Class Exercise on GlaxoSmithKline

1. Class Exercise on GlaxoSmithKline

2. Agenda External Environment Competitive Advantage • GSK Overview - Fundamentals and business mix - Stock brokers assessments • Industry Drivers - Changes in industry structure - Future Trends • Problems and risks (backup) • Recommendations - New approach to marketing and others - Follow on activity - Financial perspectives Finance Value Based Management Strategy

3. Fundamentals and Business Mix Business Segment & Geographic Revenue Mix By Business Segments By Region Europe Consumer Health 30% 14% International 22% Pharma US 48% 86%

4. Challenges – Stock Broker’s Assessment • Negative outlook of Avandia (10% decline in sales per year) • Few upside catalysts • Possibility of withdrawal from the market • Strong pipeline: phase II and phase III • Marketing: recent restructuring for marketing team • Share buyback (?)

5. Avandia (6%) of the total • Seretide/Advair £3,313 million 11% • Zofran £847 million, up 3% • Vaccines products £1,692 million, up 23% • Valtrex £845 million, up 24% • Avandia group of products £1,645 million, up 25% • Coreg £779 million, up 38% • Lamictal £996 million, up 19% • Imigran/Imitrex £711 million, up 3% • Wellbutrin £900 million, up 24% • Flixotide/Flovent £659 million, up 5%

6. Comparison Highest RoE among peers

7. Industry Drivers • Product in the Pipeline • Marketing: Moving strength to strength • Regulations: tighter controls and tougher business environment (FDA in USA) • Increasing number of generic claims • Declining number of approvals • Shorter lifetime for ethical drugs • Increase in M&A : winner or loser • Globalization

8. Socio economic impacts (Macro factors) - Change in population and age structure (10% of 08 - 40% of 50) - Increase of medical PMT in GDP (OECD 8.5%) Impact and fusion from High Technology in IT, LS and NT Innovative products and equipment - Electronic pills - Cutting edge equipment for surgery - Synthetic body Replacement Advent of QOL (quality of life) products - election, obesity, hair treatment, etc. Stem cell research : paradigm change in medical treatment IT Pharmaceutical Industry NT LS New Trends in Pharma

9. Recent M&A between Pharmas and Bios

10. Pharmaceutical Companies in past decade: A Clear Divide of Winner & Loser Competitive Market Environment Accelerating overseas operation Improvement the efficiency of operations 積極的な海外展開 経営効率化 Change in Business structure Profit Sustainable Growth Concentrated investment on R&D 研究開発への 重点投資 Performance Gap Innovation 業績格差

11. Recommendation : Approach by the IncomingCEO • Positioning : ‘Front Runner in the global Health Care industry’ • Securing Strong Next Growth Engines • M&A and Strategic Partnership : new technology - Pipeline (patents) management : R&D outsourcing • Emphasizing on the emerging markets (China and India) • New market strategy and branding • Developing the vaccine market as major target • B2B Value added community • Creation on life time value to customers • Set-up Vision with stakeholders : ’The Most Admired Company in Ethical Market by 2010’

12. Positioning in Strategic Map H Group D F6 Group C F 7 F5 Group B Pharmaceutical GSK F3 Barrier of movement F4 Group A • Economy of Scale • High Technology • Marketing / Brand • Corporate Reputation F 8 Group F F1 F2 L L H Bio Technology

13. Financial Perspectives in 2010 Gaining market efficiencies through the B2B network • Reduced marketing costs • Restructuring R&D and new market potential • Enhanced supply chain management • Supply side : mix optimal supply with long-term relationship • Demand sides : direct link and extra growth margin Utilizing New Pipelines (patents) : 20% upward in sales Operational Efficiency by BPR : 5% (Globally)

14. Thank you

15. Ways to Create B2B VAC • Buying Power : price discount by scale, providing detailed information on suppliers and manufactures • Increasing Process Efficiency : cost savings by transaction, and work process • Consolidation of Supply Chains : process consolidation, logistics improvement, inventory reduction, no mediate process • Accumulation Contents and Community : best practice, KMS, VM, forum, news letter • Efficiency of Market Research : e-catalogue, auction, exchange, bidding (cyber-market usage)

16. Value Added Communities Supplier Buyer B2B Platform Supplier Buyer Supplier Buyer VAC (Value Added Communities)

17. Investment in World Health

18. Problems and Risks • Possibility of late stage trial failures • Expiration of patented drugs (pipelines) :$13B in 10 yr • Lack of next Growth engine : M&A $2B over 02-06 • Corporate ethics : - Rejection of benefits package for CEO (Fat Cat) - Customer of animal testing companies (FETA) - Short-term monopoly profit anti-AIDS drug AZT - Avandia issue: Case pending • Competition from generic drugs and quick • Change in the industry structure • The New Chairman • Debunking : from the stories to the global capital market (abundant liquidity)

19. Major development – Potential Revenue Major NCEs and vaccines filed: • Allermist/Avamys – for hay fever; US approval expected in first half of 2007 • Altabax/Altargo – for skin infections; approval expected in 2007 • Entereg – for post-operative ileus, approval expected in 2007 • Tykerb – for breast cancer; US approval expected in first half of 2007 • Cervarix – vaccine to prevent cervical cancer; European and International launches expected in second half of 2007 • H5N1 pandemic vaccine. Late-stage assets in-licensed during the last 12 months: • Hu-Max-CD20 – for the treatment of leukaemia and non-Hodgkin’s lymphoma • gepirone ER – for major depressive disorder • XP13512 – for restless legs syndrome and treatment of neuropathic pain. Major NCEs and vaccines in phase III development: ambrisentan – for hypertension Lymphostat-B* – for lupus casopitant* – for post-operative and chemotherapy-induced vomiting and nausea pazopanib* – for prevention of tumour growth mepolizumab – for hypereosinophilic syndrome Promacta* – for patients with low platelet count New generation ‘flu vaccine* • Globorix – a new combination paediatric vaccine against hepatitis B, diphtheria, meningitis A and C • New meningitis vaccine against meningitis C and Y and Hib* • Synflorix – vaccine to prevent pneumococcal disease. (* entered late-stage in the last 12 months)