Feb. 7 (Bloomberg) -- GlaxoSmithKline Plc, Europe's largest drugmaker, fell the most in almost six years in London trading after reporting a steeper decline in fourth-quarter profit than analysts estimated and saying earnings will drop this year.

Fourth-quarter net income plunged 10 percent as sales of the Avandia diabetes pill decreased by more than half to 130 million pounds ($252 million) in the U.S. Doctors abandoned the medicine after a May 21 report in the New England Journal of Medicine linked the product to an increased heart attack risk.

Revenue was also trimmed as Coreg for high blood pressure and antidepressant Wellbutrin lost patent protection. Glaxo failed to get its most-promising new product, the Cervarix cervical cancer vaccine, approved in the U.S. Analysts expected Glaxo to have an increase of between 3 to 4 percent in 2008 profit, and the drugmaker said today that earnings will decline.

``Avandia's hit Glaxo quite hard,'' Collins Stewart analyst Navid Malik, who has a ``buy'' rating on the company, said in a telephone interview from London. ``The market's taking no prisoners right now, and people are generally panicking about future earnings growth.''

Glaxo shares lost 89 pence to close at 1,078 pence. Before today's announcement, London-based Glaxo had lost about 17 percent of its value in the past year, compared with a 23 percent decline in the 13-member Bloomberg Europe Pharmaceutical Index.

Another five of Glaxo's best-selling medicines will lose patent protection in 2008: Lamictal for epilepsy, antidepressants Wellbutrin XL and Paxil CR, migraine pill Imitrex, and the original Requip for restless legs syndrome.

Cervarix Delay

Glaxo is awaiting U.S. and Japanese approval of Cervarix, which is sold in Europe. The U.S. Food and Drug Administration delayed the product in December, and Glaxo said it will respond to the agency's concerns in the second quarter. Chief Executive Officer Jean-Pierre Garnier said the company didn't know when Cervarix would reach the U.S. market.

Cervarix had fourth-quarter sales of 9 million pounds, all in Europe. Sales of Gardasil, a Merck & Co. rival that's sold by Sanofi-Aventis SA in some markets, more than doubled to $339 million in the period.

Glaxo forecast a ``mid-single digit'' percentage decline in full-year earnings per share.

``It's a profit warning,'' said Jeremy Batstone-Carr, a Charles Stanley analyst with a ``buy'' rating on Glaxo. ``There'll be massive downgrades on the way, and margins are under pressure.''

Fourth-Quarter Earnings

Fourth-quarter earnings fell to 1.06 billion pounds, or 19.4 pence a share, compared with 1.18 billion pounds, or 20.8 pence, a year earlier, London-based Glaxo said today. The company was expected to earn 1.13 billion pounds, the median estimate of 11 analysts surveyed by Bloomberg. Analysts had estimated the company would earn 21.9 pence a share in the quarter.

Revenue was little changed at 5.97 billion pounds, with drug sales dropping 2 percent.

Glaxo's EPS is benefiting from a July increase in the share-buyback program to 12 billion pounds from 4.3 billion pounds. The company said the 2007 dividend will rise 10 percent to 53 pence, and it expects to buyback 6 billion pounds of shares in 2008.

This year ``is more of a swing year than I've ever seen,'' said Garnier, who is being replaced by Andrew Witty in May. ``There are more unknowns, pluses and minuses, more potential for variability in 2008. There is still a certain unknown of whether we can resurrect Avandia.''

Generics Hurt

Coreg sales declined 91 percent to 23 million pounds and Wellbutrin declined 36 percent to 130 million pounds, Glaxo said. Sales of the Advair asthma inhaler, Glaxo's No. 1 product, grew 12 percent to 958 million pounds. Revenue from the Flonase asthma therapy declined 35 percent to 32 million pounds.

``Most pharmaceutical companies are facing generic expirations in 2010 and 2011,'' Garnier said, referring to the situation as a ``firestorm.''

``We are facing it now,'' he said. ``We are going to have to go through a tough year now in 2008.''

Avandia sales declined after fewer U.S. doctors prescribed the product. The drug was the world's top-selling diabetes treatment in 2006, bringing in 1.65 billion pounds.

A weaker dollar hurt sales, Glaxo said. The U.K. company, which reports revenue in pounds, received about half its revenue from the U.S. in 2006.

Revenue in the Consumer unit rose 13 percent to 927 million pounds, helped by the Alli weight-loss treatment. The over-the- counter version of Roche Holding AG's Xenical has brought in 150 million pounds since it reached the U.S. market in June.

Tax Disputes

Glaxo said in October that it is planning to cut an unspecified number of jobs by 2010. The company had pretax restructuring costs of 338 million pounds in the quarter, with two-thirds related to job reductions. The remainder involved asset write-offs.

The drugmaker said it is continuing to have tax disputes with the U.K., the U.S., Japan and Canada. The company estimates the U.S. Internal Revenue Service claim for tax and interest at the end of last year was about $680 million, and is fighting the claim. Japanese lower courts have upheld 177 million pounds in claims.

AstraZeneca Plc, the U.K.'s second-largest drugmaker behind Glaxo, reported last week that fourth-quarter profit declined 12 percent to $1.27 billion, missing analyst estimates, because of job-cut and acquisition costs and falling demand for its Nexium ulcer treatment. Sales of some products were hurt by increasing competition from generic drugs in the U.S.

(GlaxoSmithKline has scheduled an analyst call to discuss results. The call can be accessed from 1:45 p.m. to 3:15 p.m at +44-20-7162-0025.)

To contact the reporter on this story: Andrea Gerlin in London at agerlin@bloomberg.net

Last Updated: February 7, 2008 15:09 EST