Glaxo warns of 2008 earnings fall

By Ben Hirschler

LONDON (Reuters) - GlaxoSmithKline (GSK.L) warned earnings would fall in 2008 as safety concerns hit demand for diabetes pill Avandia, sending shares in Europe's biggest drugmaker down a record 9.5 percent at one stage on Thursday.

Chief Executive Jean-Pierre Garnier, presenting his last set of full-year results before retiring in May, said earnings per share would decline by a mid-single-digit percentage at constant exchange rates, due to Avandia and more generic competition.

"The outlook is disappointing. Consensus expectations were for low- to mid-single-digit earnings growth in 2008 and they are talking about a decline," said Ben Yeoh, an industry analyst at Dresdner Kleinwort.

Glaxo shares ended down 7.6 percent at 10.78 pounds, after hitting a trough of 10.56 in the biggest decline for the stock since the merger that formed the group seven years ago. Glaxo shares were last this cheap in late 2004.

Deutsche Bank analysts said the results also contained a string of other disappointments, with margins declining in the fourth quarter, little positive news on the drug pipeline, and additional U.S. tax claims of up to $680 million (349.3 million pounds).

Sales fell 2 percent to 22.7 billion pounds in 2007, while underlying "business performance" earnings per share (EPS) rose 4 percent to 99.1 pence, against analysts' median forecast of 97p in a Reuters Estimates poll.

Total EPS fell 1 percent to 94.4 pence.

Avandia prescriptions have fallen sharply since May last year following a U.S. study linking it to risk of heart attack. Annual revenues from Avandia products fell to 1.2 billion pounds from 1.6 billion in 2006.