GlaxoSmithKline’s shares have fallen for a second day as analysts try to evaluate the damage caused by the article in the New England Journal of Medicine which suggests that the firm's blockbuster diabetes treatment Avandia might significantly increase the risk of heart attacks.

The stock finished down almost 1.4% after a 5% decline the day before but analysts have been expressing a certain degree of scepticism about the significance of the latest findings. The meta-analysis, authored by Steven Nissen and Kathy Wolski, claimed that patients on Avandia (rosiglitazone) were 64% more likely to die from cardiovascular causes, and the likelihood of suffering a heart attack increased by 43% for patients taking the drug.

However, analyst Navid Malik at Collins Stewart is not convinced. He noted that Dr Nissen, has previously commented on a number of occasions about the safety profile of Avandia “and indeed a number of other drugs”. Some 16 months ago, he published a similar article in the same journal and questioned the safety of attention deficit hyperactivity disorder drugs yet at that time the FDA was reviewing the safety profile of that class of treatments and identified no major concerns. “Hence whilst he was right to highlight any potential risks, his method of delivery/conclusions were intrinsically flawed,” said Mr Malik.

The analyst noted that the FDA is currently conducting a meta-analysis of a number of studies which have been published on Avandia and is due to publish its findings. GSK itself has also presented similar detailed analysis “and has found no significant new issues” so “if any had been identified, then both the FDA and GSK would have withdrawn the drug from the market.”

Last-stage pipeline makes GSK a buy

Mr Malik acknowledged that any change in the label may impact sales going forward but noted that Avandia is rapidly being replaced by the combination treatments Avandaryl (rosiglitazone plus glimepiride) and Avandamet (rosiglitazone and metformin) which both appear to have a safer profile. He concluded by saying that “we await the review by the FDA, but in the meantime see the current fall as a buying opportunity”. GSK is launching ten drugs in 2007 and has 31 more in Phase III so investors should look forward to better newsflow.

Other analysts were less positive, however, and Deutsche Bank Securities downgraded the stock to ‘hold’ from ‘buy’, saying Avandia would inevitably suffer from negative publicity and potential label restrictions. The broker added that “we expect to see a significant proportion of existing Avandia patients, particularly those with underlying cardiovascular disease, switching to alternative diabetes medications". ABN Amro also downgraded GSK to ‘hold’ from ‘buy’, while Morgan Stanley cut their forecast for sales of the drug in 2010 to £1.2 billion from £2.4 billion.