in the context of that proposal as it sits there. I know it's a moving target. But I think investors would certainly benefit from hearing your thoughts there.

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [17]

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Thanks, Seamus. So listen, as everyone knows, these proposals were published late yesterday. It's I think a 40-page document with over 30 detailed provisions. So we need to take a bit of time to analyze this and understand the provisions and understand any implications they might have. It's also and again, just looking at history very important to note that all of this is subject to discussion, potential amendments. And even if this is ultimately passed, many are not due to take impact until -- or effect until 2021, 2022.

All of that said, of course, considering the size and the importance of the U.S. market, we take these issues very seriously. And there today, we don't have significant exposure to Part B. But as we're thoughtful on how our portfolio will continue to evolve within the Pharma business, noting that this quarter our Vaccines business in the U.S. was, I don't know, about 30% of our sales, excluding consumer.

And so the key area we'd be looking at near term is Part D, but we'll be thoughtful about any evolution in Part B in terms of our approach with new assets. And there are a few principles, I suppose, that we would be supportive of just broad-based rather than specifically talking about this specific proposal. We are absolutely supportive, which is why we were also supportive of the previous rebate discussion, of things that reduce the out-of-pocket costs for as many patients as possible. And any of these price reductions that we pass on to payers find their way to patients. That's a really key principle.

Likewise, we're supportive of principles that incentivize responsible pricing and most fundamentally, that incentivize innovation and ongoing innovation and access for that innovation for the patients that need it.

So we'll keep watching it. And obviously, the answer to these kind of, I suppose environmental context shifts is -- continues to be, make sure you price responsibly. I think if you look at GSK's track record and where its performance has come from, that is something that the company has been long committed to; and make sure you innovate for value, which is why all the works that Hal has progressed with with the R&D team is so important and that's why we wanted to outline that with you today. But we'll be I'm sure watching this space and we'll see what comes through next.

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Operator [18]

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You next question from Mark Purcell, Morgan Stanley.

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Mark Douglas Purcell, Morgan Stanley, Research Division - Equity Analyst [19]

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I have 2. Firstly, for Zejula. Can you help us understand your plans to develop the drug outside ovarian cancer on the back of the PRIMA and then obviously the AVANOVA data which are very interesting and implying a role I guess for potential hypoxia-caused [DNA] damage to be a synergistic effect with this molecule. I'm asking the question because there's some unique advantages of it over other PARP inhibitors, including better blood-brain barrier penetration potential, possibly in tumors such as lung cancer for example.

And then secondly, on anatimumab and the neutropenia SAEs we saw recently, could you discuss the risk maintenance initiatives you've put in place and whether how successfully you believe these are in terms of improving the risk/benefit of this drug for patients as you move forward into earlier lines of therapy?

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [20]

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Great. Thanks. So I think those are both over to you, Hal.

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Hal V. Barron, GlaxoSmithKline plc - Chief Scientific Officer, President of R&D and Director [21]

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Good questions. Complicated questions. So let me take a few minutes to think about that. The question about Zejula beyond the front-line ovarian, I think is a great question. And we have a very robust development plan that includes a number of studies as you highlight in ovarian cancer. I think you're right. The AVANOVA study is very exciting. It's important to realize that was a treatment paradigm study that looked at the combination of Avastin in combination with niraparib as a potential treatment. And this is exciting on a lot of levels. One, we did see a pretty significant effect in an uncontrolled single-arm trial. But we're excited about where that might be able to take us in terms of maybe lateral line therapy when patients have progressed on their platinum-based frontline therapy.

It's really tough on patients to take platinum continuously in the second, third and fourth line. And if we can potentially design studies to find drugs like niraparib and Avastin, that would be as good and maybe even better but certainly with a better safety profile, I think that would be a really significant advance for these women because they're very sick by this stage and likely to die, and improving quality of life is critical. So that's an exciting approach.

I'm also excited about the TOPACIO data. It's small numbers, but there's some intriguing signals in there, again small numbers. And particularly when you look at the combination of niraparib plus dostarlimab, where we're starting to learn a little bit about what PARP inhibitors may be doing beyond simply blocking the replication fork and the homologous recombination repair process. And looks also like when you do that, you actually activate the STING pathway and you almost, by definition because you have this DNA damage, start to present more new antigens. And if you think about it, that could be an exciting synergy with PD-1 inhibition because it's been known that T-cell infiltration in ovarian cancer is actually seen in about 60% of patients. But the T-cells are not getting in there and activating to kill the tumor the way we would hope.

And so we think by presenting more new antigens through the STING activated pathway and presenting more new antigens that we might be synergistic with PD-1, and there's a lot of preclinical data to support that, as I said. And so it's also exciting that we have a systemic IV STING agonist that we can think about. So the idea of that synergy, particularly when you look at the data, as I said, in the TOPACIO study where we have actually significant responses in the gBRCA wild type platinum refractory group, where we typically don't see any kind of responses and, in fact, the PD-1 class has been particularly unimpressive in that setting as well. So the fact that we're observing -- I think the numbers were about, I think, about 18%, 19% response rate in that group, if I remember right. That's encouraging. And so MOONSTONE is going to follow up on that data and potentially provide some interesting findings.

As you point out, there's a lot of other places we could think about trying to help patients. Particularly exciting given the concept now that we think is real, which is that it's beyond BRCA. And in lung cancer, although gBRCA mutations are extremely uncommon, HRD abnormalities are actually not uncommon. And so it's possible that by identifying patients who have defects in homologous recombination through other non-BRCA, like Rad50 and the Fanconi protein gene defects and AKT and ATM and all the other ones that are known to be mutated in lung cancer, [ARCC], we may be able to find a population that would respond to PARP inhibition and we have a number of trials and the same concept that I described where there may be synergy between [neu-wrapper] of PD-1 -- not to get to ahead of ourselves, but that's an exciting combination as well because we might be able to improve on the already impressive findings of PD-1 and lung cancer. So that's an exciting opportunity.

And lastly, as you point out, and I think this is a very good point that you make, is that while you don't see typically many women who develop brain mets, which is thankful in ovarian cancer, it is unfortunately not uncommon in lung cancer. And so if these PARP inhibitors are actually effective in lung cancer, we think we'd have a uniquely advantageous approach because of the fact that we'd crossed the blood-brain barrier and is something that we're thinking about how to get a better handle on.

So with that, and of course, there is always opportunities to think about other diseases like prostate, pancreas and triple negative breast cancer in the synergies. There's an enormous amount of development opportunity that we can do. And with the other 15 molecules in the clinic, including bed inhibitors and I said, STING agonists, there's just a lot of places where we can do combinations and with functional genomics, we're hoping we can actually rank our opportunities so that we go over the most compelling projects first, and so it's just a very exciting time.

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [22]

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Thanks, Hal. Do you want to comment on [belantamab] as well ?

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Hal V. Barron, GlaxoSmithKline plc - Chief Scientific Officer, President of R&D and Director [23]

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Yes. Right, sorry. So belantamab, so BCMA, it's important to remember that myeloma is a plasma cell dyscrasia. And so you just the disease alone causes some thrombocytopenia. That's known. BCMA is known to cause thrombocytopenia. And so the combinations of the various drugs where we know there's going to be additive tox is important to get a strategy to minimize that as you point out. And so without going into excruciating detail, the modifications we're putting in place are several fold. First, probably most importantly, is that these findings are usually dose related and we are using a lower dose in the Phase II studies, the DREAMM-6 and the [ISS], and that should help us figure out whether to see max or see min area under the curve, et cetera, how do you optimize the dosing to minimize this problem as well as, are there ways of simply educating the site to ensure that when a patient does get some toxicity that they're managed well. And we think the combination of doing both of these will result in us having a safe and effective window for providing this drug. And particularly given how active it is, we think that the risk benefit is likely to be something we can demonstrate. But of course that's why we're doing the trials.

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Operator [24]

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You next question comes from James Gordon from JPMorgan.

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James Daniel Gordon, JP Morgan Chase & Co, Research Division - Senior Analyst [25]

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James Gordon, JPMorgan. Two questions, both about Zejula, please. The first one, just a clarification around the PRIMA study result. In the press release, it says that the study statistical significance -- and the way I read it was across biomarker status -- I think the study, the original end point was just in the HIV-positive patients. And then I think what Hal was saying on the call, it sounded like the study did hit the original primary. So it did show a benefit in just HRD+ first, and also in the whole population. Could you just clarify, what was the primary that was tested and [it did let this work] the subpopulations and in all-comers, please?

And then the second question was also in Zejula. The press release referenced AVANOVA and talked about the strong data we saw presented at ASCO. So Zejula plus Avastin. Were you flagging this data because there is a potential to get this data on the label, so you could actually have a mono and an Avastin combo. I mean that's why it's being flagged? Or do you think that whatever the merits of Avastin combo, and that's something that only Astra are likely to have as a label, please?

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [26]

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Hal?

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Hal V. Barron, GlaxoSmithKline plc - Chief Scientific Officer, President of R&D and Director [27]

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Okay. So let me explain the design of PRIMA. It's a relatively common approach to designing trials and unblinding. The primary end point was tested hierarchically. So by that, I mean the first question you ask of that data is the one that we had the most confidence in which is the HRD+ population and the analysis plan calls for answering that question. And if positive, only if positive, you go on and then assess the all-comers. And because the HRD population was positive, we then went on to test the all-comers analysis. And what I said in the script is that, that was also positive. So that's how that works.

And it's done to avoid having to split, or I should say, share alpha. That doesn't matter. But it's a common way of doing what's called hierarchical testing.

And your other question was about AVANOVA. Yes, we were pleased with the data. It's very intriguing. The combination, as I mentioned, is a possible treatment regimen. It's interesting, I think that because it's in the treatment setting, it's going to be important clinical data to look at. But the plan is not to be filing that with the PRIMA study.

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Operator [28]

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You next question comes from Tim Anderson from Wolfe Research.

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Timothy Minton Anderson, Wolfe Research, LLC - MD of Equity Research [29]

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A question on PRIMA again. Saw a short top line press release. You said it was clinically significant today. The top line release only describes safety as in line with prior data sets. But PRIMA looked at a lower starting dose to try to avoid thrombocytopenia. And from my prior conversation with you guys, I think the goal is to have thrombocytopenia in line with competitor PARPs like in Lynparza. So I'm wondering on safety if you can say that was achieved in PRIMA with that dosing modification.

Second question is the Shingrix opportunity in China. My understanding, it'll be a cash paid product. No government reimbursement, which is not uncommon with multinational vaccines.

If I think of Gardasil, also cash pay explosive growth, consumer awareness is high. There's a big difference here with your product in that cervical cancer is potentially fatal and shingles is not. So I'm wondering if you can just lay out what you think the commercial case for Shingrix will be over time, what the awareness of shingles already is.

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [30]

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Okay. So just to give Hal a break for a second. I'm going to come to Luke to comment on the Shingrix launch in China. Obviously, there's a question both of capacity and market creation from our point of view. But Luke, you...

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Luke V. Miels, GlaxoSmithKline plc - President of Global Pharmaceuticals [31]

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Thanks, Tim. And I think the analogy or the parallel you make with HPV is interesting. I mean if you looked, with us, at Cervarix right now, we're doing about 90,000 doses a month. If you go back a couple of years ago, the awareness was relatively low. So I think once your product enters the marketplace and companies begin to be active and physicians have a solution, then the patients to become engaged. You're correct, our assumption is that it's going to be a private market product. If you look at pricing for Cervarix and Gardasil, again, these are very much in line with the prices in the U.S. That's our assumption in China.

In terms of what would drive that, I mean we've looked at this as you can imagine in some depth. There is a few things, which are very favorable. You've got obviously all the population. You have relatively concentrated families with children working and also a pretty well-developed appetite for information on the web. So we think a number of these things are in line with it. I think the broader question, and this is really where it sits in the context of supply with Shingrix, is we try to work out where -- beyond the U.S. and [kind of] in Germany where we are now, which are the markets that we would enter. And right now the focus is likely to be in the private market.

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [32]

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Thanks, Luke. Hal?

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Hal V. Barron, GlaxoSmithKline plc - Chief Scientific Officer, President of R&D and Director [33]

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Yes. Thanks, Tim. That's a good question. So the PRIMA study, as I said, the primary end point, was in the HIV positive and subsequently, in the all-comers if positive. There was as you point out and it's an important subgroup, but a smaller subset of patients who were randomly allocated towards the end of the trial to the so-called Weights and Plates dosing regimen, where the women whose body weight was less than 77 kilograms and whose platelets were I think less than 150,000 were administered a lower dose, 200-milligram. I should point out that the concept of lowering dose for lower body weight patients, particularly those with -- well platelets would make sense given this is nontarget effect. And in fact, clinicians often do this in the real world. It's not uncommon to see patients actually identify, then do those. But we thought it is important in the PRIMA study to actually study it in a controlled way.

As you point out, I can't comment further on the data in terms of subgroups or subanalyses now. But all of this data or much of this data will be presented at upcoming scientific meetings and we look forward to discussing it with you then. Luke, did you have anything that you want to add?

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Luke V. Miels, GlaxoSmithKline plc - President of Global Pharmaceuticals [34]

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I mean I think it's interesting, Tim, if you look at usage rates in the U.S. where we have the best data, I mean obviously, patients start on 300, around 50% automatically drop down to 200 milligrams immediately. So physicians are adapting the behavior in line with the profile.

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Operator [35]

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And your last question comes from Jo Walton from Credit Suisse.

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Jo Walton, Crédit Suisse AG, Research Division - MD [36]

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Two quick questions. On Vaccines, I wonder if you could help us on the improvement in profitability. How much of this we should build into our future modeling because it comes from the leverage of Shingrix, which doesn't look like it's going away and therefore should give us a strong, sustainable base and how much could be attributed to onetime factors.

And the second question for Emma on the new marketing scheme, whereby you are paying your reps more in line with the prescriptions that they are responsible for. How are you going to decide whether that is successful or not? What should we look as shareholders, investors to see how that is maturing?

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [37]

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Thanks very much. Well, I'll let Iain comment on the vaccines margin delivery and outlook and then I'll come back on your last question to finish up.

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Iain James Mackay, GlaxoSmithKline plc - CFO & Executive Director [38]

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Great. Thanks very much. Look, I think overall, clearly, we're very pleased with the performance of the Vaccines business and Shingrix is a stand out in that regard. With the margin where we have it right now obviously in the high 30s, that's informed by an effect in the first quarter and an inventory adjustment, which we mentioned. And also you will have seen that both SG&A and R&D fairly tightly controlled within that business.

As we move forward, continued, we probably see a step up, to some degree, in SG&A to support as we gradually move to expand market launch from a Shingrix perspective as we go forward into longer term. And then also from an R&D perspective, as Hal had mentioned earlier, there's a couple of interesting priority assets coming through Vaccines where the step-up in R&D to support that development are key features. So in terms of the medium term, from an operating margin perspective, we very much see that margin for Vaccines in the mid-30s. Notwithstanding the very good performance that we've seen in higher volumes and good cost control coming through the first half of the rear.

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Emma N. Walmsley, GlaxoSmithKline plc - CEO & Director [39]

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Okay. Thanks, Iain. And then finally, just on the update of our policies, which as you know has been around sales force incentives, but also around engagement with HCPs so that they can hear from practicing HCPs where we have new data. We've laid out several key priorities for the company. We know we want to deliver on improvements in operating performance, and we want to deliver a much stronger pipeline and have been pleased to be able to demonstrate, although there's always lots more work to do, some progress on both of those.

Within that we are talking fundamentally about a shift in our portfolio to more specialty medicines and the update to sales force incentives was linked to that. We're building under Luke's leadership and have a strengthening specialty team and we want to be able to attract the very best, including in the field, and there are specific expertise around that competitively. And as you know, when the initial policies were rolled out, there was no follow-on from other players in the industry.

So we think this is very important. But it is contained to our specialty workforce and the certain key geographies, particularly where we're launching new assets in the same way as our HCP engagement is from pricing physicians is contained to new data either around existing products or new launches.

And the answer for Hal to know whether it's working is to make sure that we are successful with the new products that we bring to market, either the labels we extend or new launches we're talking about coming through in 2020 and beyond. And that's why we're delighted to see some of the progress we've had on data that we're going to be filing with 6 new registrations, hopefully, in the next 6 months. And Luke is building out the team that we have. So we'll see with the numbers that will come through.

So with that, everybody, thank you very much. Thanks for joining the call. Obviously, it's a busy day today, and we look forward to talking to you soon. Thank you. Good-bye.

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Operator [40]

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Thank you. That concludes your conference call for today. You may now disconnect. Thanks for joining. Enjoy the rest of your day.