GSK Annual Report 2002

2002 Year
World economy
The world’s economy began 2002 in an upbeat fashion, in the
expectation that recent interest rate cuts on both sides of the
Atlantic would revive consumer confidence and provide relief to
the corporate sector still feeling the effects of the September 11
tragedy.
The general optimism proved to be misplaced, as a combination of
weaker than anticipated economic growth, corporate scandals,
bankruptcies, profit warnings, dividend cuts, the forced selling of
equities, soaring stock market volatility, fears of deflation and
conflict in the Middle East all took their toll. Share prices across the
developed world plunged for the third year running in 2002.
After a strong start, the US economy cooled off as the stimulus of
interest rate cuts failed to counterbalance negative factors. When
in November the Federal Reserve cut the US interest rate to
1.25 per cent, it reached its lowest level in more than 40 years.
The European economy fared no better, with most countries
experiencing little or no growth. Germany was particularly badly
affected, suffering both a stagnant economy and a rise in
unemployment to 9.9 per cent. The European Central Bank
responded with a 0.5 per cent cut in interest rates to 2.75 per cent
in December.
The Japanese stock market outperformed all other major stock
markets in the first half of 2002, but then fell, ending 2002 at a
20-year low.
The outlook for 2003 may be summarised as uncertain. Whilst there
have never been four consecutive years of declines in the majority
of western stock markets, and most market commentators are
anticipating a reasonable level of economic growth in 2003, this is
most likely to occur in the second half of the year after a sluggish
start. The $600 billion economic package designed to boost the US
economy announced by President Bush in January 2003 will
hopefully accelerate this. However, there are a number of risks to
the timing of economic recovery.
Exchange
The currencies that most influence the Group’s results are the US
Dollar, the Euro and the Japanese Yen.
£/Euro £/US$ £/JPY
150
100
Jun 96
Dec 96
Jun 97
Dec 97
Jun 98
Dec 98
Jun 99
The pound hit its highest level against the dollar for more than
two-and-a-half years, climbing above $1.61 and the Euro gained
17.7 per cent against the dollar in 2002, the first year that the
dollar has fallen in value against the euro, as investors weighed up
the impact of possible war in Iraq, tensions with North Korea and
fears for the US economy.
Dec 99
Jun 00
Dec 00
Jun 01
Jun 96 = 100
Dec 01
Jun 02
Dec 02
Operating and financial review and prospects GlaxoSmithKline 53
World market – pharmaceuticals
Global pharmaceutical sales increased by 10.6 per cent in 2002 to
£268 billion.
World market by Value % of Growth
geographic region £bn total £%
USA 126 47.0 15.3
Europe 67 25.0 9.1
Germany 13 4.9 9.4
France 13 4.9 5.6
UK 9 3.3 12.8
Italy 8 3.0 6.4
Japan 31 11.6 3.3
Asia Pacific 19 7.0 10.0
Latin America 13 4.9 (6.0)
Middle East, Africa 7 2.6 15.3
Canada 5 1.9 15.1
Total 268 100.0 10.6
The US market remained buoyant and now represents 47 per cent
of the global prescription pharmaceutical market compared to
31 per cent a decade ago.
GlaxoSmithKline holds second position in the world pharmaceutical
market with a market share of 7.25 per cent, behind Pfizer with a
market share of 7.35 per cent.
GlaxoSmithKline has eight products in the world’s Top 50 products;
these are Augmentin, Avandia, Flixotide, Imigran, Seretide/Advair,
Seroxat/Paxil, Wellbutrin and Zofran.
World market – Value % of Growth
top five therapeutic classes £bn total £%
Cardiovascular 46 17.2 9.8
Central nervous system 43 15.9 13.8
Alimentary tract and metabolic 35 13.2 8.9
Anti-infectives (bacterial,
viral and fungal) excluding vaccines 30 11.2 6.0
Respiratory 21 7.7 12.0
(Note: Data based on 12 months to 30th September 2002.)
Pharmaceutical sales
Total pharmaceutical sales in 2002 were £17,995 million compared
to £17,205 million in 2001, an increase of eight per cent. Less than
one per cent of this overall growth came from price increases.
Growth in sterling terms of five per cent was significantly impacted
by the weakness of the US dollar and other currencies.
Within the Group’s portfolio, sales of new products, those launched
in a major market within the last five years, accounted for
27 per cent of total sales and grew by 36 per cent to
£4,785 million. Sales of the more established, franchise products
amounted to £9,772 million representing 54 per cent of total sales
and grew six per cent compared to last year. Sales of older
products, now less actively promoted, were £3,438 million, a
decline of 11 per cent, representing 19 per cent of total sales.
Global pharmaceutical sales in the fourth quarter of 2002 grew
seven per cent, (two per cent in sterling terms) reflecting US sales
growth of 14 per cent to £2,592 million; whereas in Europe sales
growth was weaker at one per cent with sales of £1,272 million,
and in International sales were flat at £935 million.