A shock profit warning from GlaxoSmithKline sent its shares plummeting yesterday after the drug giant said "the shadow of Avandia would continue to make life difficult" in 2008.
Sales of the blockbuster diabetes drug Avandia fell by almost a third in the US last year following the publication of a report that linked it to an increased risk of heart attack. In the fourth quarter, sales were down 55 per cent to £130m.
GSK yesterday warned that earnings would fall this year due to weaker Avandia sales and fierce competition from generic drugs.
Shares in the company plunged 7.6 per cent, down 89p to 1,078p, the lowest level since 2004. The price had fallen as much as 9.5 per cent earlier in the day, the biggest daily decline for the group since it was formed in 2000.
Presenting his last set of results before he retires in May, GSK's chief executive, Jean-Pierre Garnier, said earnings per share would fall "by a mid-single-digit percentage" at constant exchange rates.
"The shadow of Avandia will continue over us in 2008 and make life a little bit more difficult for us," he warned. "But underneath all this, you have a very strong business. In fact, without the Avandia incident, the company would have grown 19 percent in 2007."
Analysts said the outlook was disappointing. Ben Yeoh, at Dresdner Kleinwort, said: "Consensus expectations were for low- to mid-single-digit earnings growth in 2008, and they are talking about a decline."
GSK has vigorously disputed the findings of the academic article on Avandia, which appeared in The New England Journal of Medicine last May. The drug company said the benefits of Avandia far outweighed any risks, but any turnaround in the product's fortunes are expected to take some time.
To add to the problems, delays in the portfolio of new drugs at GSK has dented investor confidence. The cervical cancer vaccine Cervarix, considered by some analysts to be the most important new product for Glaxo this decade, suffered a setback after the US Food and Drug Administration delayed approval of the treatment in December, pending more information.
Mr Garnier said the company expected to update the agency on Cervarix by the third quarter of 2008, which means the drug is unlikely to go on sale in the US before 2009.
Sales of the company's best seller, the asthma drug Advair, rose to £3.5bn from £3.3bn in 2006, but analysts are concerned that growth is slowing.
The company also flagged up heavier generic-drug competition to products such as Wellbutrin and Coreg, which treat depression and hypertension, respectively.
The impact of generic rivals added to a 3 per cent fall in US pharmaceutical sales to £9.3bn, while sterling's strength against the dollar left the group's overall revenues down 2 per cent to £22.7bn. Pre-tax profits came in ahead of forecasts at £7.8bn.
The group has embarked on a cost-cutting programme aimed at saving £700m a year by 2010. GSK said the savings would partly offset the impact of generic competition and the Avandia sales drop this year.
Despite the concerns, Mr Garnier said the company remained confident about the future. "Our fast-growing vaccines business, the resurgence of our consumer healthcare division and the strong performance of many key pharmaceutical products are all providing contributions to growth," he said.
GSK's incoming chief executive, Andrew Witty, said he had no intention of selling the consumer healthcare division, which owns brands such as the painkiller Panadol, Aquafresh toothpaste and drinks such as Lucozade, Horlicks and Ribena. The division saw sales increase by 14 per cent to nearly £3.5bn last year.