‘How well do GSK balance demands for shareholder value with the need for corporate social responsibility?’

Europe Equity Research 24 July 2008

GlaxoSmithKline Underweight GSK - 2009: Another trough year, EPS trimmed 6- 7% from '09 onwards

1,228p 23 July 2008 Price Target: 1,050p

Pharmaceuticals Alexandra HauberAC (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

Alistair Campbell (44-20) 7742-6653 alistair.d.campbell@jpmchase.com

Richard Vosser (44-20) 7742-6652 richard.vosser@jpmorgan.com

Lucinda Seagrove (44-20) 7742-6656 lucinda.seagrove@jpmorgan.com

J.P. Morgan Securities Ltd.

For Specialist Sales advice please contact: Marjan Daeipour (44 20) 7325-3281 marjan.daeipour@jpmorgan.com

GlaxoSmithKline (GSK.L;GSK LN) 2006A 2007A 2008E 2009E 2010E Adj. EPS FY (p) 97.34 101.21 103.10 100.12 108.94 Adj P/E FY 12.6 12.1 11.9 12.3 11.3 EBIT FY (£ mn) 7,864 7,981 7,891 7,548 8,051 EBITDA FY (£ mn) 8,977 9,167 9,031 8,779 9,365 Headline EPS FY (p) 95.50 99.07 100.15 97.09 106.16 Headline P/E FY 12.9 12.4 12.3 12.6 11.6 Revenue FY (£ mn) 23,225 22,716 22,977 22,607 23,465 Pretax Profit Adjusted FY (£ mn)

7,799 7,788 7,481 6,952 7,413

Source: Company data, Reuters, JPMorgan estimates.

Company Data Price (p) 1,228 Date Of Price 23 Jul 08 52-week Range (p) 1,403 - 987 Mkt Cap (£ bn) 66.0 Fiscal Year End Dec Shares O/S (mn) 5,375

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• GSK reported 2Q08 results yesterday, bang in line with our forecast, but 7% ahead of consensus.

• Incoming CEO Andrew Witty explained his 3 key strategic priorities for GSK in a 2 hour analyst meeting. Whilst plausible, those priorities offer little tangibles for investors, in our view.

• Buyback programme paced to create room for business development activities. Buyback for 2008 is cut back from £6bn to £3.5bn, leaving GSK with another £5.5bn buyback to be completed sometime after 2008. No timelines for buybacks beyond 2008 were provided.

• Disposal gains create a tough comparison for 2009. 2008 Guidance was maintained despite lower buybacks. We estimate that GSK needs significant disposal gains to plug the gap left from reduced buy backs.

• 2009: Another Trough Year? In view of a (1) lower boost from buybacks, (2) a tough ’08 base from high disposal gains (3) still significant generic erosion (Paxil CR, Requip, Lamictal, Imitrex, Valtrex), (4) no major new product launches in 2009 (US Cervarix launch pushed to 2010), 2009 should be another year of declining EPS.

• Model Review: We have trimmed EPS by 6-7% from 2009 onwards. Our new estimates are 6-12% below consensus for 2009E- 2012E (see Table 4).

• Valuation: Most Expensive Pharma Stock: Investors should sell into the recent sector rotation based strength.

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Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

2Q’08 Results Quick Recap GSK reported 2Q08 results yesterday, bang in line with our forecast (7% ahead of consensus). As expected, consensus had underappreciated the FX effect and over- estimated the 2Q08 gross margin compression.

Table 1: Q2 P&L; Reported vs JPMe & Consensus (£m, unless otherwise stated) 2Q08A JPMorgan

2Q08E % difference Cons 2Q08E % difference 2Q07A % y-o-y growth

Total Sales 5874 5,948 -1.2% 5,685 3.3% 5,674 3.5% y-o-y growth (CER) -4.5% Pharma Total sales 4923 5,000 -1.5% 4,775 3.1% COGS -1375 -1,376 -0.1% -1,355 1.5% -1,212 13.4% Gross Profit 4499 4,572 -1.6% 4,330 3.9% 4,462 0.8% Gross Margin 76.6% 76.9% 76.2% 78.6% SG&A -1765 -1,780 -0.8% -1,724 2.4% -1,841 -4.1% R&D -802 -850 -5.6% -815 -1.6% -789 1.6% Other Operating Income 194 194 0.0% 192 1.0% 97 100.0% Operating Profit 2126 2,136 -0.4% 1,983 7.2% 1,929 10.2% Operating Margin 36.2% 35.9% 34.9% 34.0% Profit before tax 2023 2,046 -1.1% 1,896 6.7% Net profit 1425 1,425 0.0% 1,333 6.9% Basic EPS (p) 27.2 27.2 -0.2% 25.5 6.8% 23.9 13.7% y-o-y growth (CER) 7.7% Diluted EPS (p) 27.0 27.0 0.0% 23.7 13.9% Source: JPMorgan estimates, Company data.

Three Strategic Priorities for new CEO Incoming CEO Andrew Witty explained his 3 key strategic priorities for GSK in a 2 hour analyst meeting.

1. Grow a diversify global business

2. Deliver more products of value

3. Simplify GSK’s operating model

Whilst plausible, those priorities offer little tangibles for investors, in our view. Investors who had hoped for significant changes as a result of the new leadership at GSK may be disappointed.

£5.5 bn of £12 bn buy back programme delayed with undefined timelines GSK announced that the share buy back programme announced by Andrew Wittey’s predecessor JP Garnier 1 year ago at 2Q'07 results will be ‘paced’ to create room for business development activities. The buy back programme for 2008 will be cut from £6bn to £3.5bn, leaving GSK with only £1bn to go in the remainder of 2008 and another £5.5bn to be completed sometime after 2008. No timelines for buybacks beyond 2008 were provided. In our new model we assume GSK will repurchase £3bn shares in ’09 and a further £2.5bn in 2010E.

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Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

Disposal gains should create a tough comparison for 2009. 2008 Guidance was maintained despite lower boost from buybacks. (FY 2008 guidance remains: “mid single digit decline in business performance EPS”, with a 7% boost from FX at current FX rates).

With operating performance broadly inline with guidance provided in a February, the gap from lower buybacks (c. 2% in 2008) will most likely be made up by disposal gains within ‘Other Operating Income’.

2009: Another Trough Year? In view of a

(1) Lower boost from buybacks,

(2) A tough base from high disposal gains in ’08,

(3) Still significant generic erosion (Paxil CR, Requip, Lamictal, Imitrex, Valtrex),

(4) No major new product launches in 2009 (US Cervarix launch is pushed to 2010),

We now expect 2009 to be another year of declining EPS.

Changes to Estimates We have trimmed EPS by 6-7% from 2009 onwards. Our forecast for 2008E was modestly increased to reflect a stronger FX effect (7% rather than 5-6% on EPS).

Table 2: GSK – Business performance EPS Change Table (pence, unless otherwise stated)

2008E 2009E 2010E 2011E 2012E Basic EPS - New 100.1 97.1 106.2 111.8 112.4 Basic EPS - Previous 99.0 103.4 113.6 120.1 120.7 % Change 1.1% -6.1% -6.6% -6.9% -6.9% Source: JPMorgan estimates, Company data.

Table 3: GSK – Business Performance Diluted EPS Change Table (pence, unless otherwise stated) 2008E 2009E 2010E 2011E 2012E

Diluted EPS – New 99.4 96.1 104.9 110.2 110.6 Diluted EPS – Previous 98.2 102.3 112.2 118.3 118.7 % Change 1.2% -6.1% -6.5% -6.8% -6.8% Source: JPMorgan estimates, Company data.

Lower buybacks are responsible for 4-5% of the cut; the remainder results from lower sales projections (see Tables 5, 6 and 7 for details).

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Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

Table 4: Summary of Key P&L Changes 2006 - 2012E (£m, unless otherwise stated) 2008E 2009E 2010E 2011E 2012E

Net Sales - New 22,977 22,607 23,465 24,413 24,474 Net Sales - Previous 22,952 22,950 23,795 24,770 24,852 % Change 0.1% -1.5% -1.4% -1.4% -1.5%

COGS - New (5,482) (5,588) (5,802) (6,109) (6,240) COGS - Previous (5,462) (5,640) (5,855) (6,165) (6,304) % Change 0.4% -0.9% -0.9% -0.9% -1.0%

Gross Profit Margin - New 76.14% 75.28% 75.27% 74.98% 74.50% Gross Profit Margin - Previous 76.20% 75.42% 75.40% 75.11% 74.63% bp change -6 -14 -12 -13 -13

SG&A - New (6,916) (6,760) (6,781) (6,954) (6,936) SG&A - Previous (6,977) (6,862) (6,877) (7,055) (7,044) % Change -0.9% -1.5% -1.4% -1.4% -1.5%

R&D - New (3,309) (3,255) (3,379) (3,564) (3,622) R&D - Previous (3,330) (3,305) (3,427) (3,616) (3,678) % Change -0.6% -1.5% -1.4% -1.4% -1.5%

Other Operating Income - New 580 500 500 500 500 Other Operating Income - Previous 475 475 475 475 475 % Change 22.1% 5.3% 5.3% 5.3% 5.3%

Operating Profit - New 7,851 7,504 8,002 8,286 8,176 Operating Profit - Previous 7,657 7,618 8,112 8,408 8,301 % Change 2.5% -1.5% -1.4% -1.5% -1.5%

Operating Profit Margin - New 34.17% 33.19% 34.10% 33.94% 33.41% Operating Profit Margin - Previous 33.36% 33.19% 34.09% 33.95% 33.40% bp change 81 0 1 0 0

Profit Before Tax - New 7,481 6,952 7,413 7,764 7,800 Profit Before Tax - Previous 7,300 7,107 7,608 8,028 8,065 % Change 2.5% -2.2% -2.6% -3.3% -3.3%

Profit attributable to shareholders - New 5,257 4,884 5,218 5,473 5,503 Profit attributable to shareholders - Previous 5,092 4,959 5,320 5,622 5,652 % Change 3.3% -1.5% -1.9% -2.7% -2.6%

EPS (reported) - New 100.1 97.1 106.2 111.8 112.4 EPS (reported) - Previous 99.0 103.4 113.6 120.1 120.7 % Change 1.1% -6.1% -6.6% -6.9% -6.9%

EPS (diluted) - New 99.4 96.1 104.9 110.2 110.6 EPS (diluted) - Previous 98.2 102.3 112.2 118.3 118.7 % Change 1.2% -6.1% -6.5% -6.8% -6.8%

EPS change attributable to reduced buy-back -2.1% -4.6% -4.7% -4.2% -4.2% Source: JPMorgan estimates, Company data.

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Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

Table 5: Sales Forecast Changes (£m, unless otherwise stated) 2007E 2008E 2009E 2010E Contrib to

09E Chg Comments

Respiratory New 5,032 5,520 5,739 6,036 Y-o-Y Growth (%) 10% 4% 5% Previous 5,032 5,416 5,770 6,100 Absolute Change 0 104 -31 -64 9% Advair ROW increased offset by cuts in the US and % Change 0.0% 1.9% -0.5% -1.0% Veramyst cuts due to underwhelming US performance so far CNS New 3,348 2,686 1,621 1,696 Sales decline expected to due generics for Requip, Paxil CR, Imitrex, Lamictal Y-o-Y Growth (%) -20% -40% 5% Previous 3,348 2,662 1,716 1,742 Absolute Change 0 23 -95 -46 28% % Change 0.0% 0.9% -5.5% -2.6% trimmed Lamictal XR forecast as product is launched after generics Anti-Virals New 3,028 3,026 2,628 2,122 Loss of Valtrex in 2009 Y-o-Y Growth (%) 0% -13% -19% Previous 3,028 2,975 2,585 2,086 Absolute Change 0 51 43 35 -12% % Change 0.0% 1.7% 1.7% 1.7% Anti-Bacterials New 1,330 1,370 1,367 1,356 Y-o-Y Growth (%) 3% 0% -1% Previous 1,330 1,344 1,324 1,300 Absolute Change 0 25 43 56 -13% % Change 0.0% 1.9% 3.2% 4.3% Increased ROW sales of old antibiotics Metabolic New 1,514 1,121 1,176 1,275 Assumes Avandia returns to growth in 2009 Y-o-Y Growth (%) -26% 5% 8% Previous 1,514 1,193 1,257 1,359 Absolute Change 0 -72 -81 -83 24% % Change 0.0% -6.0% -6.4% -6.1% Avandia ex-US sales trimmed based on YTD performance so far Vaccines New 1,993 2,355 2,855 3,290 Significant new Vaccine launches including Cervarix, Rotarix and Synflorix Y-o-Y Growth (%) 18% 21% 15% Previous 1,993 2,395 2,971 3,394 Absolute Change 0 -39 -116 -104 34% % Change 0.0% -1.6% -3.9% -3.1% Cervarix US launch pushed out to 2010 Oncology and Emesis New 477 472 564 740 Slow growth of Tykerb and plus the launch of Promacta and HuMax CD20 Y-o-Y Growth (%) -1% 19% 31% Previous 477 471 567 747 Absolute Change 0 1 -2 -7 1% % Change 0.0% 0.3% -0.4% -0.9% Cardiovascular and Urogenital New 1,554 1,728 1,864 2,021 Significant Lovaza Growth Y-o-Y Growth (%) 11% 8% 8% Previous 1,554 1,820 1,929 2,089 Absolute Change 0 -92 -65 -68 19% Coreg, Arixtra and other CV trimmed based on YTD performance % Change 0.0% -5.0% -3.4% -3.2% Other New 957 920 855 835 Y-o-Y Growth (%) -4% -7% -2% Previous 957 998 981 971 Absolute Change 0 -78 -126 -136 37% Cut to reflect disposal of tail products % Change 0.0% -7.8% -12.9% -14.0% Total Pharma Sales New 19,233 19,198 18,669 19,372 Y-o-Y Growth (%) 0% -3% 4% Previous 19,233 19,273 19,099 19,788 Absolute Change 0 -75 -430 -416 125% % Change 0.0% -0.4% -2.3% -2.1% Source: JPMorgan estimates, Company data.

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Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

Table 6: Sales Forecast Changes (£m, unless otherwise stated) 2007E 2008E 2009E 2010E Contrib to

09E Chg Comments

Consumer Health New 3,483 3,780 3,938 4,094 Y-o-Y Growth (%) 9% 4% 4% Previous 3,483 3,680 3,851 4,008 Absolute Change 0 100 87 86 -25% Growth in Oral Care and Nutrition offset Cuts to alli forecast % Change 0.0% 2.7% 2.3% 2.2% Total Group Sales New 22,716 22,977 22,607 23,465 Y-o-Y Growth (%) 1% -2% 4% Previous 22,716 22,952 22,950 23,795 Absolute Change 0 25 -343 -330 100% % Change 0.0% 0.1% -1.5% -1.4% Source: JPMorgan estimates, Company data.

Our new estimates are 6% below the pre-results consensus for 2009 &2010, and 9% and 13% for 2011 and 2012, respectively.

Investment Thesis On our new estimates, GSK is now trading on 12.2x times ’09 business performance EPS, almost in-line with Roche at 12.9x times. Investors should sell into the recent sector rotation based strength – particularly now with reduced buying activity from GSK in coming months to support the share price.

Apart from negative earnings momentum, (as we expect consensus earnings to come down) there is no major catalyst on the horizon until 3Q’08 results, when GSK may provide the first ‘official’ company outlook into 2009.

The Promacta PDUFA is on Sept 19, which may turn out as a small negative,, as - based on FDA body language on May 29 Advisory meeting - we expect a delay to 2009 until long-term data is available.

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Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

Table 7: Apples to Apples PE Comparison on Adjusted EPS Price Market Cap Adj EPS CAGR Adjusted P/E 23-Jul-08 (US$bn) 2007-2012E 2007A 2008E 2009E 2010E 2011E 2012E

AstraZeneca £2,315p 67.4 4.7% 10.6 10.2 9.6 9.0 8.8 8.4 GlaxoSmithKline £1,221p 130.5 2.5% 12.1 11.8 12.2 11.2 10.7 10.6 Novartis SFr60.35 132.4 13.9% 15.7 13.5 12.0 10.3 8.7 8.2 Roche SFr179.40 150.9 13.6% 15.1 15.1 12.9 11.2 9.4 8.0 Sanofi-Aventis €46.15 99.8 -0.5% 8.7 8.5 7.9 7.9 7.8 9.0 Weighted average 'Big Caps' Europe 7.7% 12.9 12.3 11.3 10.2 9.2 8.8 Bayer 54.11 65.5 7.6% 14.2 12.6 11.5 11.2 10.3 9.9 Merck KGaA €75.10 25.9 15.0% 14.4 12.3 11.4 9.5 8.0 7.2 Novo Nordisk DKr291 39.8 18.3% 20.0 18.8 15.4 12.6 10.3 8.7 Ipsen €31.15 4.1 19.3% 16.1 15.3 18.6 12.5 9.7 6.7 UCB (3) €23.09 6.7 12.0% 11.0 18.8 18.5 12.4 8.2 6.3 Actelion SFr55 6.6 13.8% 20.2 22.9 21.6 17.9 13.5 10.6 Shire 784p 8.5 17.2% 20.9 16.7 13.6 12.5 11.2 9.4 Weighted average 'Mid Caps' Europe 16.5% 17.7 16.9 14.9 12.1 9.8 8.2 Weighted Average 'Mid Cap' Europe (including Bayer) 11.3% 16.3 15.1 13.5 11.7 10.0 8.9 Weighted Average Europe 8.9% 13.6 12.9 11.8 10.4 9.3 8.8 Weighted Average Europe (including Bayer) 8.8% 13.6 12.9 11.8 10.5 9.4 8.9 Bristol-Myers Squibb (1) $21.68 43.5 7.9% 14.9 13.4 10.8 9.0 8.0 10.2 Eli Lilly (1) $46.73 51.0 1.5% 13.2 12.0 11.1 10.3 10.5 12.2 Merck (1) $31.33 68.4 3.8% 9.7 9.4 8.5 7.7 7.4 8.1 Pfizer, Inc. (1) $18.35 124.1 -2.6% 8.4 7.9 7.5 7.0 7.1 9.6 Schering Plough (1) $19.91 31.3 12.5% 14.5 13.4 11.7 10.2 9.4 8.0 Wyeth (1) $44.68 61.4 0.7% 12.7 12.9 12.4 13.5 13.9 12.2 Weighted average U.S. 2.1% 11.2 10.6 9.7 9.1 9.0 10.0 Weighted average 'BigCap' global 5.5% 12.3 11.6 10.7 9.8 9.1 9.3 Source: JPMorgan estimates, Company data.

Valuation We set a year-end 2008 price target of £10.50 on the view that GSK, as an ex growth business, should not trade above 11x forward 2009 earnings of 97p. This would place GSK at a 12% discount to the peer group, which seems appropriate for EPS growth of 2.5% per annum to 2012E, less than 1/3 the level of the large cap sector average. Our Embedded Value, a product-by-product sum of the parts, stands at 886p per share, 28% below the current share price. Risks to our rating and price target We expect Cervarix to deliver 2008 sales of £100m this year, and continue to lag behind the Gardasil launch. Faster-than-expected uptake for Cervarix in ex-US markets could raise confidence in the long-term potential of this vaccine. Avandia’s prescription sales in the US have fallen approx 62% from the beginning of 2007, driven by concerns about its cardiovascular safety. GSK believes the product is safe and has relaunched the sales effort behind the drug. We do not expect to see a major recovery in sales trends, but if Avandia’s fortunes improved, our sales projections could prove too low

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Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

Table 8: GSK Upcoming Newsflow Expecting Timing Products Event Pipeline Aug-08 Ofatumumab (HuMax-CD20) Phase III data in refractory CLL (Fludarabine and Campath refractory or intolerant) 2H 2008 Ofatumumab (HuMax-CD20) Phase III data in Rituxan refractory indolent NHL 2H 2008 Ofatumumab (HuMax-CD20) Phase II data in first line CLL (FluCy + HuMax-CD20) 2H 2008 GSK 1838262 (XP13512) Initiate phase III study in migraine prophylaxis and two polysomnography studies (benefits in sleep) 2H 2008 darapladib IBIS-2 data presentation 2H 2008 GSK '698 and GSK '444 Phase IIb data for two asthma compounds 3Q 2008 GSK 742457 Initiation of two large phase IIb trials as monotherapy and as adjunctive therapy in patients with mild-to-moderate

Alzheimer’s disease (BOTH STUDIES START JULY 2008 - MONO STUDY NOT YET RECRUITING) 2H 2008 Cervarix (580299) H2H trial vs. Gardasil results Late 2008 /2009 Promacta Phase II REPEAT study Late 2008 /2009 Promacta Phase III data from RAISE study H1 2009 GSK 372475 Phase IIb data in moderate to severe depression Jun-09 LymphoStat-B/ belumimab Phase III studies (BLISS-76 & BLISS-52) expected to complete 2009 rosiglitazone XR Initial results from the ongoing phase III study anticipated - studied as monotherapy, compared with donepezil and

placebo. 2009 rosiglitazone XR Phase III data in Alzheimer's Disease 2009 firategrast A phase II study data in RRMS H1 2009 Cervarix (580299) Expected resubmission (likely post efficacy data from HPV-008) H1 2009 Ofatumumab (HuMax-CD20) Phase II data in first line indolent NHL (CHOP + HuMax-CD20) H1 2009 Ofatumumab (HuMax-CD20) Phase II data in refractory aggressive NHL (HuMax-CD20 monotherapy) Apr-09 Ofatumumab (HuMax-CD20) Phase III study in RA to complete - MTX Failures Aug-09 Ofatumumab (HuMax-CD20) Phase III study in RA to complete - Anti-TNF Failures 2009 Ofatumumab (HuMax-CD20) Phase II study in MS to complete 2009 GSK 1838262 Phase II data in neuropathic pain; inform of Phase III design 2015 MAGE A3 Final analysis of Phase III trial in adjuvant NSCLC Marketed Products 2008 Tykerb Phase III data first line mBC in combination with Femara (not HER2+ selected) 2008 Tykerb Phase III data- refractory mBC in combination with Taxol (HER2+ selected) 1Q 2009 Avodart Phase III REDUCE data with Avodart in prostate cancer prevention 2009/ 2010 Tykerb TEACH study data (in adjuvant breast cancer with chemotherapy) expected - first cut 2009/2010 Avandia RECORD study to report 2013 Tykerb ALTTO study data (Tykerb+ Herceptin in combination, sequence or monotherapy) in adjuvant breast cancer Regulatory Newsflow 3Q 2008 GSK 1838262 (XP13512) Submission expected for RLS (US only) Sep-08 Promacta FDA PDUFA for short-trem treatment of ITP (received expedited review) - extended by 3 months to Sept 19 2H 2008 Lunivia EU approval anticipated 2H 2008 Lamictal XR Approval for epilepsy once a day (Response to FDA approvable letter submitted 10th July 08) 2008 Coreg CR Submission of fixed dose combination with an ACE inhibitor Summer 2008 Volibris (Ambrisentan) first european launches planned 2008 Bosatria (mepolizumab) Submission for Hypereosinophilic syndrome late 2008 Ofatumumab (HuMax-CD20) Submission for refractory CLL late 2008 Promacta Submission for long-term ITP late 2008/ early 2009 Synflorix postive CHMP recommendation 2008/ 2009 Improved flu vaccine Potential launch of improved flu vaccine Apr-09 Rezonic US approval expected PDUFA March 29) Jun-09 Rezonic EU approval expected (filed 2nd July 08) 2H 2009 Cervarix Cervarix FDA PDUFA date (if GSK resubmits in H109 and receives a 2 mth PDUFA) 2009 pazopanib (VEGF inhibitor) Submission expected (renal cancer) 1Q 2009 Cervarix Japan approval anticipated Litigation/ Generic Entries 4Q08 Imitrex Litigation settlement allows generic launch in 4Q08 4Q 2009 Valtrex Generic entries after settlement with Ranbaxy Financial 30-Jul-08 Q2 dividend Ex-dividend date 01-Aug-08 Q2 dividend Record date 09-Oct-08 Q2 dividend Payment date 22-Oct-08 3Q08 Results Results announcement 29-Oct-08 Q3 dividend Ex-dividend date 31-Oct-08 Q3 dividend Record date 08-Jan-09 Q3 dividend Payment date Source: JPMorgan estimates, Company data.

9

Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

Table 9: 2Q’08 Sales; Reported vs JPMe & Consensus (£m, unless otherwise stated) JPMorgan

2Q08A JPMorgan 2Q08E % difference Cons 2Q08E % difference 2Q07A % y-o-y growth

(JPM) Seretide/Advair 964 957 0.7% 964 0.0% 871 11% Avandia 194 189 2.6% 185 4.9% 349 -44% Lamictal 323 334 -3.3% 305 5.9% 271 19% Valtrex 277 263 5.3% 258 7.4% 226 23% Tykerb 22 17 29.4% 26 -15.4% 12 83% Avodart 92 95 -3.2% 91 1.1% 67 37% Vaccines 577 503 14.8% 489 18.0% 398 45% of which Cervarix 15 8 87.5% 20 -25.0% 0 Total Consumer 951 948 0.3% 923 3.0% 899 6% of which Alli 18 40 -55.0% 76 -76% Subtotal

3,400

3,306 2.9%

3,241 4.9%

3,093 10%

Total Sales 5,874 5,948 -1.2% 5,685 3.3% 5,674 4% Implied Tail 2,474 2,642 -6.3% 2,444 1.2% 2,581 -4% Implied Tail growth in CER Total Sales (minus Lamictal) 3077 2972 3.5% 2936 4.8% 2822 9% Total Sales (minus Lamictal & Avandia)

2883 2783 3.6% 2751 4.8% 2473 17%

Source: JPMorgan estimates, Company data.

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Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

All Data As Of 23-Jul-08

Targets & Recommendations EPS Revisions EPS Momentum (%) Historical Total Return (%)

Consensus Growth Outlook (%)

Quant Return Drivers (A Score >50% indicates company ranks 'above average') JPMorgan Composite Q-Score Score 0% (worst) to 100% (best) vs Country Peers

80% 70% 29% 77% 5%

98% 75% 55% 30% 44% 69%

Regional IBES Industry Peers (Closest by Size, Consensus. ADV = Average daily value traded in US$m over the last 3 mths) Code PE FY1 Q-Score** ROG-CH 488.72 15.1 51% NOVN-CH 538.76 15.4 70% GSK-GB 326.17 12.6 69% SAN-FR 330.42 8.7 60% AZN-GB 252.01 10.3 94% NOVO.B-DK 75.37 20.0 77% MRK-DE 95.37 13.1 75% ALM-ES 6.62 16.3 45% MEDA.A-SE 9.21 15.2 26% GALN-CH 9.38 13.8 44% ICLL-AT 7.07 76.7 32% Country Peers (Closest by Size, Consensus. ADV = average daily value traded in US$m over the last 3 mths) Code ADV PE FY1 Q-Score** BP-GB 596.78 7.1 93% HSBA-GB 706.49 12.3 37% VOD-GB 559.58 9.5 64% GSK-GB 326.17 12.6 69% AAL-GB 372.94 8.5 91% BG-GB 275.61 12.4 96% BATS-GB 177.96 14.8 88% XTA-GB 456.36 8.9 97% AZN-GB 252.01 10.3 84% RBS-GB 713.86 4.9 31% TSCO-GB 223.43 13.6 44% Source: Factset, Thomson and JPMorgan Quantitative Research. For an explanation of the Q-Snapshot, please visit http://jpmorgan.hk.acrobat.com/qsnapshot/ Q-Snapshots are a product of JPMorgan’s Global Quantitative Analysis team and provide quantitative metrics summarized in an overall company 'Q-Score.' Q-Snapshots are based on consensus data and should not be considered as having a direct relationship with the JPMorgan analysts’ recommendation. * Total number of target prices, recommendations or EPS forecasts that make up consensus. ** The Composite Q-Score is calculated by weighting and combining the 10 Quant return drivers shown. The higher the Q-Score the higher the one month expected return. On a 14 Year back-test the stocks with the highest Q-Scores have been shown (on average) to significantly outperform those stocks with the lowest Q-Scores in this universe.

2,052

3,694 2,987

Earnings&Sentiment: Net Revisions Fy2 EPS 47%

131,317

Spain

United Kingdom DenmarkNovo Nordisk A/S

Q-Snapshot: GlaxoSmithKline PLC

66,396 Sanofi-Aventis S.A.

ADV

United Kingdom France

128,451

USD MCAP 144,436

I N D U S T R Y

195,471 195,607

Major Banks

British American Tobacco PLC

75,386

158,902

Other Metals/Minerals

Tobacco Integrated Oil

USD MCAPIndustry Integrated Oil

43% Valuations: P/E Vs Market (12mth fwd EPS)

69%

Valuations: EPS Growth (forecast) Valuations: P/E Vs Sector (12mth fwd EPS)

COMPOSITE Q-SCORE** (0% To 100%)

81%

Intercell AG

Tesco PLC

38%

GlaxoSmithKline PLC

Xstrata PLC

Anglo American PLC

Name

HSBC Holdings PLC BP PLC

52% 71% 97%

30%

Vodafone Group PLC

38%

Quality: Earnings Risk (Variation in Consensus) Earnings&Sentiment: Earnings Momentum Earnings&Sentiment: Change in Recomms

Momentum: 12 Month Price Momentum Momentum: 1 Month Price Reversion Quality: Return On Equity (forecast)

GlaxoSmithKline PLC

Germany

vs (regional) IBES Industry Peers

6%

Meda AB Sweden Galenica AG

Austria Switzerland

Major Banks Food Retail

Country Switzerland Switzerland

Wireless Telecommunications

Other Metals/Minerals

Laboratorios Almirall S.A.

Pharmaceuticals: Major

65,422 59,007

95,482

45,345 27,857

2,260

66,396

128,451

71,072 74,744

68,901

Royal Bank of Scotland Group Plc

AstraZeneca PLC

Name Roche Holding AG Novartis AG

BG Group PLC

AstraZeneca PLC Pharmaceuticals: Major

Merck KGaA

11 12

0

3

0 2 4 6 8

10 12 14

1Mth 3Mth 1Yr 3Yr

(L oc

al Cu

rre nc

y %

)

0 5

10 15 20 25 30 35

Up Dn Total*

Co ns

en su

s C ha

ng es

(4 wk

s) Targets Recoms

0 5

10 15 20 25 30 35

Up Dn Total*

Co ns

en su

s C ha

ng es

(4 wk

s) FY1 FY2

0 5

10 15 20 25 30 35

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Co ns

en su

s C ha

ng es

(4 wk

s)

FY1 FY2

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-1 Mth -3 Mth

(% )

FY1 FY2

HIGH/STRONGER

0%

25%

50%

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100%

0% 25% 50% 75% 100% LOW/WEAKER

C O U N T R Y

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6.7 9.2 5.9 5.8

1.6

-5.0

0.0

5.0

10.0

EPS Actual To FY1 EPS FY1 To FY2 EPS FY2 To FY3 Cash Flow FY1 To FY2 Dividends FY1 To FY2 Sales FY1ToFY2

11

Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

GlaxoSmithKline: Summary of Financials Profit and Loss statement Cash flow statement £ in millions 2006A 2007A 2008e 2009e 2010e £ in millions 2006A 2007A 2008e 2009e 2010e

Revenues 23,225 22,716 22,977 22,607 23,465 EBIT 7,864 7,981 7,891 7,548 8,051 % change Y/Y 7.2% -2.2% 1.2% -1.6% 3.8% Depreciation & amortisation -1,113 -1,186 -1,140 -1,231 -1,314

Gross Margin (%) 78.4% 77.1% 76.1% 75.3% 75.3% Change in working capital -471 -538 -43 60 -140 EBITDA 8,977 9,167 9,031 8,779 9,365 Taxes -3,846 -1,919 -2,132 -1,981 -2,113

% change Y/Y 14.2% 2.1% -1.5% -2.8% 6.7% Cash flow from operations 4,357 6,161 6,416 6,414 7,152 EBITDA Margin (%) 38.7% 40.4% 39.3% 38.8% 39.9%

EBIT 7,864 7,981 7,891 7,548 8,051 Capex -1,323 -1,481 -1,609 -1,695 -1,695 % change Y/Y 13.6% 1.6% -1.0% -4.4% 6.6% Disposal/ (purchase) -287 -1,611 -500 0 0 EBIT Margin (%) 33.9% 35.1% 34.3% 33.4% 34.3% Net Interest -115 -131 -412 -571 -571

Net Interest -65 -191 -410 -596 -637 Free cash flow 3,034 4,680 4,808 4,719 5,457 Earnings before tax 7,799 7,788 7,481 6,952 7,413

% change Y/Y 15.8% -0.1% -3.9% -7.1% 6.6% Equity raised/ (repaid) 467 533 128 140 154 Tax (2,301) (2,219) (2,132) (1,981) (2,113) Debt raised/ (repaid) -739 4,908 2,833 2,000 0

as % of EBT 29.5% 28.5% 28.5% 28.5% 28.5% Other -1,421 -3,934 -3,500 -3,000 -2,500 Net Income (Reported) 5,389 5,473 5,257 4,884 5,218 Dividends paid -2,685 -2,870 -2,773 -2,578 -2,744

% change Y/Y 14.9% 1.5% -3.9% -7.1% 6.8% Beginning cash 3,972 1,762 3,221 3,798 4,508 Shares Outstanding 5,643 5,524 5,250 5,030 4,916 Ending cash 1,762 3,221 3,798 4,508 4,303 EPS (reported) 0.95 0.99 1.00 0.97 1.06 DPS 0.48 0.52 0.53 0.51 0.56

% change Y/Y 15.6% 3.7% 1.1% -3.0% 9.3% Cash EPS 0.97 1.01 1.03 1.00 1.09

% change Y/Y 15.3% 4.0% 1.9% -2.9% 8.8%

Balance sheet Ratio Analysis £ in millions 2006A 2007A 2008e 2009e 2010e £ in millions 2006A 2007A 2008e 2009e 2010e

Cash and cash equivalents 2,005 3,379 3,956 4,666 4,461 EBITDA margin 38.7% 40.4% 39.3% 38.8% 39.9% Accounts receivable 5317 5495 5558 5469 5676 Operating margin 33.9% 35.1% 34.3% 33.4% 34.3% Inventories 2,437 3,062 3,097 3,047 3,163 Net profit margin 23.2% 24.1% 22.9% 21.6% 22.2% Others 1,233 1,690 1,690 1,690 1,690 SG&A/sales 31.2% 30.0% 30.1% 29.9% 28.9% Current assets 10,992 13,626 14,301 14,872 14,991 R&D/Sales 14.9% 14.2% 14.4% 14.4% 14.4%

LT investments 736 846 846 846 846 Sales growth 7.2% -2.2% 1.2% -1.6% 3.8% Net fixed assets 6,930 7,821 8,570 9,317 9,982 Net profit growth 14.9% 1.5% -3.9% -7.1% 6.8% Total assets 25,553 31,003 32,453 33,487 33,988 EPS growth 15.6% 3.7% 1.1% -3.0% 9.3%

Liabilities ST loans 718 3,504 3,504 3,504 3,504 Interest coverage (x) 121.0 41.8 19.2 12.7 12.6 Payables 4,871 4,861 4,917 4,838 5,021 Dividend Coverage (x) 2.01 1.91 1.90 1.89 1.90 Others 1,676 1,980 3,286 3,135 3,267 Net debt to equity 26.0% 57.9% 20.5% 4.5% -8.8% Total current liabilities 7,265 10,345 11,707 11,477 11,792 Sales/assets 0.9 0.7 0.7 0.7 0.7 Long term debt 4,772 7,067 4,579 3,451 1,081 Assets/equity 2.7 3.2 2.7 2.3 2.0 Other liabilities 3,868 3,681 3,681 3,681 3,681 ROE 62.6% 57.6% 48.3% 36.5% 32.9% Total liabilities 15,905 21,093 19,967 18,609 16,554 ROCE 43.0% 38.6% 38.0% 34.3% 36.3% Shareholders' equity 9,386 9,603 12,178 14,571 17,127 BVPS 1.66 1.74 2.32 2.90 3.48 Source: Company data, JPMorgan estimates

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Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

Analyst Certification: The research analyst(s) denoted by an “AC” on the cover of this report certifies (or, where multiple research analysts are primarily responsible for this report, the research analyst denoted by an “AC” on the cover or within the document individually certifies, with respect to each security or issuer that the research analyst covers in this research) that: (1) all of the views expressed in this report accurately reflect his or her personal views about any and all of the subject securities or issuers; and (2) no part of any of the research analyst’s compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed by the research analyst(s) in this report.

Important Disclosures

• Market Maker: JPMSI makes a market in the stock of GlaxoSmithKline. • Market Maker/ Liquidity Provider: JPMSL and/or an affiliate is a market maker and/or liquidity provider in GlaxoSmithKline. • Lead or Co-manager: JPMSI or its affiliates acted as lead or co-manager in a public offering of equity and/or debt securities for

GlaxoSmithKline within the past 12 months. • Client of the Firm: GlaxoSmithKline is or was in the past 12 months a client of JPMSI; during the past 12 months, JPMSI provided

to the company investment banking services, non-investment banking securities-related service and non-securities-related services. • Investment Banking (past 12 months): JPMSI or its affiliates received in the past 12 months compensation for investment banking

services from GlaxoSmithKline. • Investment Banking (next 3 months): JPMSI or its affiliates expect to receive, or intend to seek, compensation for investment

banking services in the next three months from GlaxoSmithKline. • Non-Investment Banking Compensation: JPMSI has received compensation in the past 12 months for products or services other

than investment banking from GlaxoSmithKline. An affiliate of JPMSI has received compensation in the past 12 months for products or services other than investment banking from GlaxoSmithKline.

• Broker: An affiliate of J.P. Morgan Securities Ltd. acts as Corporate Broker to GlaxoSmithKline. • J.P. Morgan Securities Inc. and/or its affiliates is acting as a financial advisor to Sirtris Pharmaceuticals Inc. (Nasdaq: SIRT) in

connection with its proposed acquisition by GlaxoSmithKline Plc (LN: GSK) as announced on April 22, 2008. The transaction, which is subject to regulatory approval and other customary conditions, is expected to close in the second quarter of 2008. This research report and the information herein is not intended to provide voting advice, serve as an endorsement of the proposed transaction or result in procurement, withholding or revocation of a proxy or any other action by a security holder. An affiliate of JPMSI is associated with a specialist or market maker that makes a market in the options of GlaxoSmithkline, and therefore such specialist may have a position (long or short) in the options of the issuer and may be on the opposite side of public orders in such options.

0

275

550

825

1,100

1,375

1,650

1,925

2,200

2,475

Price(p)

Jul 05

Oct 05

Jan 06

Apr 06

Jul 06

Oct 06

Jan 07

Apr 07

Jul 07

Oct 07

Jan 08

Apr 08

Jul 08

GlaxoSmithKline (GSK.L) Price Chart

N 1,425p UW 1,225p N 1,300p UW 1,050p

N 1,385p UW 1,470p UW 1,425p UW 1,380p N 1,400p UW 1,056p

UW 1,385p N 1,470p UW 1,382p N 1,380p N 1,350p N 1,200pUW 1,050p

Source: Reuters and JPMorgan; price data adjusted for stock splits and dividends. Break in coverage Jan 13, 2000 - Apr 18, 2001, and Nov 13, 2003 - Jan 21, 2004, and May 31, 2008 - Jun 02, 2008. This chart shows JPMorgan's continuing coverage of this stock; the current analyst may or may not have covered it over the entire period. JPMorgan ratings: OW = Overweight, N = Neutral, UW = Underweight.

Date Rating Share Price (p)

Price Target (p)

17-Aug-05 UW 1315 1385 18-Aug-05 N 1318 1385 15-Mar-06 N 1574 1470 16-Mar-06 UW 1561 1470 17-Sep-06 UW 1469 1382 01-Nov-06 UW 1400 1425 02-Nov-06 N 1392 1425 21-Mar-07 N 1417 1380 22-Mar-07 UW 1413 1380 30-May-07 UW 1306 1225 16-Jul-07 N 1289 1350 14-Aug-07 N 1284 1400 08-Oct-07 N 1317 1300 15-Feb-08 N 1101 1200 18-Apr-08 UW 1076 1056 29-May-08 UW 1117 1050 02-Jun-08 UW 1114 1050

Explanation of Equity Research Ratings and Analyst(s) Coverage Universe: JPMorgan uses the following rating system: Overweight [Over the next six to twelve months, we expect this stock will outperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Neutral [Over the next six to twelve

13

Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

months, we expect this stock will perform in line with the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] Underweight [Over the next six to twelve months, we expect this stock will underperform the average total return of the stocks in the analyst’s (or the analyst’s team’s) coverage universe.] The analyst or analyst’s team’s coverage universe is the sector and/or country shown on the cover of each publication. See below for the specific stocks in the certifying analyst(s) coverage universe.

Coverage Universe: Alexandra Hauber: AstraZeneca (AZN.L), GlaxoSmithKline (GSK.L), Novartis (NOVN.VX), Roche (ROG.VX), Sanofi-Aventis (SASY.PA)

JPMorgan Equity Research Ratings Distribution, as of June 30, 2008

Overweight (buy)

Neutral (hold)

Underweight (sell)

JPM Global Equity Research Coverage 45% 42% 14% IB clients* 51% 52% 41% JPMSI Equity Research Coverage 41% 48% 11% IB clients* 75% 70% 60%

*Percentage of investment banking clients in each rating category. For purposes only of NASD/NYSE ratings distribution rules, our Overweight rating falls into a buy rating category; our Neutral rating falls into a hold rating category; and our Underweight rating falls into a sell rating category.

Valuation and Risks: Please see the most recent company-specific research report for an analysis of valuation methodology and risks on any securities recommended herein. Research is available at http://www.morganmarkets.com , or you can contact the analyst named on the front of this note or your JPMorgan representative.

Analysts’ Compensation: The equity research analysts responsible for the preparation of this report receive compensation based upon various factors, including the quality and accuracy of research, client feedback, competitive factors, and overall firm revenues, which include revenues from, among other business units, Institutional Equities and Investment Banking.

Registration of non-US Analysts: Unless otherwise noted, the non-US analysts listed on the front of this report are employees of non-US affiliates of JPMSI, are not registered/qualified as research analysts under NASD/NYSE rules, may not be associated persons of JPMSI, and may not be subject to NASD Rule 2711 and NYSE Rule 472 restrictions on communications with covered companies, public appearances, and trading securities held by a research analyst account.

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14

Europe Equity Research 24 July 2008

Alexandra Hauber (44-20) 7742-6655 / (1-312) 325-3694 alexandra.m.hauber@jpmorgan.com

is a member of the Mexican Stock Exchange and authorized to act as a broker dealer by the National Banking and Securities Exchange Commission. Singapore: This material is issued and distributed in Singapore by J.P. Morgan Securities Singapore Private Limited (JPMSS) [mica (p) 207/01/2008 and Co. Reg. No.: 199405335R] which is a member of the Singapore Exchange Securities Trading Limited and is regulated by the Monetary Authority of Singapore (MAS) and/or JPMorgan Chase Bank, N.A., Singapore branch (JPMCB Singapore) which is regulated by the MAS. Malaysia: This material is issued and distributed in Malaysia by JPMorgan Securities (Malaysia) Sdn Bhd (18146-x) which is a Participating Organization of Bursa Malaysia Securities Bhd and is licensed as a dealer by the Securities Commission in Malaysia. Pakistan: J. P. Morgan Pakistan Broking (Pvt.) Ltd is a member of the Karachi Stock Exchange and regulated by the Securities and Exchange Commission of Pakistan.

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“Other Disclosures” last revised June 30, 2008.

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