TIDMGSK
RNS Number : 0110G
GlaxoSmithKline PLC
26 February 2015
GlaxoSmithKline plc
Publication of 2014 Annual Report
GlaxoSmithKline plc (the 'Company') will today publish on the
Company's website, www.gsk.com/corporatereporting its Annual Report
for the year ended 31 December 2014 (the '2014 Annual Report'),
together with its 2014 Annual Summary (the '2014 Summary').
A hard copy version of the 2014 Annual Report, together with the
2015 Notice of Annual General Meeting (the '2015 AGM Notice'), will
be sent to those shareholders who have elected to receive paper
communications, on or about 25 March 2015. Shareholders who have
not elected to receive paper communications will be sent the 2014
Summary notifying them of the availability of these documents on
the company's website.
In compliance with Listing Rule 9.6.1 of the UK Financial
Conduct Authority ('FCA'), the 2014 Annual Report, 2014 Summary and
2015 AGM Notice will be submitted to the UK Listing Authority and
will in due course be available for inspection at
www.morningstar.co.uk/uk/NSM
In accordance with FCA's Disclosure and Transparency Rules
4.1.12 and 6.3.5, the Appendix to this announcement contains a
description of the principal risks and uncertainties affecting the
Group and a responsibility statement.
The unaudited Preliminary Results for the year ended 31 December
2014 were announced on 4 February 2015.
The Company further announces the following dividend dates for
2015 and 2016.
ADS ex-dividend Ex-dividend Record date Payment date
date date
-------- ------------------ --------------- --------------- ---------------
Q4 2014 18 February 2015 19 February 20 February 9 April 2015
2015 2015
-------- ------------------ --------------- --------------- ---------------
Q1 2015 13 May 2015 14 May 2015 15 May 2015 9 July 2015
-------- ------------------ --------------- --------------- ---------------
Q2 2015 12 August 2015 13 August 2015 14 August 2015 1 October 2015
-------- ------------------ --------------- --------------- ---------------
Q3 2015 10 November 2015* 12 November 13 November 14 January
2015 2015 2016
-------- ------------------ --------------- --------------- ---------------
V A Whyte
Company Secretary
26 February 2015
*11 November 2015 is a non-settlement day as US banks are closed
on Veterans Day.
Cautionary statement regarding forward-looking statements
GSK cautions investors that any forward-looking statements or
projections made by GSK, including those made in this announcement,
are subject to risks and uncertainties that may cause actual
results to differ materially from those projected. Such factors
include, but are not limited to, those set out in Appendix A of
this announcement.
Brand names
Brand names appearing in italics throughout this announcement
are trademarks either owned by and/or licensed to GlaxoSmithKline
or associated companies.
APPENDIX A
(i) Principal risks and uncertainties
Risk factors
The principal risks discussed below are the risks and
uncertainties relevant to our business, financial condition and
results of operations that may affect our performance and ability
to achieve our objectives. The factors below are those that we
believe could cause our actual results to differ materially from
expected and historical results.
We operate on a global basis in an industry that is both highly
competitive and highly regulated. Our competitors may make
significant product innovations and technical advances and may
intensify price competition. In light of this competitive
environment, continued development of commercially viable new
products and the development of additional uses for existing
products are critical to our ability to maintain or increase
overall sales.
Developing new pharmaceutical, vaccine and consumer healthcare
products is a costly, lengthy and uncertain process, however, and a
product candidate may fail at any stage, including after
significant Group economic and human resources have been invested.
Our competitors' products or pricing strategies or any failure on
our part to develop commercially successful products, or to develop
additional uses for existing products, could materially and
adversely affect our financial results.
We must also adapt to and comply with a broad range of laws and
regulations. These requirements apply to research and development,
manufacturing, testing, approval, distribution, sales and marketing
of Pharmaceutical, Vaccine and Consumer Healthcare Products, and
affect not only the cost of product development but also the time
required to reach the market and the uncertainty of successfully
doing so.
Moreover, as rules and regulations change, and governmental
interpretation of those rules and regulations evolves, the nature
of a particular risk may change. Changes to certain regulatory
regimes may be substantial. Any change in, and any failure to
comply with, applicable law and regulation could materially and
adversely affect our financial results.
Similarly, our business exposes us to litigation and government
investigations, including but not limited to product liability
litigation, patent and antitrust litigation and sales and marketing
litigation. Litigation and government investigations, including
related provisions we may make for unfavourable outcomes and
increases in related costs such as insurance premiums, could
materially and adversely affect our financial results. More detail
on the status and various uncertainties involved in the significant
unresolved disputes and potential litigation is set out in Note 45,
'Legal proceedings,' on page 206 of the 2014 Annual Report.
UK regulations require a discussion of the mitigating activities
a company takes to address principal risks and uncertainties. A
summary of the activities that the Group takes to manage each of
our principal risks accompanies the description of each principal
risk below. The principal risk factors and uncertainties are not
listed in order of significance.
Patient safety
Risk definition
Failure to appropriately collect, review, follow up, or report
adverse events from all potential sources, and to act on any
relevant findings in a timely manner.
Risk impact
The impact of this risk is potentially to compromise our ability
to conduct robust safety signal detection and interpretation and to
ensure that appropriate decisions are taken with respect to the
risk/benefit profile of our products, including the completeness
and accuracy of product labels and the pursuit of additional
studies/analyses, as appropriate. This could lead to potential harm
to patients, reputational damage, product liability claims or other
litigation, governmental investigation, regulatory action such as
fines, penalties or loss of product authorisation.
Context
Pre-clinical and clinical trials are conducted during the
development of investigational Pharmaceutical, Vaccine and Consumer
Healthcare Products to determine the safety and efficacy of the
products for use by humans. Notwithstanding the efforts we make to
determine the safety of our products through appropriate
pre-clinical and clinical trials, unanticipated side effects may
become evident only when products are widely introduced into the
marketplace. Questions may be raised not only by our ongoing safety
surveillance and post-marketing studies but also by governmental
agencies and third-parties that may analyse publicly available
clinical trial results.
The Group is currently a defendant in a number of product
liability lawsuits, including class actions, that involve
significant claims for damages related to our products. Litigation,
particularly in the US, is inherently unpredictable. Class actions
that seek to sweep together all persons who were prescribed our
products increase the potential liability. Claims for pain and
suffering and punitive damages are frequently asserted in product
liability actions and, if allowed, can represent potentially
open-ended exposure and thus, could materially and adversely affect
the Group's financial results.
Mitigating activities
The Chief Medical Officer (CMO) is responsible for medical
governance for the Group under a global policy. Under that policy,
safeguarding human subjects in our clinical trials and patients who
take our products is of paramount importance, and the CMO has the
authoritative role for evaluating and addressing matters of human
safety. Individual Medical Officers and the Group's substantial
Global Safety and Pharmacovigilance organisation keep track of any
adverse issues reported for our products during the course of
clinical studies.
Once a Group product is approved for marketing, the Group has an
extensive post-marketing surveillance and signal detection system.
Information on possible side effects of medicines is received from
several sources including unsolicited reports from health
professionals and patients, regulatory authorities, medical and
scientific literature and the media. It is our policy that
employees are required to report immediately any issues relating to
the safety or quality of its medicines. Each of our country
managers is responsible for monitoring, exception tracking and
training that helps assure the collection of safety information and
reporting the information to the relevant central safety
department, in accordance with Group policy and legal
requirements.
Information that changes the benefit/risk profile of one of the
Group's medicines will result in certain actions to characterise,
communicate and minimise the risk. Proposed actions are discussed
with regulatory authorities and can include modifying the
prescribing information, communications to physicians and other
healthcare providers, restrictions on product
prescribing/availability to help assure safe use, and sometimes
carrying out further clinical trials. In certain cases, it may be
appropriate to stop clinical trials or to withdraw the medicine
from the market. The Group's Global Safety Board (GSB), comprising
senior physicians and representatives of supporting functions, is
an integral component of the system. The GSB (including subsidiary
boards dedicated to Consumer Healthcare Products and Vaccines)
reviews the safety of investigational and marketed products across
the Group and has the authority to stop a clinical trial if
continued conduct of such trial is not ethically or scientifically
justified in light of information that has emerged since the start
of the trial.
In addition to the medical governance framework within the Group
as described above, the Group uses several mechanisms to foster the
early evaluation, mitigation, and resolution of disputes as they
arise and of potential claims even before they arise. The goal of
the programmes is to create a culture of early identification and
evaluation of risks and claims (actual or potential), in order to
minimise liability and litigation.
Intellectual property
Risk definition
Failure to appropriately secure and protect intellectual
property rights.
Risk impact
Any failure to obtain or subsequent loss of patent protection,
including reducing the availability or scope of patent rights or
compulsory licensing (in which a government forces a manufacturer
to license its patents for specific products to a competitor),
could materially and adversely affect our financial results in
those markets. Absence of adequate patent or data exclusivity
protection could limit the opportunity to rely on such markets for
future sales growth for our products, which could also materially
and adversely affect our financial results.
Context
As an innovative Pharmaceutical, Vaccine and Consumer Healthcare
Products company, we seek to obtain appropriate intellectual
property protection for our products. Our ability to obtain and
enforce patents and other proprietary rights with regard to our
products is critical to our business strategy and success.
Pharmaceutical and Vaccine products are usually only protected from
being copied by generic manufacturers during the period of
exclusivity provided by an issued patent or related intellectual
property rights such as Regulatory Data Protection or Orphan Drug
status. Following expiration of certain intellectual property
rights, a generic manufacturer may lawfully produce a generic
version of the product.
We operate in markets where intellectual property laws and
patent offices are still developing and where governments may be
unwilling to grant or enforce intellectual property rights in a
fashion similar to more developed regions such as the EU, Japan and
the US. Some developing countries have limited, or threatened to
limit, effective patent protection for pharmaceutical products
generally, or in particular therapeutic areas, in order to
facilitate early competition within their markets from generic
manufacturers.
We face competition from manufacturers of proprietary and
generic pharmaceutical products in all of our major markets.
Introduction of generic products, particularly in the US where we
have our highest turnover and margins, typically leads to a rapid
and dramatic loss of sales and reduces our revenues and margins for
our proprietary products. In 2014, we had nine Pharmaceutical and
Vaccine products with over GBP500 million in annual global sales.
For certain of these products, there is generic competition in the
US and some markets in Europe. We may also experience an impact on
sales of one of our products due to the expiry or loss of patent
protection for a product marketed by a competitor in a similar
product class or for treatment of a similar disease condition.
We depend on certain key products for a significant portion of
our sales. One such product is our respiratory pharmaceutical
product Seretide/Advair which accounts for 18% of Group sales
worldwide. The timing and impact of entry in the US for a generic
product containing the same combination of active substances as
Seretide/Advair is uncertain. The US patent for compositions
containing the combination of active substances in Seretide/Advair
expired during 2010 although the US patent on a component of the
Advair Diskus device continues until August 2016. Generic products
containing the same combination of active substances as
Seretide/Advair (in both metered dose inhalers and dry powder
inhalers) have been launched by several manufacturers in a number
of European markets. The timing and impact of entry in the US and
major markets in Europe for a 'follow-on' product to
Seretide/Advair is uncertain.
Generic drug manufacturers have also exhibited a readiness to
market generic versions of many of our most important products
prior to the expiration of our patents. Their efforts may involve
challenges to the validity or enforceability of a patent or
assertions that their generic product does not infringe our
patents. As a result, we are and may continue to be involved in
legal proceedings involving patent challenges, which may materially
and adversely affect our financial results. Moreover, in the US, it
has become increasingly common for patent infringement actions to
prompt claims that anti-trust laws have been violated during the
prosecution of the patent or during litigation involving the
defence of that patent. Such claims by direct and indirect
purchasers and other payers are typically filed as class actions.
The relief sought may include treble damages and restitution
claims. Similarly, anti-trust claims may be brought by government
entities or private parties following settlement of patent
litigation, alleging that such settlements are anti-competitive and
in violation of anti-trust laws. A successful anti-trust claim by a
private party or government entity could materially and adversely
affect our financial results.
The expiration dates for patents for our major products which
may affect the dates on which generic versions of our products may
be introduced are set out on pages 229 to 231 of the 2014 Annual
Report. Legal proceedings involving patent challenges are set out
in Note 45 to the financial statements, 'Legal proceedings'.
Mitigating activities
Our Global Patents group focuses on securing and protecting our
patent rights. This global group maintains internal processes
designed to help ensure successful procurement, enforcement and
defence of our patents with the goal of maintaining exclusive
rights in markets for our products.
The Global Patents group monitors new developments in
international patent law to help ensure appropriate protection of
our assets. Sometimes acting through trade associations, we work
with local governments to seek to secure effective and balanced
intellectual property protection designed to meet the needs of
patients and payers while supporting long-term investment in
innovation.
Product quality
Risk definition
Failure to comply with current Good Manufacturing Practice
(cGMP) requirements in commercial manufacture, through the
distribution chain, by GSK, its contractors or suppliers; or
through inadequate controls and governance of quality through
product development, and in supporting regulated activities.
Risk impact
A failure to ensure product quality could have far reaching
implications in terms of patient and consumer safety, delays in
launching new products, drug shortages, product recalls, potential
damage to our reputation and that of the relevant product, as well
as regulatory, legal, and financial consequences, which could
materially and adversely affect our reputation and financial
results.
Context
Patients, consumers and healthcare professionals trust the
quality of our products. A failure to ensure product quality is an
enterprise risk which is applicable across all of our business
activities. Product quality may be influenced by many factors
including product and process understanding, supply chain security,
consistency of manufacturing components, compliance with GMP,
accuracy of labelling, reliability of the external supply chain,
and the embodiment of an overarching quality culture. The internal
and external environment continues to evolve as new products, new
markets and new legislation are introduced, particularly around
security of supply, good distribution practice and product
standards. Inspectional trending from national authorities during
2014 has highlighted a focus on issues relating to data integrity,
contamination and the robustness of quality investigations.
Mitigating activities
In medicines development, scientists adopt the principles of
quality by design for new products and devise control strategies to
be deployed throughout the product lifecycle to help ensure
consistency and reliability in their performance and supply.
We have adopted a single Quality Management System (QMS) that
defines our quality standards and systems for our businesses
associated with Pharmaceuticals, Vaccines and Consumer Healthcare
Products and R&D investigational materials. The QMS has a broad
scope, covering the end-to-end supply chain from starting materials
to distributed product, and is applicable throughout the complete
lifecycle of products from R&D to mature commercial supply.
The QMS is periodically updated based on experience, evolving
regulatory agency expectations and requirements and improved
scientific understanding to help ensure that operations comply with
cGMP requirements globally, and support the delivery of consistent
and reliable products. A large network of quality and compliance
professionals is aligned with each business unit to provide
oversight and assist the delivery of quality performance and
operational compliance. Management oversight of those activities is
accomplished through a hierarchy of quality council meetings. Staff
are trained to help ensure that standards, as well as expected
behaviours based on our values, are followed. Refresher training on
cGMP issues includes a focus on the issues raised in inspectional
trends.
We have implemented a risk-based approach to assessing and
managing our third-party suppliers that provide materials used in
finished products. Contract manufacturers making our products are
expected to comply with standards identified by the Group and are
audited to help provide assurance that expected standards are
met.
The Chief Product Quality Officer oversees the activities of the
GSK Quality Council which serves as a forum to escalate emerging
risks, share experiences of handling quality issues from all of our
businesses and help ensure that lessons learned are assessed and
deployed globally. The preparation for and implementation of new
legislation is regularly reviewed by the GSK Quality Council and
advocacy and communication programmes are used to maintain
awareness of the external environment and convey consistent
messages across the Group. There is emphasis on quality performance
metrics and a culture of 'right first time'.
Supply chain continuity
Risk definition
Failure to deliver a continuous supply of compliant finished
product.
Risk impact
A material interruption of supply or exclusion from healthcare
programmes could impact patient access to our products, expose us
to litigation or regulatory action and materially and adversely
affect our financial results. In particular, the incurring of fines
or disgorgement as a result of noncompliance with manufacturing
practice regulations could also materially and adversely affect the
Group's financial results and result in reputational damage.
Context
Our supply chain operations are subject to review and approval
by various regulatory agencies that effectively provide our licence
to operate. Failure by our manufacturing and distribution
facilities or by suppliers of key services and materials could lead
to litigation or regulatory action such as product recalls and
seizures, interruption of supply, delays in the approval of new
products, and suspension of manufacturing operations pending
resolution of manufacturing or logistics issues. In 2014, our
Consumer Healthcare business, particularly our Smokers' Health
products, alli and Bactroban, were impacted by various supply
issues and our Vaccines business, particularly our hepatitis
vaccines and Boostrix, were impacted by supply constraints.
Materials and services provided by third-party suppliers are
necessary for the commercial production of our products, including
active pharmaceutical ingredients (API), antigens, intermediates,
commodities and components necessary for the manufacture and
packaging of many of our Pharmaceutical, Vaccine and Consumer
Healthcare Products. Some of the third-party services procured,
such as services provided by contract manufacturing organizations
and clinical research organisations to support development of key
products, are important to ensure continuous operation of our
businesses. Although we undertake business continuity planning,
single sourcing of certain components, bulk API, finished products,
and services creates a risk of failure of supply in the event of
regulatory non-compliance or physical disruption at the
manufacturing sites or logistics system.
The failure of a small number of single-source, third-party
suppliers or service providers to fulfill their contractual
obligations in a timely manner or as a result of regulatory
non-compliance or physical disruption of logistics and
manufacturing sites may result in delays or service
interruptions.
Mitigating activities
Our supply chain model is designed to help ensure the supply,
quality and security of our products globally. We closely monitor,
through the Supply Chain Governance Committees, the inventory
status and delivery of our products to help ensure that our
customers have the medicines, vaccines and products they need.
Safety stocks and backup supply arrangements for high revenue and
medically-critical products are in place, where practical, to help
mitigate this risk. In addition, the compliance of manufacturing
external suppliers is routinely monitored in order to identify and
manage supply base risks.
Where practical, dependencies on single sources of critical
items are removed. Our reliance on single source components was
reduced in 2014 for some key products through qualification of
alternative materials that will help improve supply chain
robustness. In cases, where dual sourcing is not possible, an
inventory strategy has been developed to protect the supply chain
from unanticipated disruption.
In 2014, we continued to implement anti-counterfeit systems such
as product serialization in accordance with emerging requirements
to mitigate this risk.
Throughout 2014, our supply chain operating model was improved
to strengthen the link between commercial forecasting and
manufacturing by implementation of the Core Commercial Cycle
methodology. This action will over time, decrease the risk
associated with demand fluctuations impacting ability to supply or
write-offs associated with product exceeding expiry dating. Under
the new model, each node of the supply chain is being optimised to
help ensure adequate safety stock while balancing working capital
associated with the end-to-end supply chain.
Financial reporting and disclosure
Risk definition
Failure to report accurate financial information and material
events in compliance with accounting standards and applicable
legislation.
Risk impact
Non-compliance with existing or new financial reporting and
disclosure requirements, or changes to the recognition of income
and expenses, could expose us to litigation and regulatory action
and could materially and adversely affect our financial
results.
Context
New or revised accounting standards, rules and interpretations
issued from time to time by the International Accounting Standards
Board could result in changes to the recognition of income and
expense that may materially and adversely affect our financial
results.
The Group is also required by the laws of various jurisdictions
to disclose publicly its financial results and events that could
materially affect the financial results of the Group. Regulators
routinely review the financial statements of listed companies for
compliance with accounting and regulatory requirements. The Group
believes that it complies with the appropriate regulatory
requirements concerning our financial statements and disclosure of
material information. However, should we be subject to an
investigation into potential non-compliance with accounting and
disclosure requirements, there is potential for restatements of
previously reported results and we could be subject to significant
penalties.
Mitigating activities
The Group maintains a control environment designed to identify
material errors in financial reporting and disclosure. The design
and operating effectiveness of key financial reporting controls is
periodically tested. This provides us with the assurance that
controls over key financial reporting and disclosure processes have
operated effectively.
We keep up-to-date with the latest developments in financial
reporting requirements by working with our external auditors and
legal advisors to help ensure adherence to relevant reporting and
disclosure requirements.
There is shared accountability for financial results across our
businesses. Financial results are reviewed and approved by regional
management and then reviewed with the Financial Controller and the
Chief Financial Officer (CFO). This allows our Financial Controller
and our CFO to assess the evolution of the business over time, and
to evaluate performance to plan. Significant judgments are reviewed
and confirmed by senior management.
The Group maintains a Disclosure Committee which reports to the
Board which reviews the Group's quarterly results and Annual Report
and determines throughout the year, in consultation with its legal
advisors, whether it is necessary to disclose publicly information
about the Group through Stock Exchange announcements.
Tax and treasury
Risk definition
Failure to comply with current tax law, or react to the rapidly
evolving tax environment. Incurring significant losses due to
treasury activities.
Risk impact
Changes in tax laws or in their application with respect to
matters such as transfer pricing, foreign dividends, controlled
companies, R&D tax credits, taxation of intellectual property
or a restriction in tax relief allowed on the interest on
intra-group debt, could impact our effective tax rate. Significant
losses may arise from Treasury activities through inconsistent
application of Treasury policies, dealing or settlement errors, or
counterparty defaults. Any such changes in tax laws or their
application, failure to comply with tax law or significant losses
due to treasury activities could materially and adversely affect
our financial results.
Context
Our Treasury group deals in high value transactions, mostly
foreign exchange and cash management transactions, on a daily
basis. The Group's effective tax rate is driven by rates of tax in
jurisdictions that are both higher and lower than the UK. In
addition, many jurisdictions currently offer regimes that encourage
innovation and investment in science by providing tax incentives,
such as R&D tax credits and lower tax rates on income derived
from patents. Furthermore, as an international business, we face
risks associated with intra-group transfer pricing.
The tax charge included in our financial statements is our best
estimate of tax liability pending audits by tax authorities. We
submit tax returns according to statutory time limits and engage
tax authorities to help ensure our tax affairs are current. In
exceptional cases where matters cannot be settled by agreement with
tax authorities, we may have to resolve disputes through formal
appeals or other proceedings. As an international business, we are
also subject to a range of other duties and taxes carrying similar
types of risk.
There is an increased focus on the tax position of multinational
businesses, as a consequence of the challenging economic
environment and the priority placed by the G20 on addressing
allegations of unlawful tax avoidance. We have seen some increase
in audits as governments seek to raise revenues, both from
corporate taxes and above the line taxes such as customs duties.
Such audits regardless of their merit or outcomes can be costly,
divert management attention and may adversely impact our
reputation. In addition, there are an increasing number of changes
to the international tax framework which could lead to an increase
or decrease in our tax costs.
Mitigating activities
The Group's Treasury function does not operate as a profit
centre and does not enter into financial derivative transactions
for speculative purposes. All transactions in financial instruments
are undertaken to manage the risks arising from underlying business
activities. Treasury activities are governed by policies approved
by the Board of Directors and compliance is regularly reviewed by
the Treasury Management Group (TMG), which is chaired by the
CFO.
Liquidity risk is managed by diversifying our liquidity sources
using a range of facilities and by maintaining broad access to
funding markets in order to meet anticipated future funding
requirements. We also hold significant amounts of cash and
investments which are invested in line with strict investment
guidelines.
Interest rate risk is managed by limiting the amount of floating
rate interest payments to a prescribed percentage of operating
profit, and the mix of debt at fixed and floating interest rates is
monitored regularly by the TMG.
Foreign currency transaction risk arising on internal and
external trade flows is not generally hedged. Our internal trading
transactions are matched centrally, and we manage inter-company
payment terms to reduce foreign currency risk. Foreign currency
cash flows can be hedged selectively under the management of
Treasury and the TMG. Where possible, we manage the cash surpluses
or borrowing requirements of subsidiary companies centrally. In
order to reduce foreign currency translation exposure, we seek to
denominate borrowings in the currencies of our principal assets and
cash flows. The TMG reviews the ratio of borrowings to assets for
the major currencies monthly.
Counterparty risk is managed by setting global counterparty
limits for each of our banking and investment counterparties based
on long-term credit ratings from Moody's and Standard and Poor's.
Treasury's usage of these limits is monitored daily by a Corporate
Compliance Officer (CCO) who operates independently of Corporate
Treasury. The CCO also monitors the credit rating of these
counterparties and, when changes in ratings occur, notifies
Treasury so that changes can be made to investment levels or to
authority limits as appropriate.
Further details on mitigation of Treasury Risks can be found on
in the 2014 Annual Report page 190, Note 41, 'Financial
instruments'.
We monitor government debate on tax policy in our key
jurisdictions to deal proactively with any potential future changes
in tax law. Tax risk is managed by a set of policies and procedures
to help ensure consistency and compliance with tax legislation. We
engage advisors and legal counsel to review tax legislation and
applicability to our business.
We attempt to mitigate the risk of more aggressive tax authority
audits by being as up to date as possible with our tax affairs and
working proactively with tax authorities where possible. We have
also moved to a more centralised and simplified intellectual
property ownership and trading model. The model centralises our
Pharmaceutical intellectual property in the UK, reducing the
complexity of our inter-company arrangements and enabling us to
drive more bilateral Advance Pricing Agreements (APAs) between the
UK and other jurisdictions where we operate. APAs give greater
certainty to the application of transfer pricing and our direct tax
affairs and hence reduce risks. A centralised team of dedicated
specialists are responsible for managing transactional tax
reporting and compliance.
Anti-bribery and corruption
Risk definition
There is a risk that GSK personnel, or third parties acting on
our behalf, seek to induce improper performance of someone's role
in order to gain or retain GSK a business advantage through the
offer, promise or giving of a bribe. This goes against our ethical
standards and is contrary to the laws by which we are bound.
Risk impact
Failure to mitigate this risk could expose the Group and
associated persons to governmental investigation, regulatory action
and civil and criminal liability, as well as damage the Group's
reputation, shareholder value, and our licence to operate in
particular jurisdictions, all of which could materially and
adversely affect our financial results.
Context
We are exposed to bribery and corruption risk through our global
business operations. In some markets, the government structure and
the rule of law are less developed, and this has a bearing on our
bribery and corruption risk exposure. In addition to the global
nature of our business, the healthcare sector is highly competitive
and subject to regulation. This increases the instances where we
are exposed to activities and interactions with bribery and
corruption risk.
As has previously been disclosed, the Group in 2014 has been
subject to regulatory action and media focus with regard to bribery
investigations in China and other markets. On 19 September 2014,
the Group announced that the Changsha Intermediate People's Court
in Hunan Province, China ruled that, according to Chinese law, GSK
China Investment Co. Ltd ("GSKCI") had offered money or property to
non-government personnel in order to obtain improper commercial
gains, and been found guilty of bribing non-government personnel.
The verdict followed investigations initiated by China's Ministry
of Public Security in June 2013. As a result of the Court's
verdict, GSKCI has paid a fine of RMB 3 billion (GBP301 million) to
the Chinese government.
The US and UK authorities are leading extra-territorial ABAC
inquires into certain of the Group's operations. These
investigations are further discussed in the 2014 Annual Report Note
45 'Legal Proceedings'.
Mitigating activities
Our Code of Conduct, values and behaviours and commitment to
zero tolerance are integral to how we mitigate this risk. In light
of the complexity and geographic breadth of this risk, we
constantly enhance our oversight of activities and data, reinforce
to our employees and contractors clear expectations regarding
acceptable behaviours, and maintain on-going communications between
the Group centre headquarters and local markets.
The Group has an enterprise-wide ABAC programme designed to
respond to the threat and risk of bribery and corruption. It builds
on the Group's values and existing standards to form a
comprehensive and practical approach to compliance. Our ABAC
programme is supported by: top-level commitment from the Group
Board of Directors and leadership throughout the business; ongoing
risk assessment; a global policy; control documents that address
commercial and other practices that give rise to ABAC risk; due
diligence of high risk third parties; ongoing training and
communications; a confidential reporting line; monitoring of
compliance and an investigations team. In addition, the programme
mandates enhanced controls over interactions with government
officials and when undertaking business development transactions.
Programme governance is provided by the Group's ABAC Oversight
Committee which includes representation from key functional areas
and business units.
Additionally, we have a dedicated ABAC team responsible for the
implementation and evolution of the programme in response to
developments in the internal and external environment. This is
complemented with ABAC investigations and ABAC Audit teams which
have separate reporting lines.
We continually benchmark our ABAC programme against other large
multi-national companies and use external expertise to review and
help improve elements of our ABAC programme. As a result of the
China and other country investigations, the Group has increased
resources in both its centrally located ABAC team as well as
regional ABAC teams.
Commercial practices and scientific engagement
Risk definition
Failure to engage in commercial and/or scientific activities
that are consistent with the letter and spirit of legal, industry,
or the Group's requirements relating to marketing and
communications about our medicines and associated therapeutic
areas; appropriate interactions with healthcare professionals
(HCPs) and patients; and legitimate and transparent transfer of
value.
Risk impact
Failure to comply with applicable laws, rules and regulations
may result in governmental investigation, regulatory action and
legal proceedings brought against the Group by governmental and
private plaintiffs. Failure to provide accurate and complete
information related to our products may result in incomplete
awareness of the benefit: risk profile of our medicines and
possibly suboptimal treatment of patients. Any of these
consequences could materially and adversely affect our financial
results. Any practices that are found to be misaligned with our
values could also result in reputational damage and dilute trust
established with key stakeholders. In 2012, we paid $3 billion to
resolve government investigations in the US focused in large part
on promotional practices.
Context
We are committed to legitimate Scientific Engagement and the
ethical and responsible commercialisation of medicines to support
our mission to improve the quality of human life by enabling people
to do more, feel better, and live longer. To accomplish this
mission, we engage the healthcare community in various ways to
advance our scientific knowledge as well as to provide important
information about our medicines.
The Group disseminates information about its products through
both non-promotional Scientific Engagement and promotional
activities. The former is the interaction and exchange of
information between the Group and partners and external communities
in order to advance scientific and medical understanding including
the appropriate development and use of our products; the management
of disease; and patient care. It is distinct from promotional
activities which may take place only after authorisation of a new
product or indication, and must be conducted strictly in accordance
with promotional laws, codes and the Group's Policy.
Promotion of approved medicines helps ensure that HCPs globally
have access to information they need, that patients have access to
the medicines they need and that medicines are prescribed and used
in a manner that provides the maximum healthcare benefit to
patients. We are committed to communicating information related to
our approved products in a responsible, legal, and ethical
manner.
At times, researchers, HCPs, healthcare organisations (HCOs) and
other external experts that we engage may be compensated for
services and expertise provided. However, payments must not be
excessive and must never be or be perceived to be an inducement or
reward for prescribing our products. Consistent with our ABAC
policies, they also must comply with a market's ABAC laws if the
recipient of any payment is a government official.
Mitigating activities
We have taken action at all levels of the Group to enhance and
improve standards and procedures for Scientific Engagement and
promotional interactions, based on our values of transparency,
respect, integrity and patient focus. We have policies and
standards governing promotional activities and Scientific
Engagement undertaken by the Group or on its behalf. All of these
activities we conduct worldwide must conform to high ethical,
medical, and scientific standards. Where local standards differ
from global standards, the more stringent of the two applies.
The Group has harmonized policies and procedures to guide above
country Commercial Practices and Scientific Engagement processes as
well as clarified applicable standards when engaging in the
markets. Specific accountability and authorisation for Scientific
Engagement resides within the Medical Governance framework that is
overseen by the Medical Governance Executive Committee (MGEC),
accountable to the Chief Medical Officer. MGEC is responsible for
oversight of applicable Policies and ensuring the highest level of
integrity and continuous development of Scientific Engagement at
GSK. Commercial Practices activities have oversight from both
business unit Risk Management and Compliance Boards (RMCBs) and
Country Executive Boards (CEBs) that manage risks across in-country
business activities.
All promotional materials and activities must be reviewed and
approved according to the Group's policies and standards, and
conducted in accordance with local laws and regulations, to help
ensure that these materials and activities fairly represent the
products or services of the Group. When necessary, we have
disciplined (up to and including termination) employees who have
engaged in misconduct and have broadened our ability to claw back
remuneration from senior management in the event of misconduct.
During 2014, we took further proactive risk mitigation steps to
assure our operations reflect our values. GSK publicly committed to
stop in 2016 various payments to HCPs and Healthcare Organisations
(HCOs). GSK also committed extended steps already taken in the US
to changing its sales compensation model globally from one based on
sales targets to an approach that individually rewards our sales
force on the quality of their interactions with healthcare
professionals, not on the end result.
Research practices
Risk definition
Failure adequately to protect and inform patients involved in
human clinical trial research; conduct objective, ethical
preclinical and clinical trials using sound scientific principles;
guarantee the integrity of discovery, preclinical, and clinical
development data; manage human biological samples according to
established ethical standards and regulatory expectations; treat
animals ethically and practice good animal welfare; appropriately
disclose human subject research for medicinal products; and ensure
the integrity of our regulatory filings and of the data that we
publish.
Risk impact
The impacts of the risk include harm to patients, reputational
damage, failure to obtain the necessary regulatory approvals for
our products, governmental investigation, legal proceedings
(product liability suits and claims for damages), and regulatory
action such as fines, penalties or loss of product authorisation,
which could materially and adversely affect our financial
results.
Context
Research relating to animals can raise ethical concerns. While
we attempt to proactively address this, animal studies remain a
vital part of our research. In many cases, they are the only method
that can be used to investigate the effects of a potential new
medicine in a living body before it is tested in humans, and they
are generally mandated by regulators and ethically imperative.
Animal research can provide critical information about the causes
of diseases and how they develop. Some countries require additional
animal testing even when medicines have been approved for use
elsewhere.
Clinical trials in healthy volunteers and patients are used to
assess and demonstrate an investigational product's efficacy and
safety or further evaluate the product once it has been approved
for marketing. We also work with human biological samples. These
samples are fundamental to the discovery, development and safety
monitoring of our products.
The integrity of our data is essential to success in all stages
of the research data lifecycle: design, generation, recording and
management, analysis, reporting and storage and retrieval. Our
research data is governed by legislation and regulatory
requirements.
Research data and supporting documents are core components at
various stages of pipeline progression decision-making and also
form the content of regulatory submissions. Poor data integrity can
compromise our research efforts.
There are innate complexities and interdependencies required for
regulatory filings, particularly given our global research and
development footprint. Rapid changes in submission requirements in
developing countries continue to increase the complexity of
worldwide product registration.
Mitigating activities
We established an Office of Animal Welfare, Ethics and Strategy
(OAWES), led by the Chief of Animal Welfare, Ethics and Strategy,
to help ensure the humane and responsible care of animals and
increase the knowledge and application of non-animal alternatives
for the Group. OAWES embeds a framework of animal welfare
governance, promotes application of 3Rs (replacement, refinement
and reduction of animals in research), explores opportunities for
cross-industry data sharing, and conducts quality assessments.
We report the results of our human subject research for our
medicines and vaccines on our publicly accessible clinical study
register website, on government-required repositories, and we
submit human research results as manuscripts for publication in
peer reviewed scientific journals. During 2014, we disclosed over
130 Clinical Study Reports of marketed and terminated medicines
(once the research results were published in the scientific
literature) on our register. In early 2014, the GSK online system
to allow researchers to request access to anonymised patient-level
data from the Group's clinical trials, was re-configured into a
multi-sponsor request site, www.clinicalstudydatarequest.com, to
include studies conducted by other sponsors and by the end of 2014
we had listed over 1000 GSK trials available for request.
We have a Global Human Biological Samples Management (HBSM)
governance framework in place to oversee the ethical and lawful
acquisition and management of human biological samples. Our global
HBSM network champions HBSM activities and provides an experienced
group to support internal Sample Custodians on best practice.
It remains an important priority to enhance our data integrity
controls. During 2014 we established plans to develop new written
standards to ensure the integrity of our data across Research and
Development (R&D). A Data Integrity Committee was established
to provide oversight and a Data Integrity Quality Assurance team
was created to provide independent business monitoring of our
internal controls for R&D activities.
The Chief Regulatory Officer oversees the activities of the
Regulatory Governance Board which includes promoting compliance
with regulatory requirements and Group-wide standards, making
regulatory services more efficient and agile, and further aligning
regulatory capabilities with our international business needs at
the enterprise and local levels.
Environment, health and safety and sustainability
Risk definition
Failure to manage environment, health and safety and
sustainability (EHSS) risks consistent with the Group's ethics,
objectives, policies and relevant laws and regulations.
Risk impact
Failure to manage EHSS risks could lead to significant harm to
people, the environment and communities in which we operate, fines,
failure to meet stakeholder expectations and regulatory
requirements, litigation or regulatory action, and damage to the
Group's reputation and could materially and adversely affect our
financial results.
Context
The Group is subject to health, safety and environmental laws of
various jurisdictions. These laws impose duties to protect people,
the environment and the communities in which we operate as well as
potential obligations to remediate contaminated sites. We have also
been identified as a potentially responsible party under the US
Comprehensive Environmental Response Compensation and Liability Act
at a number of sites for remediation costs relating to our use or
ownership of such sites. Failure to manage these environmental
risks properly could result in litigation, regulatory action and
additional remedial costs that may materially and adversely affect
our financial results. See Note 45 to the financial statements,
'Legal proceedings' in the 2014 Annual Report, for a discussion of
the environmental related proceedings in which we are involved. We
routinely accrue amounts related to our liabilities for such
matters.
Mitigating activities
The Corporate Executive Team is responsible for EHSS governance
for the Group under a global policy. Under that policy, the CET
ensures there are systems in place to manage the risks, impacts and
legal compliance issues that relate to EHSS and for assigning
responsibility to senior managers for providing and maintaining
those systems. Individual managers are responsible for making sure
the EHSS management system is effective and well implemented in
their respective business area and that it is fully compliant with
all applicable laws and regulations, adequately resourced,
maintained, communicated, and monitored. Additionally, each
employee is personally responsible for ensuring that all applicable
local standard operating procedures are followed and expected to
take responsibility for EHSS matters.
Our risk-based, proactive approach is articulated in our Global
EHS Standards which support our EHSS policy and objective to
discover, develop, manufacture, supply and sell our products
without harming people or the environment. In addition to the
design and provision of safe facilities, plant and equipment, we
operate rigorous procedures that help us eliminate hazards where
practicable and protect employees' health and well-being. Our
employment practices are designed to create a work place culture in
which all employees feel valued, respected, empowered and inspired
to achieve our goals.
Through our continuing efforts to improve environmental
sustainability we have reduced water consumption, hazardous waste,
and energy consumption. We actively manage our environmental
remediation obligations to help ensure practices are
environmentally sustainable and compliant.
Our EHSS performance results are shared with the public each
year in our Responsible Business Supplement.
Information protection
Risk definition
Risk to the Group's business activity if critical or sensitive
computer systems or information are not available when needed, are
accessed by those not authorised, or are deliberately changed or
corrupted.
Risk impact
Failure to adequately protect critical and sensitive systems and
information may result in our inability to maintain patent rights,
loss of commercial or strategic advantage, damage to our reputation
or business disruption including litigation or regulatory sanction
and fines, which could materially and adversely affect our
financial results.
Context
We rely on critical and sensitive systems and data, such as
corporate strategic plans, sensitive personally identifiable
information, intellectual property, manufacturing systems and trade
secrets. There is the potential that malicious or careless actions
expose our computer systems or information to misuse or
unauthorised disclosure.
Mitigating activities
The Group has a global information protection policy that is
supported through a dedicated programme of activity. To increase
our focus on information security, the Group established the
Information Protection & Privacy function to provide strategy,
direction, and oversight while enhancing our global information
security capabilities.
We assess changes in our information protection risk environment
through briefings by government agencies, subscription to
commercial threat intelligence services and knowledge sharing with
other Pharmaceutical and cross-industry companies.
We aim to use industry best practices as part of our information
security policies, processes and technologies and invest in
strategies that are commensurate with the changing nature of the
security threat landscape.
We are also subject to various laws that govern the processing
of Personally Identifiable Information (Pll). To help ensure
compliance with cross-border PII transfer requirements, the Group's
Binding Corporate Rules (BCRs) have been approved by the UK
Information Commissioner's Office for human resource and research
activities data. BCRs make it possible to transfer PII
internationally between the Group's entities without individual
privacy agreements in each European Union country.
Crisis and continuity management
Risk definition
Inability to recover and sustain critical operations following a
disruption or to respond to a crisis incident in a timely
manner.
Risk impact
Failure to manage crisis and continuity management (CCM)
effectively can lead to prolonged business disruption, greater
damage to the Group's assets, and risk of supply disruption to
patients of a medicine, any of which could materially and adversely
affect our financial results. Delays to operational activities and
delivery of our products to consumers and patients who rely on them
could also expose us to litigation or regulatory action, materially
and adversely affect our financial results and lead to reputational
damage.
Context
The Group's international operations, and those of its partners,
maintain a vast global footprint exposing our workforce,
facilities, operations and information technology to potential
disruption resulting from a natural event (e.g. storm or
earthquake), a man-made event (e.g. civil unrest, terrorism), or a
global emergency (e.g. Ebola outbreak, Flu pandemic). Through
effective crisis management and business continuity planning we are
committed to providing for the health and safety of our people,
minimising damage and impact to the Group, and maintaining
functional operations following a natural or man-made disaster, or
a public health emergency.
Mitigating activities
CCM governance for the Group is set forth in a global policy.
Under that policy, each business unit and functional area head
("BU") ensures effective crisis management and business continuity
plans are in place that include authorised response and recovery
strategies, key areas of responsibility and clear communication
routes before a business disruption occurs. Additionally, each BU
is represented on a CCM governance board which performs risk
oversight and provides vital information to the CCM programme team
regarding new threats, acquisitions or significant business or
organisational changes.
A dedicated team of CCM experts supports the business. Their
responsibilities include: chairing the governance board;
coordinating crisis management and business continuity training;
facilitating exercises and monitoring to provide for global
consistency and alignment; and centrally storing and monitoring
updates for plans supporting our critical business processes. These
activities help ensure an appropriate level of readiness and
response capability is maintained. We also develop and maintain
partnerships with external bodies like the Business Continuity
Institute and the UN International Strategy for Disaster Risk
Reduction which helps improve our business continuity initiatives
in disaster prone areas and supports the development of community
resilience to disasters.
We continually improve our CCM risk management programme and
tools based on learning from plan activations. For example, the
Group has implemented a Global Disaster Monitoring tool to monitor
disruptions and support local crisis teams with guidance and
central support as needed. We regularly evaluate and introduce new
tools to improve our CCM practices.
Third-Party Oversight
Risk definition
Failure to maintain adequate governance and oversight over
third-party relationships; failure of third-parties to meet their
contractual, regulatory, confidentiality or other obligations;
failure of third-parties to comply with the law or appropriately
manage their respective operations to mitigate the Principal Risks
to the Group outlined above.
Risk impact
Failure to adequately manage third-party relationships could
result in business interruption and exposure to risk ranging from
sub-optimal contractual terms and conditions, to severe business
sanctions and/or significant reputational damage. Any of these
consequences could materially and adversely affect our business
operations and financial results.
Context
Third parties are critical to our business delivery and are an
integral part of the solution to improve our productivity, quality,
service and innovation. We rely on third-parties, including
suppliers, distributors, individual contractors, licensees, and
other pharmaceutical and biotechnology collaboration partners for
discovery, manufacture, and marketing of our products and important
business processes.
However, these business relationships present a material risk.
For example, we share critical and sensitive information such as
marketing plans, clinical data, and employee data with specific
third parties who are conducting the relevant outsourced business
operations. Inadequate protection or misuse of this information by
third parties could have significant business impact. Similarly, we
use distributors and agents in a range of activities such as
promotion and tendering which have inherent risks such as
inappropriate promotion or corruption. Insufficient internal
compliance and controls by the distributors could affect our
reputation. These risks are further increased by the complexities
of working with large numbers of third parties.
Mitigating activities
It is our responsibility that all activities are performed
safely and in compliance with applicable laws and GSK's values,
standards and code of conduct. Each business unit leadership team
retains ultimate accountability for managing third party
interactions and risks, and for appropriately governing these
interactions. When working with third parties, all GSK employees
are expected to manage external interactions and commitments
responsibly. This expectation is embedded in our values and code of
conduct.
To help guide and enforce our global principles for interactions
with third-parties we have in place a policy framework applicable
to buying goods and services, managing our external spend, paying
and working with our third-parties. This policy framework applies
to all employees and complementary workers worldwide. The framework
is complemented by technical and local standards designed to help
ensure alignment with the nature of third party interactions, such
as good manufacturing practice and adherence to local laws and
regulations. Independent business monitoring of key financial and
operational controls is in place and is supplemented by periodic
checks from the company's independent Audit & Assurance
function.
To help enhance continuous monitoring and performance of third
party interactions we established in 2014 the Third Party Oversight
programme. This global programme takes an enterprise view of third
party related risks, and will help strengthen due diligence efforts
on third parties and improve overall management of our third party
risks through the lifecycle of the third-party engagement.
Oversight for the programme is provided from GSK's Global Ethics
and Compliance group.
ii) Directors' responsibility statement
Each of the current Directors, whose names and functions are
listed below, confirms that, to the best of his or her
knowledge:
1) the Group financial statements, which have been prepared in
accordance with IFRS as adopted by the EU and IFRS as issued by the
IASB, give a true and fair view of the assets, liabilities,
financial position and profit of the Group; and
2) the Strategic Report and risk sections of the Annual Report
include a fair review of the development and performance of the
business and the position of the Group, together with a description
of the principal risks and uncertainties that it faces.
Name Function
Sir Christopher Gent Chairman
Sir Philip Hampton Chairman Designate
Sir Andrew Witty Chief Executive Officer
Simon Dingemans Chief Financial Officer
Dr Moncef Slaoui Chairman, Global Vaccines
Professor Sir Roy Anderson Non-Executive Director
Dr Stephanie Burns Non-Executive Director
Stacey Cartwright Non-Executive Director
Lynn Elsenhans Non-Executive Director
Judy Lewent Non-Executive Director
Sir Deryck Maughan Senior Independent Director
Dr Daniel Podolsky Non-Executive Director
Urs Rohner Non-Executive Director
Tom de Swaan Non-Executive Director
Jing Ulrich Non-Executive Director
Hans Wijers Non-Executive Director
This information is provided by RNS
The company news service from the London Stock Exchange
END
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